The Information on the Annual Accounts of Acerinox, S.A. at 31 December 2018, It Has Not Been Translated Into English

The information on the Annual Accounts of Acerinox, S.A. at 31 December 2018, It has not been translated into English. Acerinox, S.A. and subsidiaries Audit Report, Consolidated Annual Accounts and Consolidated Management Report at 31 December 2018 Free translation of the independent auditor´s report on the consolidated annual accounts originally issued in Spanish. In the event of a discrepancy, the Spanish language version prevails Independent Auditor’s report on the consolidated annual accounts To the shareholders of Acerinox, S.A.: Report on the consolidated annual accounts Opinion We have audited the consolidated annual accounts of Acerinox, S.A. (the Parent company) and its subsidiaries (the Group) at 31 December 2018, which comprise the balance sheet as at December 31, 2018, and the income statement, statement of other comprehensive income, statement of changes in equity, cash flow statement and related notes, all consolidated, for the year then ended. In our opinion, the accompanying consolidated annual accounts present fairly, in all material respects, the equity and financial position of the Group as at December 31, 2018, as well as its financial performance and cash flows, all consolidated, for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and other provisions of the financial reporting framework applicable in Spain. Basis of the opinion We conducted our audit in accordance with legislation governing the audit practice in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated annual accounts section of our report. We are independent of the Group in accordance with the ethical requirements, including those relating to independence, that are relevant to our audit of the consolidated annual accounts in Spain, in accordance with legislation governing the audit practice. In this regard, we have not rendered services other than those relating to the audit of the accounts, and situations or circumstances have not arisen that, in accordance with the provisions of the aforementioned legislation, have affected our necessary independence such that it has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters (KAM) Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated annual accounts of the current period. These matters were addressed in the context of our audit of the consolidated annual accounts as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, 28046 Madrid, España Tel.: +34 915 684 400 / +34 902 021 111, Fax: +34 915 685 400, www.pwc.es 1 R. M. Madrid, hoja 87.250-1, folio 75, tomo 9.267, libro 8.054, sección 3ª Registered with the Official Audit Registry with number S0242 - CIF: B-79 031290 Acerinox, S.A. and subsidiaries Key Audit Matters (KAM) How the matters were handled during the course of the audit Recovery of goodwill The Group’s goodwill totalling €69,124 We first gained an understanding of the relevant thousand at 31 December 2018 is associated processes and controls associated with the with the 2002 acquisition of a controlling evaluation of the impairment of goodwill by interest in the company Columbus Stainless, Group management, including those relating to Ltd. At least at the year-end, the Group the preparation of budgets and the analysis and estimates the recoverable value of this asset, as monitoring of projections, which constitute the is indicated in Notes 2.8, 2.11 and 7.1 of the basis for the primary judgments and estimates accompanying notes to the consolidated made by Group management. financial statements. We have verified the calculations of cash flows The Group uses cash flow projections based on and we have compared the projected annual financial budgets approved by management to flows, which are based on the plans and budgets calculate the recoverable value, which requires approved by Group management, against those relevant judgments and estimates. These actually attained in 2018. We have also analysed estimates include, among other things, the key assumptions applied, comparing them operating profits on sales, discount rates and against past results and other available industry long-term growth. The most significant information. To do so, we have obtained the assumptions used by the Group are support of valuation experts at our firm who have summarized in Note 7.1 to the accompanying assessed the model used, the discount rate for notes to the consolidated financial statements. calculating the present value of the flows (WACC) and the long-term growth figures applied by the Changes in these variables and estimates made Group. by management may give rise to significant variations in the calculations performed and, As a result of our tests and analyses, we consider therefore, in the analysis of the recovery of that Group management’s conclusions regarding goodwill. the absence of impairment and the disclosures in the accompanying consolidated financial This, together with the relevance of this statements are adequately supported and heading, imply that this matter was one of consistent with the information currently significant attention during our audit. available. Recovery of property, plant and equipment The Group’s total property, plant and The starting point of our procedures consisted of equipment amounts to €1.890.907 thousand gaining an understanding of the relevant (Note 8 of the accompanying notes to the processes and controls associated with the consolidated financial statements), which at evaluation of the impairment of property, plant the year-end makes up 41% of the Group’s total and equipment by Group management, including consolidated assets at 31 December 2018. As is those relating to the preparation of budgets and explained in Notes 2.11 and 8.1 of the the analysis and monitoring of projections, which accompanying notes to the consolidated constitute the basis for the primary judgments financial statements, the carrying amount of and estimates made by Group management. these assets is reviewed at the end of each year in order to assess whether or not there is any We have verified the calculations of cash flows indication of their impairment. If there are any and we have compared the projected annual flows, such indications, the Group estimates the which are based on the plans and budgets recoverable value of the asset concerned. Note approved by Group management, against those 8.1 provides details of the Cash Generating actually attained in 2018. These projections are Units (CGUs) that present indications of based in plans and budgets approved by impairment. No impairment was recognized in management which have been contrasted with 2018. management experts for certain CGUs, as explained in Note 8.1. 2 Acerinox, S.A. and subsidiaries Key Audit Matters (KAM) How the matters were handled during the course of the audit The Group uses cash flow projections based on We have also analysed the key assumptions financial budgets approved by management to applied, comparing them against past results and calculate the recoverable value assigning other available industry information. To do so, we different probabilities of occurrence to the have obtained the support of valuation experts at margins projected in cases that cash flows are our firm who have assessed the model used, the subject to high uncertainty, which requires discount rate for calculating the present value of relevant judgments and estimates. These the flows (WACC) and the long-term growth estimates include, among other things, figures applied by the Group. operating profits on sales, discount rates and long-term growth. The most significant In addition, we have assessed the sensitivity of key assumptions used by the Group are assumptions against changes that would imply an summarized in Note 8.1 to the accompanying impairment, considering the probabilities notes to the consolidated financial statements. assigned to the occurrence to the margins projected by management. Changes in these variables and estimates made by management may give rise to significant As a result of our tests and analyses, we consider variations in the conclusions reached and, that Group management’s conclusions regarding therefore, in the analysis of the recovery of the the absence of impairment and the disclosures in indicated property, plant and equipment. the accompanying consolidated financial statements are adequately supported and This, together with the relevance of this consistent with the information currently heading, imply that this matter was one of available. significant attention during our audit. Recovery of deferred tax assets The Group recognized €141,946 thousand in We first gained an understanding and assessed deferred tax assets, net of €32,478 thousand in the criteria used by the Group to estimate the deferred tax liabilities, whose recovery depends possibility that the deferred tax assets may be on the generation of taxable income in future applied and recovered in subsequent years, in years (Notes 2.19, 3.h and 18.3.3 of the accordance with the business plans. accompanying notes to the consolidated annual accounts). Based on the business plans prepared by Group management, we have analysed the key The recovery of these deferred tax assets is assumptions, estimates and calculations used, analysed by the Group through an estimation comparing them against past results and other of taxable income over 10 years based on the available comparables. business plans prepared by the various Group companies and the planning possibilities Our analysis also included a review of the tax allowed by the tax legislation applicable to each adjustments taken into consideration for the company and tax group.

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