HALF-YEARLY FINANCIAL STATEMENTS 2005 Contents Balance sheet Income statement Statement of changes in net borrowing Information on transition to IFRS
CONSOLIDATED FINANCIAL STATEMENTS USING IFRS Balance sheet using IFRS Assets (in millions of euros) Notes 30/06/2005 31/12/2004 30/06/2004 Goodwill on acquisition 4 35 35 35 Intangible assets 5 63 67 64 Property, plant and equipment 6 1 090 1 055 1 021 Investments in associates 7 14 16 17 Other financial assets 8 & 9 70 50 55 Deferred taxes 16 131 127 102 Total non-current assets 1 403 1 350 1 294 Inventories 10 708 601 600 Trade and other receivables 11 579 545 517 Derivative financial instruments 19 37 15 6 Cash and cash equivalents 12 503 437 438 Current assets 1 827 1 598 1 561 Total assets 3 230 2 948 2 855 Liabilities (in millions of euros) Notes 30/06/2005 31/12/2004 30/06/2004 Capital 79 79 78 Share premium 218 218 215 Reserves 793 490 480 Goodwill on acquisition 12 (6) 1 Net income (loss) for the period 196 346 126 13 1 298 1 127 900 Minority interests 14 418 375 377 Equity 1 716 1 502 1 277 Provisions 15 364 344 354 Deferred taxes 16 229 233 204 Loans 17 58 60 188 Non-current liabilities 651 637 746 Short-term borrowings 17 66 89 185 Trade and other payables (1) 18 746 718 644 Derivative financial instruments 19 51 2 3 Current liabilities 863 809 832 Total liabilities 3 230 2 948 2 855 2004 data restated for IFRS. -379 (1) Includes the EUR 94 million indemnities on June 30, 2005 relating to the exchange of mining securities, partly repayable in certain conditions (EUR 99 million on December 31, 2004).
Income statement using IFRS (in millions of euros) Notes 1st half Full-year 1st half 2005 2004 2004 Revenue 20.1 1 399 2 521 1 192 Other income 20.2 29 93 49 Cost of sales -939-1 665-828 Administrative and selling expenses -53-138 -63 Research and development expenses -12-26 -13 EBITDA 424 785 337 Fixed asset amortisation, depreciation and provisions 21.1-63 -135-68 Charge to operating provisions 21.2-19 -7-1 Current operating income 342 643 268 Other operating income and charges 22-2 -27-12 Operating income 340 616 256 Net financial charges 23.1 - -8-5 Other financial income and expenses 23.2-5 -2-1 Share in the income (loss) of associates 7 1 1 Income taxes 24-75 -129-60 Income (loss) before minority interests 261 478 190 Income (loss) attributable to minority interests 14-65 -132-64 Résultat net 196 346 126 Net income (loss) per share (EUR) 7.69 13.81 5.10 Diluted net income (loss) per share (EUR) 7.66 13.77 5.09 2004 data restated for IFRS.
Net cash flow statement or statement of changes in net borrowing using IFRS (in millions of euros) 1st half Full-year 1st half 2005 2004 2004 Operating activities Net income of consolidated entities 260 477 190 Elimination of non-cash items: - Amortisation, depreciation and provisions 65 102 32 - Change in deferred taxes -5 6 - Losses (gains) on disposal of fixed assets -1 - Share in net income (loss) of equity accounted affiliates -1-1 Operating cash flow before changes in working capital 319 583 222 Dividends from equity accounted companies 2 4 2 Changes in operating working capital -79-65 -73 Net cash flow from operating activities 242 522 151 Investing activities Purchases of fixed assets -86-315 -117 Disposals of fixed assets 11 15 3 Investment subsidies received 21 Repayments of debts -1 1-2 Change in accounts payable for fixed assets -4 4-9 Consolidation adjustments 3-1 -77-275 -125 Indemnity New Caledonia mining reserves -5-10 -5 Net cash used in investing activities -82-285 -130 Financing activities Dividends paid to Group shareholders -51-25 -25 Dividends paid to minority shareholders -22-10 -10 Increases in share capital 6 3 Changes in financial working capital 1 Net cash used in financing activities -72-29 -32 Currency translation adjustments 3 2-2 Decrease (increase) in net cash position 91 210-13 Opening net (borrowing) position 288 78 78 Closing net (borrowing) position 379 288 65 2004 data restated for IFRS. (91)
Information on the transition to IFRS 1 Transition to IFRS The Eramet Group is applying IAS/IFRS as from the year beginning January 1, 2005, in accordance with Regulation EC 1606/2002. The first financial statements published using IAS/IFRS are those for 2004. Comparisons of these with the statements for 2004 were prepared using the same system of reference, except for IAS 32/IAS 39 which were applied as from January 1, 2005. The Committee of European Securities Regulators (hereinafter CESR ) on 30 December 2003 issued a recommendation relating to the notification on the transition from national accounting standards to IFRS, as adopted in France by the Financial Market Authority (Autorité des Marchés Financiers, hereinafter AMF ) in February 2004. The following information constitutes the implementation of these recommendations and notably includes the following: - A note on the first-time application of IFRS accounting principles by the Group, particularly on the forms of applying IFRS, first-time adoption of IFRS and the presentation formats used for the balance sheet and income statement; - A note summarising the effects of IFRS on the accounting principles used by the Group; - Tables showing the reconciliation of French standards to IFRS for the following statements: Equity on January 1, June 30 and December 31, 2004; Balance sheets on January 1, June 30 and December 31, 2004; and Income statement for the first half of and full-year 2004. - A note commenting on these tables. The data contained in this document was prepared based on the standards and interpretations in force at the time of writing and accordingly are of a preliminary nature. In fact, if these standards and interpretations were modified by the exposure drafts in progress or due in future, the quantitative data to be presented at the time of publication by the Group of the first accounts under IFRS could differ from those contained in this document. 1.1 First-time application of IFRS 1.1.1 Legislative references The bridge tables presented have been prepared in accordance with all IAS/IFRS and the SIC/IFRIC interpretations published in the Official Journal of the European Union prior to March 9, 2005 (Regulations EC 1725/2003, 707/2004, 2086/2004, 2236/2004, 2237/2004, 2238/2004 and 211/2005). The Group has chosen to apply the standards IAS 32 and IAS 39 as from January 1, 2005 (table showing the changes in equity and Note 19). 1.1.2 Application of IFRS 1, first-time adoption of IFRS IFRS 1 defines the forms for preparing the first IFRS balance sheet. The general principle is the retrospective application of all the principles in force on December 31, 2005, with the effects of changes in the accounting principles recorded as balances brought forward on the transition date, that is, January 1, 2004. Taking into account the practical difficulties of a fully retrospective application, IFRS 1 envisages optional treatment. The choices taken in this respect by the Eramet Group are as follows: - pensions and similar commitments: the group has chosen to record the unamortised actuarial gains and losses appearing in the balance sheet on January 1, 2004 in equity; - unrealised exchange gains or losses: the unrealised exchange gains or losses resulting from exchange rate variations for the financial statements of subsidiaries denominated in a currency other than the euro have been frozen on January 1, 2004 and reclassified in equity. As a result, on the subsequent disposal of assets denominated in a foreign currency they shall not be recognised in the income statement.
- Tangible assets: the group has used the possibility offered in IFRS 1 of valuing certain tangible assets - mainly industrial facilities - in the opening balance sheet at fair value. - Business combinations: the Group has chosen not to restate business combinations conducted before January 1, 2004 retrospectively using IFRS. 1.1.3 Developments in 2005 For 2005, the Group prepared its information and reporting systems in order to monitor the consolidated and management accounts in application of IAS/IFRS. The application of IAS 32 and IAS 39 for January 1, 2005 has a significant impact on the Group accounts. The valuation of the hedging instruments in relation to the closing prices resulted in recording a significant positive net amount for January 1, 2005, mainly due to the valuation of the dollar currency hedging instruments in relation to the closing price on December 31, 2004. 1.1.4 Financial statement presentation format with IFRS 1.1.4.1 Balance sheet In French standards, the Eramet Group balance sheet uses the presentation recommended in the French Chart of Accounts. The IFRS balance sheet groups together assets and liabilities in accordance with two main headings, current and non-current. The current heading covers assets and liabilities relating to the operating cycle, irrespective of their due date, as well as other assets and liabilities falling due within one year from the date of appearing on the balance sheet, except for cash presented separately. The non-current assets and liabilities include the other assets and liabilities, that is, those assets and liabilities falling due in more than one year and not relating to the operating cycle. 1.1.4.2 Income statement In French standards, the Eramet Group income statement is presented by type of expense. In IFRS, the income statement is presented by function. The income statement expenses are necessarily classified with operating income or financial results. Accordingly, within operating income, other operating income and charges should enable identification of the items with a specific or non-recurrent nature in order to determine the level of current operating income. There is no separate presentation of the extraordinary items. 1.2 Effects of IFRS on the accounting principles used by the Eramet Group The notes below aim to specify the nature of divergences existing on the document publication date between the French standards and IFRS, as applied by the Eramet Group, as well as the forms of applying IFRS by the Group, when necessary. There are no material changes in the scope of consolidation. Nevertheless, certain small companies that are not material have been removed from the scope of consolidation. 1.2.1 IAS 1 Presentation of financial statements The Group has chosen to modify the presentation of its income statement and to change from presentation of expense by type to that of by function. The balance sheet entries are presented using the classification of current and non-current assets and current and non-current liabilities. The cash flow statement is presented using the indirect method. 1.2.2 IAS 2 Inventories Inventories are valued using the average weighted cost or FIFO methods. The LIFO method, used in French accounting standards in the Nickel activity, has been discontinued since it does not conform to IAS 2.
The depreciation of spare parts, calculated using a statistical basis in French accounting standards that is inadmissible in IAS 2, is now calculated in accordance with the extent they are consumed in the year. The stocks of spare parts above the amount used in the year are fully depreciated. Spares corresponding to fixed assets are reclassified in property, plant and equipment. 1.2.3 IAS 12 Deferred taxes In accordance with IAS 12, all restatements conducted as part of the transition to IFRS have generated calculations of deferred taxes at the tax rate applicable in the country concerned. 1.2.4 IAS 16 Property, plant and equipment Property, plant and equipment is analysed by component, allowing depreciation based on the different useful lives of each homogenous type of fixed asset. The Group has not assigned residual value to these fixed assets. The application of IAS 16 led the Group to reclassify the capital subsidies as a deduction from the gross value. 1.2.5 IAS 17 Leases Certain lease contracts have been classified as finance leases pursuant to the criteria in IAS 17. These contracts are capitalised in assets with the entry of a corresponding debt in liabilities. 1.2.6 IAS 19 Employee benefits In its consolidated financial statements for 2004, prepared using French accounting principles, the Eramet Group applied recommendation N 2003-R01 of the French Accounting Regulation Committee (Conseil National de la Comptabilité, hereinafter CNC ), which recommends provisioning the retirement commitments and similar benefits as from January 1, 2004 using the same principles as those covered by IAS 19. The resulting changes from the first-time application of this standard, which also includes recognising unamortised actuarial gains or losses on January 1, 2004, have been allocated to opening equity in French accounting principles. The pension commitments and other similar benefits using principles in IAS 19 and those from CNC recommendation N 2003-R01 were valued with the help of an international actuarial firm. Actuarial gains and losses exceeding 10% of the market value of the funds or discounted value of the commitment per plan are amortised using the corridor method (see note 1.4.6.). 1.2.7 IAS 36 Impairment of assets This standard envisages that the value in use of the tangible and intangible assets is tested when signs of an impairment loss appear and is reviewed on closure of each set of financial statements. This test is conducted at least once a year for assets with an indefinite life, a category limited for the Group to goodwill on acquisition. For this test, the fixed assets are grouped by cash generating unit, or CGU. CGUs are homogenous groups of assets of which the continued use generates cash inflows largely independent of the cash inflows of other asset groups. The value in use of the units is determined in reference to the discounted future net cash flows. When this is less than the net value of the CGU, an impairment loss is recorded for the difference and allocated as a priority to goodwill on acquisition. Within the three main businesses of the Group, that is Nickel, Manganese and Alloys, each production unit represents a UGT. 1.2.8 IAS 37 Provisions, Contingent Liabilities and Contingent Assets The application of IAS 37 has led to reclassification of the provisions for major repairs in equity. In accordance with the contents of IAS 37, the provisions for long-term risks for which a maturity schedule can be established have been updated. These mainly concern provisions for reconditioning mining sites.
1.2.9 IAS 38 Intangible assets In application of IAS 38, the intangible assets and notably deferred charges not corresponding to strict capitalisation criteria defined in this standard have been reclassified as a deduction to equity. 1.2.10 Other restatements of the balance sheet and income statement The other restatements are as follows: - in application of IFRS 3, the negative goodwill on acquisition ( badwill ), previously classified as a deduction to goodwill on acquisition, has been included in equity for January 1, 2004; - in application of this same standard, IFRS 3, goodwill on acquisition is no longer amortised but subject to a systematic annual evaluation test to determine possible impairment (see 2.6 above). Amortisation practised previously using French standards has been reclassified as a deduction to the gross value. Transferable investment securities are recorded on the balance sheet at fair value, including unrealised gains. IFRS 2 (booking of stock options in personnel costs) does not apply to the stock options plans in force at the Group on January 1, 2004 since these were agreed prior to 7 November 2002. 1.2.11 Balance sheet and income statement reclassifications 1.2.11.1 Balance sheet reclassifications IFRS has required certain reclassifications of balance sheet assets or liabilities, as well as transfers between assets and liabilities. The main reclassifications or transfers relate to capital subsidies reclassified as a deduction from fixed assets and the presentation of bank debts as current or noncurrent. This clarification was, however, presented in the Notes to the balance sheet in the French standards. 1.2.11.2 Income statement reclassifications The main income statement reclassifications concern the discontinuation of a separate presentation of extraordinary items.
1.3 Balance sheet on January 1, 2004 Assets (in millions of euros) Notes 31/12/2003 IFRS 1/1/2004 French adjustments IFRS standards Goodwill on acquisition 1.4.1 40-5 35 Intangible assets 1.4.2 81-15 66 Property, plant and equipment 1.4.3 876 91 967 Investments in associates 19-19 Other financial assets 50-50 Deferred taxes 1.4.7 66 37 103 Total non-current assets 1 132 108 1 240 Inventories 1.4.4 596-14 582 Trade and other receivables 411-10 401 Derivative financial instruments - 4 4 Cash and cash equivalents 1.4.5 463 10 473 Current assets 1 470-10 1 460 Total assets 2 602 98 2 700 Liabilities (in millions of euros) Notes 31/12/2003 IFRS 1/1/2004 French adjustments IFRS standards Capital 78-78 Share premium 212-212 Reserves 521-16 505 Goodwill on acquisition -14 14 797-2 795 Minority interests 322-2 320 Equity 1 119-4 1 115 Provisions 1.4.6 325 58 383 Deferred taxes 1.4.7 160 45 205 Loans 209-209 Non-current liabilities 694 103 797 Short-term borrowings 186-186 Trade and other payables (1) 603-1 602 Derivative financial instruments - - - Current liabilities 789-1 788 Total liabilities 2 602 98 2 700
1.4 Balance sheet on December 31, 2004 Assets (in millions of euros) Notes 31/12/2004 IFRS 31/12/2004 French adjustments IFRS standards Goodwill on acquisition 1.4.1 39-4 35 Intangible assets 1.4.2 67-67 Property, plant and equipment 1.4.3 976 79 1 055 Investments in associates 16-16 Other financial assets 50-50 Deferred taxes 1.4.7 102 25 127 Total non-current assets 1 250 100 1 350 Inventories 1.4.4 607-6 601 Trade and other receivables 560-15 545 Derivative financial instruments - 15 15 Cash and cash equivalents 1.4.5 427 10 437 Current assets 1 594 4 1 598 Total assets 2 844 104 2 948 Liabilities (in millions of euros) Notes 31/12/2004 IFRS 31/12/2004 French adjustments IFRS standards Capital 79-79 Share premium 218-218 Reserves 496-6 490 Goodwill on acquisition -24 18-6 Net income (loss) for the period 342 4 346 1 111 16 1 127 Minority interests 366 9 375 Equity 1 477 25 1 502 Provisions 1.4.6 304 40 344 Deferred taxes 1.4.7 192 41 233 Loans 60-60 Non-current liabilities 556 81 637 Short-term borrowings 89-89 Trade and other payables (1) 722-4 718 Derivative financial instruments - 2 2 Current liabilities 811-2 809 Total liabilities 2 844 104 2 948
1.5 Income statement for 2004 (in millions of euros) Full-year IFRS Full-year 2004 adjustments 2004 French IFRS standards Revenue 2 521-2 521 Other income 93-93 Cost of sales -1 669 4-1 665 Administrative and selling expenses -138 - -138 Research and development expenses -26 - -26 EBITDA 781 4 785 Fixed asset amortisation, depreciation and provisions -132-3 -135 Charge to operating provisions -19 12-7 Current operating income 630 13 643 Other operating income and charges -25-2 -27 Operating income 605 11 616 Net financial charges -8 - -8 Other financial income and expenses - -2-2 Share in the income (loss) of associates 1-1 Income taxes -123-6 -129 Income (loss) before minority interests 475 3 478 Income (loss) attributable to minority interests -133 1-132 Net income (loss) for the period 342 4 346 Net income (loss) per share (EUR) 13.62 13.81 Diluted net income (loss) per share (EUR) 13.58 13.77
2 Sectoral information 2.1 By business sector (in millions of euros) Nickel Manganese Alloys Holdings and Total eliminations 1st half 2005 Non-group sales 393 596 410 1 399 Intra-group sales 4-4 Revenues 397 596 410-4 1 399 Operating cash flow 145 145 36-7 319 Current operating income 155 172 25-10 342 Fixed asset amortisation, depreciation and provisions -27-23 -27-6 -83 Share in the income (loss) of associates 1 1 Industrial investments, tangible and intangible 25 26 31 1 83 Capital employed 321 384 641-8 1 338 2 004 Non-group sales 759 1 103 659 2 521 Intra-group sales 6-6 Revenues 765 1 103 659-6 2 521 Operating cash flow 321 240 21 1 583 Current operating income 309 326 16-8 643 Fixed asset amortisation, depreciation and provisions -54-47 -37-4 -142 Share in the income (loss) associates 1 1 Industrial investments, tangible and intangible 139 39 60 2 240 Capital employed 277 348 575 15 1 214 1st half 2004 Non-group sales 361 501 331-1 1 192 Intra-group sales 3-3 Revenues 364 501 331-4 1 192 Operating cash flow 145 74 1 2 222 Current operating income 147 124-1 -2 268 Fixed asset amortisation, depreciation and provisions -23-26 -19-1 -69 Share in the income (loss) of associates Industrial investments, tangible and intangible 67 11 34 1 113 Capital employed 257 402 545 8 1 211 2.2 By geographical area (in millions of euros) Europe North Asia Other Total America areas Revenue (area of sales) 1st half 2005 714 311 329 45 1 399 2004 1 251 500 673 97 2 521 1st half 2004 591 229 322 50 1 192 Industrial investments, tangible and intangible 1st half 2005 41 4 1 37 83 2 004 79 16 2 143 240 1st half 2004 37 8 1 67 113