Annual Report 2005 Telephone Int

SSAB Svenskt Stål AB Box 26208, SE-100 40 Stockholm, Sweden Annual Report 2005 Telephone int. +46 8-45 45 700. Telefax int. +46 8-45 45 725 Visiting address: Birger Jarlsgatan 58, Stockholm Email: info@ssab.se www.ssab.se

SSAB shall consolidate its position as a specialty steel company within the commercial steels sector with products that create significant added value through their strength, formability, and abrasion- resistance. The added value shall be created in close co- operation with the customer and benefit both the customer and SSAB.

The bucket of LKAB's Toro 2500 loader, which is subjected to extreme stress, has been constructed of HARDOX 400 with bucket edges of HARDOX 500 and fastenings of WELDOX 700. General meeting The Annual General Meeting will be held in Oxelösund on Friday, April 21, 2006 at 1 p.m. To be entitled to participate at the Annual General Meeting, shareholders must be included in the share register that is printed out on Thursday, April 13, 2006, and must notify SSAB of their intention to participate at the meeting not later than 12 noon on Tuesday, April 18, 2006.

Nominee-registered shares Shareholders whose shares are registered in the name of a nominee must register their shares in their own names in order to be entitled to participate at the general meeting. Temporary owner-registration (voting registration) should be effected in due time prior to April 13, 2006.

Notice Notice in respect of participation at the general meeting shall be made by letter, fax, or telephone to: SSAB Svenskt Stål AB Att. Årsstämman Box 26208 SE 100 40 Stockholm Tel. +46 8-45 45 700 Fax. +46-8-45 45 705 The name, personal identification number (company registration number), address and telephone number of the shareholder must be provided in the notice. Notices must be received by SSAB not later than 12 noon on Tuesday, April 18, 2006, at which time the notice period expires.

Nomination committee Carl-Olof By, Industrivärden, Chairman Tor Marthin, AMF Pension Sverker Martin-Löf, Chairman of the Board, SSAB Per-Erik Mohlin, SEB Fonder Marianne Nilsson, Robur. The nomination committee presents proposals to the Annual General Meeting concerning the election of members of the Board of Directors and fees for the Board of Directors.

Dividends and redemption of shares April 26, 2006 is proposed as the record date for the right to receive dividends. It is anticipated that payment of dividends will be effected through VPC on May 2, 2006. The Board of Directors and the President propose that the Annual General Meeting resolve upon the payment of a dividend for 2005 in the amount of SEK 9.00 per share. The Board of Directors and the President will also propose a redemption programme of approx. SEK 2,200 million and a 3:1 share split.

Financial information SSAB will present the following information for the 2006 financial year: Report for the first quarter, April 21, 2006. Half-year report, July 18, 2006. Report for the first three quarters, October 27, 2006. Results for 2006, February 12, 2007. Annual report, March 2007.

The Annual Report is published in Swedish and English. In the event of differences between the English translation and the Swedish original, the Swedish Annual Report shall prevail.

SSAB Svenskt Stål AB (publ) Company no. 556016–3429

Joe Brig Art AB, Gothenburg. Photo: Dag Sundberg, Göran Wink, Claes Löfgren and Bo Björkdahl. Print: Edita Västra Aros, Västerås 2006.

| SSAB ANNUAL REPORT 2005 Table of contents

Sales during the year 2 Comments by the Chief Executive Officer increased by 17% 4 Organisation to SEK 27,804 (23,712) million. Profit after tax amounted 5 Operations and production flow to SEK 4,068 (2,710) million, equal to 6 Five-year summary earnings per share of SEK 42.21 (26.32). 7 Strategy and goals 8 Corporate governance report Cash flow for the full year amounted to SEK 4,230 (1,892) million, 11 SSAB and the environment of which the payment 16 The SSAB share for SSAB HardTech was SEK 1,425 (0) million. Report of the Directors Deliveries of extra and ultra high- 18 Group review strength sheet and quenched steels increased by 10% for the whole year. 26 SSAB Tunnplåt 30 SSAB Oxelösund 34 Plannja 36 Tibnor 38 Other companies

Financial reports 39 Consolidated profit and loss account 40 Consolidated balance sheet 41 The Group’s changes in equity 42 Consolidated cash flow statement 43 Parent company’s profit and loss account 44 Parent company’s balance sheet 45 Parent company’s changes in equity 46 Parent company’s cash flow statement 47 Table of contents: Notes 47 Accounting and valuation principles 78 Definitions 79 Disposition of profit 80 Auditors’ report 81 Group management, staff and auditors 82 Board of Directors 84 Addresses

SSAB ANNUAL REPORT 2005 | 1 Comments by the Chief Executive Officer

… laid the basis for a record result The increased deliveries of the core niche products, quenched steels and extreme high-strength sheet, as well as stronger margins in the steel operations, resulted in an increase in pre-tax profit of almost SEK 1,900 million to SEK 5,671 million. This is far and away the best result we have ever achieved. With a return on equity of 30%, we are exceeding our profitability goal by a wide margin. The strong profit also laid the basis for a strong cash flow. Admittedly, working capital increased as a result of increased steel and raw materials prices but our free cash flow, i.e. calculated after capital expenditures, increased by more than SEK 900 million to just over Strong demand for our core niche products … SEK 2,800 million. Global steel production appears to have increased by almost 6% in 2005. This is a rate of growth in line Increased dividend and new redemption programme with what we have experienced during this decade but Accordingly, at the end of 2005 the Group is largely significantly higher than the 1–2% annual growth during debt-free, with a net debt/equity ratio of only 3%. the 1980s and 1990s. The growth has, however, been Even if we are now entering a period of greater capital concentrated on Asia, especially China, whereas demand expenditures, our balance sheet is much stronger than has generally declined both in Western Europe and the we consider necessary for our future development. United States. Thus, the Board of Directors proposes that the divi- We continued to experience strong demand on all dend be increased by 20% to SEK 9 per share and that markets for our core niche products, quenched steels we carry out a redemption programme, just as we did within the plate area and the extreme high-strength sheet last year. This year’s redemption programme will be for products. Although our growth in quenched steels was approx. SEK 2,200 million. In total, we will thus transfer restricted by available capacity, our deliveries of the core some SEK 3,000 million to our shareholders, equal to niche products increased by 10% in 2005 and now approx. SEK 33 per share. account for approx. one-third of our deliveries. After dividends and the redemption programme, as At times, though, we experienced a weak inflow of of the end of 2005 our net debt/equity ratio will be 30%, orders, especially for the rest of the sheet range that we which is in line with our financial goals. sell on the Western European market, on which demand has generally declined. In response, during the second Continued consolidation within the steel industry … half of the year we reduced our rate of production and, Over the past 15 years, the global steel industry has as a consequence, deliveries from the steel operations undergone substantial consolidation. Consolidation, i.e. declined by 7%. the merging of steel companies into larger units, is propelled by the economies of scale which are expected to … and improved margins in the steel operations … be achieved. Steel prices stabilised after the strong price increases for The trend started in Western Europe, where it has all steel products that we were able to carry out during today resulted in a group of four large steel companies 2004 and pending the first quarter of 2005. Thus, prices within the sheet and plate product area. During this in Swedish kronor were on average just over 30% higher decade, we have subsequently witnessed similar trends than in 2004. in the United States and, most recently, such a trend has The increased global steel consumption also resulted also started in China. in steep increases in prices for raw materials. For example, In 2005, we were able to witness a number of relatively prices for iron ore increased by more than 80% and, in spectacular takeovers of steel companies, including total, raw materials costs in 2005 increased by approx. features such as public auctions and hostile bids. The SEK 2,000 million. prices in these takeovers have also been higher than we However, thanks to the price increases, the gross have experienced previously. profit margin in the steel operations improved by almost SEK 2,700 million, despite the sharp increase in raw … with SSAB as a niche player materials costs. As early as the beginning of the 1990s, we anticipated

2 | SSAB ANNUAL REPORT 2005 that a consolidation phase would start in the then very thus necessary also to be able to manage these factors fragmented steel industry. We did not, of course, know without an increase in processing costs. which combinations would arise. In 2005, our processing costs increased by 2%. The We believed, though, that whichever they might be, measures we undertook in order to eliminate bottlenecks there would be room for several niche companies to create in the quenched steel flow resulted in increased costs; strong positions on several well-defined and smaller otherwise, though we have largely realised our goal of markets. Such markets would be less interesting for the being able, through continuous rationalisation work, major steel companies with their focus on large consumer to eliminate the effect of wage increases. segments and large customers. Purely as a matter of principle, we believe that the more consolidated the industry Creating value for our shareholders becomes, the simpler it is to conduct a niche strategy. We have been able to demonstrate that our strategy is Thus, we chose to specialise in quenched steels within capable of creating value for our shareholders in the the plate area – primarily abrasion-resistant steels and long term. SSAB was listed on the exchange in 1989. If extreme high-strength construction steels, and in extreme we assume reinvestment of dividends in SSAB shares, an high-strength sheet. These markets account for less than owner who bought shares in conjunction with the initial 0.5% of the global steel market but are well suited to public offering has enjoyed an annual return of almost our size. Growth within these niche markets is also greater 20%. During the most recent five-year period, the annual than for the steel market as a whole. return has been more than 30%, i.e. in both of these At the end of the 1990s, we invested in new capacity time perspectives, far and above the return requirements for both of these core niche products, since we perceived of the market. continued good growth possibilities. We believed that I see continued good growth possibilities for our core over a business cycle it would be possible to generate an niche products – both for quenched steels within the annual growth of 10% within quenched steels and just plate area and for extreme high-strength sheet products. over 15% within extreme high-strength sheet. We will thereby be able to further strengthen SSAB’s Since the new capacity was installed in 2001, we have position as a niche company on the steel market and experienced a rate of growth for both of the core niche continue to create value for our shareholders. products which exceeds our goals and, as early as 2004, we reached our capacity limit with respect to quenched Parting words steels. This has restricted our growth possibilities during In conjunction with the General Meeting, I am going 2005 but we are now gradually constructing new capacity into retirement after 22 years with the company. For me, for quenched steels. this has been an extraordinarily stimulating period in which SSAB has undergone a transformation from being Focus on customer benefit and costs primarily a state-owned company with a domestic market- We are already the largest player globally within our oriented strategy for its standard products into a listed, niches. However, in order for a niche strategy to be niche-oriented steel company with a strong position successful it is not sufficient merely to create a strong within its chosen niches and with more than 90% of the position within the niche. One must also be able to create core niche products being sold outside Sweden. It has greater profitability for one’s core niche products than been a privilege to be able to take part in this trans- for the more standardised product range. formation process. Thus, together with our customers we endeavour, In this context, I wish to thank all employees, share- through use of our products, to achieve new solutions holders, customers and suppliers for your assistance and and thereby create a distinct value for our customers. support in this process and, at the same time, I wish my This value may, for example, be achieved through an successor, Olof Faxander, success in the continued increase in the lifespan of a product or through a reduc- development of SSAB. tion in its weight, thereby enabling it to lift a greater weight or transport a greater payload. When, together, we are able to create such a value, we should also be able to share in the added value by charging a higher price for the product. The core niche products involve, however, a more Anders Ullberg complicated production process and are more expensive to market. In order to succeed as a niche company, it is

SSAB ANNUAL REPORT 2005 | 3 Organisation

SSAB was formed in 1978 through a merger of Domnarvets Järnverk in Borlänge, Oxelösunds Järnverk and Norr- bottens Järnverk in Luleå. Since then, the Group has successfully engaged in a niche orientation focused on high-strength steels. Today SSAB is the leading manufacturer of high- strength sheet and quenched steels. SSAB’s organisation is characterised by a clear decentralisation and a large degree of delegation of authority and responsibility to the subsidiaries. Apart from the parent company, the Group comprises four major subsidiaries. The steel operations are comprised of SSAB Tunnplåt and SSAB Oxelösund, while Plannja processes sheet and Tibnor is the Group’s trading company. SSAB has its own companies or offices in approx. 40 countries which are engaged in sales throughout the world.

4 | SSAB ANNUAL REPORT 2005 Operations and production flow

SSAB Tunnplåt SSAB Oxelösund

SSAB Tunnplåt is the largest manufacturer of sheet in SSAB Oxelösund is the world’s leading producer the Nordic region and one of the leading companies in of quenched steels, i.e. abrasion-resistant steels and Europe within the area of extra and ultra high-strength extremely high-strength construction steels. These are sheet. The high-strength sheet is used, among other used, among other things, in construction machinery, things, for heavy and light vehicles and by crane manu- mining equipment, and cranes. Ordinary plate is used facturers. Ordinary sheet is primarily used within the within shipbuilding and general engineering and also, engineering and construction industries. to an increasing extent, within the wind power industry.

Plannja Tibnor

Plannja is one of Europe’s leading building sheet com- Tibnor is the leading Swedish commercial steels company panies. Plannja processes sheet into roofing tiles and with a range of commercial steels, special steels, pipes, rainwater run-off products, etc. Sandwich-type prefab- and stainless steels. Metals and building-related products ricated building sections are also being manufactured supplement the product range. to an increasing extent.

SSAB ANNUAL REPORT 2005 | 5 Five-year summary

20011) 20021) 20031) 20041) 2005 Sales (SEK millions) 19,682 19,271 19,806 24,631 27,804 Profit after financial items (SEK millions) 2) 913 816 1,343 4,788 5,671 Profit after tax (SEK millions) 2) 619 577 899 3,593 4,021

Capital expenditures (SEK millions) 933 902 1,041 727 853 Cash flow (SEK millions) 3) 151 1,208 765 1,992 4,230 Net debt (SEK millions) 3,659 3,120 3,032 1,718 407

Capital employed, at year-end (SEK millions) 14,558 13,941 13,974 16,637 16,658 Total assets (SEK millions) 19,128 18,476 18,611 21,618 21,820

Return on capital employed before taxes (%) 8 8 12 34 34 Return on equity after taxes (%) 6 6 9 33 30 Equity ratio (%) 51 53 54 60 66 Net debt/equity ratio (%) 38 32 30 13 3

Dividend per share (SEK) – proposal for 2005 5.00 6.00 6.00 7.50 9.00 Earnings per share (SEK) 6.10 5.70 8.90 35.61 42.21

Average number of employees 9,809 9,592 9,570 9,412 8,832 Production of crude steel (thousands of tonnes) 3,820 3,881 3,911 4,142 3,966 1) 2004 has been adjusted in accordance with IFRS, however not 2001–2003. 2) The capital gain upon the sale of SSAB HardTech affected the result for 2004 by SEK + 825 million. 3) The purchase price received upon the sale of SSAB HardTech affected the cash flow for 2005 by SEK + 1,425 million. Definitions are set forth in Note 29.

The diagram shows the increase in value of one share in SSAB subscribed for at a price of SEK 35 when the SSAB share was listed in 1989. It has been assumed that dividend and redemption rights received have been reinvested in SSAB shares. Since 1989, this has resulted in an average increase in value of just over 18% per year.

6 | SSAB ANNUAL REPORT 2005 Strategy and goals

Strategy of added value is a process that often takes place in SSAB is one of the medium-sized steel companies in close co-operation with the customer. The added value Western Europe. The Group’s steel operations have been that is created benefits both the customer and SSAB successfully developed through a deliberate niche orienta- and thereby ensures continued good profitability for tion. This strategic focus will be maintained through the Group. a strong focus on several selected product segments in which strong market position and high profitability can Financial goals be achieved. Capital structure On neighbouring markets on which significant situa- The Group’s operations are very dependent on the tional advantages and good possibilities for profitability business cycle. Individual investment projects within exist, the steel operations will be able to supply a com- the steel operations may, in addition, be extremely large plete range of sheet and plate. The Group’s trading and and thus the equity ratio should be relatively high. processing operations will be actively utilised on neigh- The goal is that the net debt/equity ratio shall amount bouring markets so that the steel operations’ already to approx. 30% and the equity ratio to approx. 50%. strong position can be maintained. In the plate area, investments are taking place within Dividends quenched steels, i.e. abrasion-resistant steels and Dividends shall be adapted to the average profit level extremely high-strength construction steels, in which over a business cycle and, in the long-term, constitute the Group is already a world leader. Investments within approx. 50% of profit after tax. It shall also be possible the sheet area are taking place within extra and ultra to use dividends to adjust the capital structure. high-strength sheet, in which the Group is one of the leading companies in Europe. Profitability Growth in these niche areas has been stronger than In order to ensure long-term development and taking for the steel market in general and deliveries of these into consideration the equity ratio requirement and the products have increased substantially during the most dividend policy, the goal is that the average return on recent five-year period, as is evident from the diagram equity after tax over a business cycle shall be at least below. Past and present investments within the Group’s 6 percentage points higher than the return on 10-year steel operations render possible a continued strong growth government bonds. within these niche areas. Profitability and net debt/equity ratio during the By using quenched steels or extra and ultra high- past five years, compared to goals, are shown in the strength sheet, customers are able to improve their tables below. products and thereby their profitability. This creation

SSAB ANNUAL REPORT 2005 | 7 Corporate governance report

Work is continuously taking place on developing a system The Board of Directors and its work of rules and routines which ensure transparency, a clear In the Board of Directors, decisions are taken regarding, division of responsibility between various bodies of the among other things, the Group’s strategic focus and company as well as well functioning work by the Board organisation, as well as issues relating to major invest- of Directors. ments and undertakings. At each Board meeting, a review This report, which was adopted by the Board of takes place of the current business situation, competitors Directors in February 2006, describes the structure and the Group’s earnings and financial position, as well and processes for Group governance, management as prospects for the remainder of the year. and control. The company complies with the Swedish The Chairman of the Board presides over the Code on Corporate Governance. However, based on an Board’s work, represents the company in ownership opinion issued by the Swedish Corporate Governance matters, and is responsible for an evaluation of the Council in December 2005, the internal control report work of the Board. is limited to a description of the manner in which internal During 2005, the Board consisted of eight members control is organised, without making any statement as elected by the General Meeting as well as three members to how it functions. and three alternate members representing the employees. Five members of the Board, elected by the General Shareholder influence Meeting, are deemed independent of the company and An Annual General Meeting must be held within six its management, two are regarded as dependent by months of the expiry of the financial year. All share- virtue of having served as Board members for a period of holders who are registered in the share register and more than twelve years, while one – the President – is an who have given timely notice of their participation are employee of the company. Two of the five independent entitled to participate at the General Meeting. At Annual members represent the company’s largest shareholder. General Meetings, among other things the shareholders During the year, the Board held eleven meetings at elect the Board of Directors and auditors, decide on which minutes were taken. The Board’s work is con- the manner in which the nomination committee is to be ducted in accordance with an annual presentation plan. appointed and also adopt resolutions regarding release Each year, the Board adopts rules of procedure which, from liability for the Board and the President. together with the instructions to the President, govern the The duties of the nomination committee include among allocation of work between the Board and the President. other things, the presentation to the General Meeting The Board members receive written documentation con- of proposals regarding the election of Board of Directors cerning matters on the agenda in due time prior to each and auditors, as well as fees for the Board of Directors, Board meeting. its committees and for the auditors. The work in the Additional information regarding presence at Board nomination committee includes a report regarding the and committee meetings as well as fees is provided in evaluation carried out of the work of the Board and Note 2. its members. During the year, the Board discussed, among other The 2005 General Meeting authorised the Chairman things, the Group’s strategic focus and adopted strategic of the Board to invite four of the largest shareholders plans with respect to SSAB Tunnplåt and SSAB Oxelösund. to each appoint a member, who is not a member of the In addition, the Board discussed the market position of company’s Board, to constitute a nomination committee the steel operations, the Group’s capital structure, cost- together with the Chairman. cutting measures, capital rationalisation as well as mar- The nomination committee for the 2006 General keting and sales of niche products. As a consequence of Meeting consists of Carl-Olof By (Industrivärden) the retirement of the President in conjunction with the Chairman, Tor Marthin (AMF Pension), Per-Erik 2006 General Meeting, the Board initiated a process of Mohlin (SEB Fonder), Marianne Nilsson (Robur) and appointing his successor. Commencing with the 2006 Sverker Martin-Löf (Chairman of the Board). General Meeting, the new President will be Olof Faxander.

8 | SSAB ANNUAL REPORT 2005 In order to facilitate the Board’s insight into and control Group Management is responsible for the formulation of financial reporting, the Board has formed an audit and implementation of the Group’s overall strategy. committee from among its members. The audit committee Duties also include questions concerning, e.g. corporate follows written rules of procedure and reports to the acquisitions and other major projects which do not Board. During the year, the audit committee held three naturally relate to an individual subsidiary. meetings at which minutes were taken. The audit com- The parent company’s staff is responsible for all of mittee consists of Anders Carlberg (Chairman), Sverker the Group’s financial reporting, communications to the Martin-Löf and Marianne Nivert. The audit committee stock market and mass media, as well as other issues has charged the company’s management with the task of an overall Group nature. Certain joint Group areas, of verifying the quality of the financial reporting. The such as environmental and social issues, are handled committee shall regularly meet the company’s auditors, through networks of persons from various parts of the evaluate the audit work and grant approval as to the Group. There is also extensive co-operation between the services for which the company may retain auditors. subsidiaries within the scope of the ongoing operations. In addition, the committee shall assist the nomination committee in formulating proposals as regards auditors Control of subsidiaries and fees for the auditors. SSAB’s organisation is characterised by clear decentral- In addition, within the Board there is a compensation isation and delegation of a considerable degree of power committee which presents proposals to the Board regard- and responsibility to the subsidiaries. Thus, the subsidi- ing the President’s salary and other employment condi- aries have their own staffs and other resources, a factor tions, determines salaries and employment conditions which allows for efficient direction and control within for Group management and establishes limits for salary each subsidiary. and employment conditions for other senior executives. In addition to the ongoing operations, the subsidiaries During the year, the compensation committee held three also have the task of handling their own strategic devel- meetings at which minutes were taken. The committee opment and their strategic investments. These matters consists of Sverker Martin-Löf (Chairman) and Anders are initiated and prepared by the management of each Nyrén. The President is co-opted to the committee but subsidiary and, following approval by the Board of the does not participate in discussions concerning his own subsidiary concerned, are approved by the Group Board salary and employment conditions. of Directors. The Board maintains a regular dialogue with the com- The Group’s CEO is Chairman of the Board of pany’s auditors. At the Board meetings in December and Directors of all subsidiaries. These Boards also include February, the auditors present their comments from the representatives from Group Management, members audit and their assessment of the company’s internal con- who are not employed within the Group, and employee trol. At the December meeting, the Board meets separately representatives. with the auditors without the President being present. Risk management and internal control Management of the Group The Board is responsible for internal control. Sound The President, who is also the Chief Executive Officer, internal control depend upon a well functioning internal directs the operations within the limits established by control environment. The control environment is created the Board and is responsible for the ongoing management through common values, corporate culture, rules and of the Group. The Presidents of the Group’s four sub- policies, as well as the manner in which the operations sidiaries and three Group staff heads report to the CEO. are organised. Group Management consists of the CEO, the President An important element of internal governance is to of SSAB Tunnplåt, President of SSAB Oxelösund and identify, measure and manage risks and to make continuous the Group’s Chief Financial Officer, and the Technical improvements. Risks may be strategic, operational or Director. financial. Responsibility for the risks is decentralised.

SSAB ANNUAL REPORT 2005 | 9 Powers, guidelines and instructions provide the responsible managers with the conditions for supervising and following up the development of the operations in order to allow for early detection of any deviations. The managers on different levels are responsible for identifying opportunities and risks and for monitoring and following up them, which creates conditions for adopting well based and correct commercial decisions on all levels. Examples of such risks include price and volume risks, competition, technical development, production, environment as well as business-disruption risks. The management of the Group’s financial risks is regulated in a finance policy. Financial risk management is described in Note 25. The Group’s systems for identifying and reporting commercial risks are integrated in the ongoing reporting and also constitute the basis for assessment of risks in the financial reporting. In order to ensure that the Group’s internal controls meet the requirements imposed by various interested parties, a pilot project was started at SSAB Oxelösund in 2004. The aim of the project was to propose, based on a current status analysis, possible improvements in work methods, routines and documentation to reinforce internal controls. In the spring of 2005, the Board of SSAB Oxelösund decided to implement the proposed improvements, primarily entailing an expansion of documentation of processes and implemented control activities. Based on this pilot project, corresponding projects have been commenced in other Group companies and will be completed in 2006. As a further step towards ensuring sound internal control, in 2005 a decision was taken to establish a special internal audit function. The function is located within Group Staff Control and Finance and reports to the Board of Directors’ audit committee.

Auditors At the 2003 General Meeting, the accounting firm, PricewaterhouseCoopers, was appointed as the company’s auditors. The appointment is for a term up to and including the 2007 General Meeting. The auditor in charge of the audit is authorised public accountant Claes Dahlén. Claes Dahlén is also the auditor in charge of the listed company, Karo Bio. He has no engagements in companies closely affiliated to SSAB’s major shareholders or its President.

10 | SSAB ANNUAL REPORT 2005 SSAB and the environment

The Group’s operations shall be conducted in a resource- respect to several areas of importance for the Group’s efficient and effective manner with respect to the use operations: air, waste/recycling, resources/raw materials, of natural resources and energy. This basic approach land and marine environment. Through a harmonisation is well known in the company through the Group’s of the environmental legislation within the EU, the risks environmental policy. The President of each subsidiary of distortion of competition between steel producers in is responsible for the impact of the Group’s operations the EU is reduced. on the environment. Production and environmental The operations at the Group’s major plants are exam- responsibility are integrated into the day-to-day work ined and subject to conditions imposed by the National and each subsidiary has environmental experts in the Licensing Board for Environmental Protection or the line organisation. Environment Court following a public examination. Each subsidiary submits an annual public environmental Steel in society report to the relevant supervisory authority regarding Steel meets society’s demands for husbanding resources the environmental impact of the operations. through recycled steel being able to be melted down and The Group’s operations are subject to approx. 200 formed into new steel, time after time. In recent years, environmental conditions, which cover emissions into the percentage of steel which is manufactured from the air and water, noise levels, regulations regarding recycled steel has declined somewhat due to the strong deposits, etc. The environmental conditions with respect increase in global steel consumption. Recycled steel to Plannja and Tibnor are established by the relevant constitutes a raw material for just over 35% of global County Administrative Board, which grants permits in production. The remaining share is based on iron ore. accordance with the Environmental Code. In most cases, The Group’s primary raw material in the production actual emissions are significantly lower than the levels of steel is iron ore. Recycled steel accounts for approx- established by the authorities. During the year, no envir- imately 20% of production. Accordingly, the Group’s onmental limits have been exceeded and no disputes steel operations are the largest consumer of recycled relating to the environment have arisen. The production steel in Sweden. units of foreign subsidiaries comply with all relevant The Group’s production of steel focuses on the core local environmental requirements. niche products, extra and ultra high-strength sheet and The maximum permitted production levels are shown quenched steels. The environmental impact from the in the table below: production of these core niche products is marginally higher than from the production of traditional steel, per Permitted Production Thousand tonnes Place production 2005 produced tonne. The environmental value of these steels Coke Luleå 800 741 comes to the fore, however, upon use of the designs in Oxelösund 530 446 which they are included. Through use of these core niche Hot metal Luleå 2,500 *) 2,223 products in a design, the design can be made lighter with Oxelösund 1,700 1,512 a longer life span which, in several ways, contributes to Crude steel Luleå 2,500 2,238 a lower impact on the environment. One example of this Oxelösund 1,900 1,728 is Indústria Metalúrgica Pastre in Brazil, which manu- Hot-rolled sheet Borlänge 3,200 2,440 factures trailers for the transport of sugar. Together with Oxelösund 820 632 SSAB Tunnplåt, the trailer manufacturer has upgraded Pickled sheet Borlänge 2,500 1,618 the use of steel to extra high-strength sheet and thereby Cold-rolled sheet Borlänge 1,400 950 achieved a better design with increased load capacity. Annealed sheet Borlänge 650 480 As a consequence, trailer users can now save on every Metal-coated sheet Borlänge 680 462 twentieth transport, resulting in reduced fuel consumption Organic-coated Borlänge 140 126 and, thereby, lower discharges of carbon dioxide. products Luleå 85 64 Sundsvall 30 3 Köping 12 11 Environmental conditions for the operations Malmö 25 7 Sweden’s environmental legislation is affected to a sig- Finspång (million m2)40 31 nificant degree by decisions taken by the EU Parliament *) Temporary increase from 2,300 thousand tonnes allowed for 2005. An application and the Council of Ministers. Decisions were recently procedure is pending regarding a permanent permit. taken regarding environmental strategies and goals with

SSAB ANNUAL REPORT 2005 | 11 The Group’s operations are under constant change, of centimetre-sized pellets consisting of enriched iron which has made necessary new environmental permits. ore and slag formers. The pellets are added to the blast In connection with these examinations, the supervisory furnace together with coke and coal. In the blast furnace, authorities have imposed more stringent environmental the coal combines with the oxygen which is bound to conditions. The Group possesses mandatory environ- the iron in the ore. This takes place at high temperatures mental damage insurance as well as liability insurance and the released iron can be drawn off in liquid form from covering damage to third parties. Inventories that have the blast furnace. When the oxygen combines with the been carried out concerning the need for land clean up coal, carbon dioxide is formed. Thus, carbon dioxide is have shown that there is no current need for any clean an unavoidable by-product in all iron-ore based steel up of material economic significance. production. The Group has long been engaged in constant endeav- Air ours to reduce consumption of coal and coke. Through The Group’s steel production generates discharges into this work, both manufacturing costs and carbon dioxide the air, primarily of carbon dioxide, nitrogen oxides, emissions have been reduced. In international compar- sulphur oxides and particulates. isons, the Group’s iron-ore based steel production has According to the Kyoto Protocol, emissions of carbon been shown to have among the lowest emissions of carbon dioxide must be reduced. The EU Member States have dioxide per tonne of crude steel. Carbon dioxide emissions jointly undertaken to reduce emissions by 8% during from the Group’s steel production for the past ten years the period 1990–2012. In conjunction with allocation are shown below. within the EU, Sweden has been permitted to increase The Group’s emissions of nitrogen oxides and sulphur its emissions by 4%. However, Sweden’s own target oxides derive from different types of incineration. The during the same period is, instead, to reduce carbon larger sources consist of underfiring of coke batteries, dioxide emissions by 4%. As a method for restricting firing of cowper stoves for the blast furnaces and pre- emissions, the EU Parliament and Council of Ministers heating of slabs prior to rolling. Fuel consists of blast have decided to introduce a system of emission rights. furnace gases, coke-oven gas, LPG and oil. By continu- The system covers energy production as well as certain ally working on adjusting the burners and the flow of energy-intensive industries, including the steel industry. fuel and combustion air, it has been possible to reduce The trading system was started at the beginning of 2005. emissions of nitrogen oxides. A transition to coal and The Group’s operations in Borlänge, Luleå and Oxelösund oil with a low sulphur content has made possible a are covered by the trading system. At the end of 2004, reduction in sulphur oxide emissions. In recent years, the Swedish allocation of discharge rights to operators the Group’s coke production has increased, resulting for the years 2005–2007 was completed. The Group’s in increased emissions of nitrogen oxides and sulphur allocation with respect to metallurgy and combined heat oxides. Emissions of nitrogen oxides over the past ten and power plants is expected to suffice for forecast years are shown below. production during the period in question. The EU Commission is currently discussing the Iron ore constitutes the Group’s main raw material introduction of a trading system also with respect to for the production of steel. It is purchased in the form nitrogen oxides and sulphur oxides, but it is as yet too

12 | SSAB ANNUAL REPORT 2005 early to form an opinion on the consequences this might components derive primarily from the coke plants’ gas have for the Group. purification. Emissions of particulates from the Group’s operations The Group’s emissions of oils and grease derive have fallen significantly since 1996. This positive devel- primarily from the rolling mills. For a long time, work opment is mainly due to improved maintenance of par- has been taking place regularly to reduce the need for oils ticulate separators and investments in new plants. Diffuse in conjunction with rolling and to improve separation dusting has been reduced through several roads and of oils and grease from water used by the Group prior stacking areas being hardened, which has simplified to discharge. cleaning, and by increasing the number of green areas The EU’s Water Directive is in the process of being within the plants. Emissions of particulates over the implemented in Sweden. It entails that environmental past decade are shown below. quality norms (mean values and maximum values) will The EU’s proposed air quality directive focuses on be determined in respect of a large number of substances. emissions of very small particles with an aerodynamic The norms which will primarily affect the Group’s diameter of less than 0.0025 mm (PM 2.5). Measure- operations relate to nickel, cadmium, lead, mercury and ments carried out at the Group’s steel mill in Luleå polyaromatic hydrocarbons (PAH). The new norms are demonstrate that PM 2.5 particulates account for only currently not known, but all of the Group’s emissions 10% of the total particulate emission. The assessment are well within currently permitted limits. is that the Group will meet future EU requirements as The Group’s emissions into water with respect to such are currently known. the most important emissions per produced tonne of finished product are shown in the diagram below re- Water garding material and energy balance. The steel operation’s consumption of process water is approx. 13,500 m3 per hour. It is used as process water Energy and materials in purification plants, for cooling of furnaces and cooling The Group’s energy sources are coal, coke, oil, LPG and coke, slabs, coils, sheet and plate. Most water use takes electrical power. The consumption of coal and coke is place in closed systems. Before used water leaves the 700 kilos per tonne of finished steel, equal to approx. industrial area, samples are taken, often on a continuous 5,320 kWh per tonne of finished steel. The consumption basis. The system is structured in such a manner that if of oil, LPG and electrical power is 710 kWh per tonne an increased value is measured, the outflow of process finished product. Total energy consumption is thus water from the major plants can either be shut off or approx. 6,000 kWh per tonne finished steel. temporarily accumulated for corrective measures. Energy husbandry constitutes an important area for Emissions of particulates in the water coming from the Group. Thus, use is made of the energy-rich gases the Group’s plants derive mainly from the coke plants’ that are formed in conjunction with steel production in gas purification process and from the rolling mills. order to replace oil and LPG. These gases are primarily The presence of organic components in water is used for underfiring the coke batteries, preheating blast measured indirectly by determining their COD (chemical air for the furnaces and for heating slabs, etc. The gas oxygen demand). The Group’s emissions of organic that cannot be utilised in the Group’s processes is used

SSAB ANNUAL REPORT 2005 | 13 in heat and power plants for producing electricity and Transportation hot water. The Group’s aim of conducting the operations in as In Luleå and Oxelösund municipalities, the hot water resource-efficient a manner as possible applies also to produced in the heat and power plants accounts for transportation. The raw materials for steel production more than 90% of the heating needs in the respective are transported by train or boat to the steelworks in district heating network. In total, 829 GWh of hot water Luleå and Oxelösund. Transports of slabs between the were supplied from the heat and power plants. This production plants take place by rail. The return journeys corresponds to approx. 280,000 m3 of wood pellets or are utilised for transporting sheet from Borlänge to similar fuel. A comparison with typical emissions for a Plannja and other customers in the north and to the fossil fuel boiler demonstrates that emissions of nitrogen export port in Oxelösund. oxides and particulates are more than three times as high Tibnor’s deliveries to customers take place largely than when gases from the steel operations are used. by truck, while Plannja uses truck and rail in equal Production of crude steel during the financial year parts. The products from the steel operations are mainly totalled 3,966 (4,142) thousand tonnes. Crude steel was transported by rail or boat. processed into 3,394 (3,553) thousand tonnes of finished For the third year in a row, SSAB Tunnplåt has been products. The materials and energy balance for the steel awarded Green Cargo’s Good Environmental Choice operations is shown in the diagram on previous page. Certificate (Bra Miljöval), entailing that the company International comparisons demonstrate that, compared meets the criteria established by the Swedish Society for with other iron ore-based steel producers, the Group Nature Conservation as regards Good Environmental has a low level of resource and energy use as well as a Choice for transports. low impact on the environment. Day-to-day environmental work By-products Within the steel operations, there are special environ- In addition to energy-rich gases, a number of other by- mental departments which are responsible for ensuring products are formed during the Group’s steel production, compliance with laws and contracts, administering for example slag, tar, crude benzene, sulphur and ammo- permit applications, and measuring and reporting emis- nium sulphate. The work of handling the by-products sions. Within Plannja and Tibnor, this work is con- is based primarily on recycling them in the Group’s own ducted within environmental and quality departments. processes. In this way, iron can be recovered or slag for- The Group has a common body – the Environmental mers such as lime can be used once more. Alternatively, Council – which coordinates environmental work. the by-products are sold, preferably in processed form All subsidiaries have environmental management as products with specific qualities. In most cases, the systems approved in accordance with ISO 14 001. environmental performance of these products is superior Environmental management systems are included as to that of traditional materials, especially when seen from an integral part of the subsidiaries’ operational systems. a life cycle perspective. The by-products and waste which In this way, the external environment, product quality cannot or should not be used are deposited. Depositing and work environment are coordinated in joint work takes place in such a manner that it is possible to use descriptions, rules regarding conditions to be imposed these resources also in the future. At present, 90% of in conjunction with purchasing, development of pro- by-products are processed and recycled. duction technology, etc. Training in environmental As a result of the very exact process control in steel matters takes place as required within the various production, the by-products are also very well defined, organisational units. which facilitates use of them. Within the systematic work of reducing the impact SSAB Merox specialises in developing products based on the environment, the subsidiaries have identified on by-products from the steel operations. Among other the most significant environmental aspects for each things, slag from blast furnaces is used to produce cement locality at which production plants are located. The and the concrete materials, Merit 5000 and Merolit, most important aspects are the impact on climate crushed aggregate for stabilisation of, e.g. clay, gravel through emissions into air and water. In addition, roads and riding tracks, as well as M-kalk, an organic husbandry of resources with respect to raw materials plant fertiliser. Iron oxide is sold for the manufacture and energy represent important areas. In order to of ferrite magnets and is included as red pigment in, achieve improvements, focused activities take place among other things, matchsticks. within these areas.

14 | SSAB ANNUAL REPORT 2005 Control of the immediate environment at each production emissions in conjunction with steel production. The plant takes place in accordance with established control project represents a co-operation between all European programmes and is reported to the relevant authority. ore-based steel producers and is included as a part of

Environmental studies are conducted by taking water International Iron and Steel’s global “CO2 Breakthrough and air samples. In addition, fishery-biological studies Programme”. The Group is also participating in the and studies of bio-indicators such as mosses or sea bed Stålkretsloppet (Steel Cycle) programme jointly financed fauna are carried out. by the steel industry and Mistra, which is aimed at The provision of information to and dialogue with, improved husbanding of steel and alloys, reduced emis- different Groups in the community are of very great sions of carbon dioxide and the use of energy. importance for the Group’s external communications. The environmental reports submitted by the subsidiaries Environmental events during 2005 to the relevant supervisory authorities convey a broad The contractor company, BDX, and SSAB Tunnplåt and in-depth picture of the environmental situation have entered into an agreement concerning deliveries in each locality. The reports can be obtained from the of by-product briquettes to be used in the blast furnace environmental departments in each locality. Information in Luleå. Within the scope of this agreement, during regarding the environment is also available on the Group’s the year BDX brought a new plant into operation for and subsidiaries’ websites. Group representatives often the manufacture of briquettes. The briquettes consist participate in meetings with different interest Groups of a mixture of filter particulates, flue dust, sludge, in order to discuss environmental issues. Such Groups recycled steel from SSAB as well as binding agents. include government ministries and public authorities, Thus, the volume of materials which must be deposited the EU Commission, environmental organisations, will be reduced. environmental journalists, representatives of political At SSAB Tunnplåt’s plant in Borlänge, the cold rolling parties, etc. mill’s water purification plant has been modernised and, The customers have increasing demands for informa- at the plant in Finspång, a new “no-rinse” treatment tion regarding the environmental qualities of the Group’s system has been brought into operation. The latter products. Thus, environmental declarations are affixed to investment results in reduced use of water and chemicals many of the Group’s products, which enables customers and generates a lower volume of waste products in to evaluate the steel from an environmental perspective. conjunction with the organic-coating of sheet. The Group’s core niche products contribute to environ- In order, among other things, to increase safety in mental savings both in the manufacture and use of the conjunction with the handling of chemicals, SSAB products in which these steels are included. Tunnplåt in Borlänge introduced a new chemicals Within the environmental area, the subsidiaries engage handling system during the year. in extensive know-how development. This takes place As an element in considering the entire life cycle to a certain extent through development work at each environmental impact of steel, all employees within subsidiary. Where appropriate, representatives of sub- the marketing unit at SSAB Tunnplåt have undergone sidiaries participate in joint environmental research focused environmental training. projects together with other steel producers. This takes In order to reduce emissions of hydrocarbons, carbon place, among other things, within the scope of Nordic monoxide and nitrogen oxides from the production line joint research or within research projects financed by for blasting and organic coating at SSAB Oxelösund, the EU. The steel industry’s research institutes, MEFOS a new system for purification of exhaust air from the and KIMAB, the MiMeR skills centre, and the industry coating cabin has been brought into operation. The organisations, Jernkontoret (the Swedish Steel Producers system has an efficiency level of over 99.5% as regards Association), Eurofer, and the International Iron and oxidisation of coal compounds in exhaust air. Steel Institute, are important bodies within the area of In the spring 2005, SSAB Oxelösund conducted a environmental research. Expertise available at various questionnaire survey as to how the environment was institutes, universities and colleges is utilised in more perceived in the municipality. Studies have been carried basic research. out since 1995 and demonstrate gradual improvements An important project in which the Group is parti- in the immediate environment. cipating is ULCOS – Ultra Low CO2 SteelMaking, a project with the goal of developing new steel production technology specifically in order to reduce carbon dioxide

SSAB ANNUAL REPORT 2005 | 15 The SSAB share

Redemption Share price During the second quarter, the shareholders were invited to redeem every tenth share for SEK 210. In total, almost 10 million shares were surrendered for redemption, representing an acceptance rate of 98.8%. In total, shares were thereby redeemed for SEK 2,093 million.

Share capital The share capital after redemption amounts to SEK 2,273.2 million divided into 90.9 million shares, each with a nominal value of SEK 25. 67.2 million shares are class A shares and 23.7 million shares are class B shares. All shares are non-restricted. Each class A share entitles the holder to one vote and each class B share entitles the holder to one tenth of one vote.

Dividends and redemption of shares

Dividends shall be adjusted to the average profit level 80

70 over a business cycle and constitute approx. 50% of 65 60 profit after tax. It shall also be possible to use dividends to adjust the capital structure. For the 2005 financial year, a dividend of SEK 9.00 per share is proposed, i.e. 20% of earnings per share. Since the share was listed on the Stock Exchange in 1989, the dividend has thus averaged 35% of profit after tax. The Board will propose to the General Meeting Number of shares traded per month that, in the spring of 2006, shares be redeemed for approximately SEK 2,200 million and that a 3:1 share split be effected.

SSAB on the stock exchange Since 1989, the share has been listed on Stockholms- börsen’s A-List and, since 1994, among the most actively traded shares. A trading unit consists of 100 shares. Stockholmsbörsen issues put and call options on the shares. During the year, shares were traded at a value of just over SEK 25,700 million. Trading in SSAB shares took place on all exchange days and, on average, amounted to almost SEK 100 million per day. Traded shares corresponded to just over 135% of outstanding shares and constituted 0.8% of the total turnover on the Stockholm Stock Exchange’s A-List. Trading per month during the past five years is shown in the adjacent diagram. by AMF Pension and LKAB. Robur Equity Funds and During the year, the lowest trading price for the class Alecta have reduced their holding during the year, while A share was SEK 155.60. and the highest price was Industrivärden and foreign owners have increased their SEK 293.50. At the end of the year, SSAB’s market holdings. capitalization was SEK 25,805 (16,051) million. The number of shareholders decreased during the year by 8% and, at year-end, was 37,032. Of these, Ownership structure 34,437 shareholders own 1,000 shares or less. The ten At the end of the year, Industrivärden was the largest largest institutional shareholders own just over 35% shareholder measured in terms of share capital, followed of the shares.

16 | SSAB ANNUAL REPORT 2005 Since 1989, the number of shares and the share capital have changed During 2005, the following banks as set forth below: and investment brokers, among Change in Change in Share others, published analyses of number Number share capital capital SSAB: Year of shares of shares (SEK millions) (SEK millions) 1989 Conversion + 1,500,000 26,500,000 + 150 2,650 1994 Conversion + 5,500,000 32,000,000 + 550 3,200 Alfred Berg 1995 Split 4:1 + 96,000,000 128,000,000 0 3,200 Carnegie 1998 Redemption – 15,891,199 112,108,801 – 397 2,803 Chevreux 2001 Reduction in Enskilda Securities share capital – 11,210,880 100,897,921 – 281 2,522 Hagströmer & Qviberg 2005 Redemption – 9,968,861 90,929,060 – 249 2,273 Handelsbanken JP Morgan Data per share 2001 2002 2003 2004 2005 Kaupthing Trading price, Dec 31, class A, SEK 102.50 103.00 128.50 160.00 289.00 Standard & Poor Earnings, SEK 6.10 5.70 8.90 35.61 42.21 Swedbank P/E ratio 16.8 18.1 14.4 4.5 6.8 UBS Cash flow, SEK 1.50 11.95 7.60 19.75 44.43 Equity, SEK 96.70 97.10 99.40 128.85 155.99 Dividend *), SEK 5.00 6.00 6.00 7.50 9.00 Yield, % 4.9 5.8 4.7 4.7 3.1 Average no. of shares, mil. 101.1 100.9 100.9 100.9 95.2 Number of shares at year-end, mil. 100.9 100.9 100.9 100.9 90.9 *) Pursuant of the proposal of the Board of Directors for the 2005 financial year.

Largest shareholders Shareholding as % of capital votes Industrivärden 15.6 20.4 AMF Pensioner 5.0 6.5 LKAB 4.8 6.2 Robur Equity Funds 3.7 2.0 SEB funds 2.4 3.1 AFA Sjukförsäkringar 2.2 0.3 Nordea funds 1.9 2.4 Fourth AP Fund 1.7 1.8 Livförsäkringsbolaget Skandia 1.6 0.5 Handelsbanken funds 1.5 1.6 Handelsbankens Pensionsstiftelse 1.3 1.7 First AP fund 1.2 1.3 Catella funds 1.1 0.4 Foreign owners 26.8 28.0 Other 29.2 23.8 100.0 100.0

Distribution of shares Shareholding Number as % of all shareholders as % of share capital 1-500 30,223 81.6 8.0 501-1,000 4,214 11.4 3.7 1,001-5,000 1,970 5.3 4.7 5,001-10,000 206 0.6 1.7 10,001-50,000 240 0.6 5.9 50,001-100,000 59 0.2 4.5 100,001- 120 0.3 71.5 Total 37,032 100.0 100.0 The tables illustrating the largest shareholders and distribution of shares are based upon information obtained from VPC as per December 31, 2005.

SSAB ANNUAL REPORT 2005 | 17 REPORT OF THE DIRECTORS Group review

International review The price trend is shown in the diagram below. In 2005, global steel consumption increased by 6% to Deliveries from the steel operations declined by 7% a new record level in excess of one billion tonnes. Thus, and amounted to 2,972 (3,187) thousand tonnes. Deliv- growth remained at the same high level as in recent eries of extra and ultra high-strength sheet increased years. China accounted for most of the global growth, during the year by 13%. The increased deliveries have with a growth rate of almost 20%. Chinese steel con- primarily been sold to the heavy vehicle and automobile sumption now accounts for more than 30% of global segments. Deliveries of quenched steels have continued to consumption. Chinese production increased in parallel be restricted by available production capacity. However, with demand. Steel consumption also increased in, through various measures it has been possible to gradu- among other countries, Korea, Japan and India, whilst ally eliminate bottlenecks in the production flow and, in it fell by approx. 10% in the United States after a steep total, deliveries during the year increased by 6%. The rise in consumption in the previous year. increase relates to existing customers within all segments. Deliveries of the niche products, high-strength sheet The European market and quenched steels, amounted in total during the year Steel consumption in Europe remained stable. Demand, to 1,549 (1,605) thousand tonnes and accounted for which peaked towards the end of 2004, levelled off 52 (50)% of deliveries from the steel operations. The at the beginning of 2005 and subsequently fell slightly core niche products, extra and ultra high-strength sheet during the second half of the year. and quenched steels, accounted for 33 (28) percentage points of these deliveries. The Swedish market Deliveries from Tibnor and the steel operations to The market for sheet and plate is believed to have the Swedish market were 6% and 7% lower respectively declined somewhat in 2005. The Group’s market share than last year. in Sweden fell marginally. Plannja’s deliveries were 5% higher than last year. An increase in demand from the building sector in the Sales Nordic region more than offset the reduced deliveries Demand for sheet remained strong at the beginning to Poland and Russia. of the year but levelled out during the second quarter. Sales increased by 17% to SEK 27,804 (23,712) At the end of the second quarter, the inflow of orders million. Higher prices accounted for 24 percentage weakened and prices came under pressure pending the points whilst lower volumes resulted in a decrease third quarter. The inflow of orders was also weak at of 7 percentage points. times during the second half of the year. However, prices Exports from the steel operations measured in terms of stabilised in the fourth quarter after the large producers volume increased to 71 (70)%. For the Group as a whole, in Europe had adjusted their production to a lower level sales outside Sweden accounted for 64 (65)%, as is shown of demand. in the following table of sales per geographic region. Demand for quenched steels was strong throughout the year and it was possible to gradually increase prices. Production Demand for ordinary plate peaked during the summer. Sheet production at the hot-rolling strip mill in Borlänge For the year as a whole, the steel operations’ prices was reduced towards the end of 2005 as an adjustment to in Swedish kronor were 31% higher than in 2004. the weaker order inflow. In total, production amounted to

18 | SSAB ANNUAL REPORT 2005 Sales per operations area Cost trends SEK millions 2004 % 2005 % Costs in the operations increased by 12% compared Steel operations 18,033 70 21,600 71 with last year and amounted to SEK 22,515 (20,174) Processing operations 1,218 5 1,377 5 million. Of this amount, SEK 4,964 (4,080) million Trading operations 6,641 25 7,423 24 consisted of purchases of products for the processing Group adjustment – 2,180 – – 2,596 – and trading operations. Total, remaining operations 23,712 100 27,804 100 Remaining costs of SEK 17,551 (16,094) million Sold operations 919 – consist primarily of processing costs, depreciation, and Total 24,631 27,804 costs for input materials and energy. Processing costs consist primarily of costs for the Group’s own personnel and purchased services. For the Sales per geographic region year as a whole, processing costs were 2% higher than in SEK millions 2004 % 2005 % 2004 and amounted to SEK 5,778 (5,639) million. The Sweden 8,389 35 9,988 36 increase in costs was due, among other things, to measures Germany 2,078 9 2,446 9 to open up restricted sectors in the flow of quenched steels Italy 1,671 7 1,962 7 and also measures for improving the cost situation within Denmark 1,582 7 1,767 6 the trading and processing operations. Work is continually Finland 1,737 7 1,608 6 taking place in order to offset the effect of wage increases Great Britain 1,151 5 1,072 4 through productivity enhancement measures. Benelux 1,112 5 1,132 4 Depreciation was somewhat lower and amounted to France 739 3 657 2 SEK 951 (1,008) million. Other EU countries 2,124 9 2,413 9 The raw materials are priced on the world market Norway 765 3 886 3 and the prices, which are primarily quoted in USD, Rest of Europe 245 1 418 1 are heavily dependent on the steel business cycle. North America 1,009 4 1,598 6 Iron ore and coal are the dominant raw materials Asia 616 3 1,259 5 and price and delivery agreements are entered into Other markets 494 2 598 2 annually at the beginning of the year. The annual iron Total, remaining operations 23,712 100 27,804 100 ore agreements entailed a price increase in dollar terms Sold operations 919 – of 85%. However, as a consequence of a weaker dollar Total 24,631 27,804 compared with 2004, the increase in iron ore costs in kronor terms was limited to 70%. The 2005 coal agreements entailed price increases in dollar terms of 60% 2,440 (2,633) thousand tonnes. Production in the four- compared with the 2004 agreements. However, since high rolling mill in Oxelösund was somewhat lower than some of the coal agreements signed at the beginning of last year and amounted to 632 (651) thousand tonnes. 2004 were for two year terms, the average price Crude steel production was also cut back towards the increase in dollar terms was 40%. Thanks to a weaker end of 2005 and declined to 3,966 (4,142) thousand dollar, the price increase in Swedish kronor was limited tonnes. Delivery of slabs to other steel companies declined to just over 30%. The coal agreements entered into to 222 (274) thousand tonnes. force on 1 April and, due to existing stocks, the full

SSAB ANNUAL REPORT 2005 | 19 impact of the new prices was not felt until the second Profit half of the year. SEK millions 2004 2005 The Group’s cost structure is shown in the diagram Sales 23,712 27,804 below. Expenses – 18,873 – 21,213 Depreciation – 1,008 – 951 Energy Affiliated companies 57 95 Coal is an essential reduction agent in order to remove Operating profit 3,888 5,735 oxygen from the iron ore and constitutes one of the Financial items – 82 – 64 most important raw materials in the manufacture of Profit, remaining operations 3,806 5,671 iron ore-based steel. Coal also accounts for approx. Sold operations 982 – 85% of the energy provided for the steel operations. Profit 4,788 5,671 Energy is otherwise provided by electricity, oil, and LPG. In total, the steel operations consumed 1,600 Operating profit increased by SEK 1,847 compared with (1,630) GWh of electric power and 1,600 (1,650) GWh last year and amounted to SEK 5,735 (3,888) million. of oil and LPG during the year. Through the utilisation As shown in the table below, stronger margins in the steel of the energy-rich gases that are formed during steel operation contributed an improvement of SEK 2,650 production, energy is produced, among other things, at million, higher volumes of core niche products an the OK3 heat and power plant in Oxelösund and in the improvement of SEK 580 million, while lower volumes half-owned energy company, Lulekraft. During the year, of other products in the steel operations and reduced these plants produced 845 (819) GWh of electricity. sales of slabs reduced earnings by SEK 1,330 million. In total, energy costs (excluding coal) amounted to SEK 1,170 (1,083) million. The costs included various taxes amounting to SEK 142 (146) million. Changes in operating profit SEK millions Steel operations SPP’s surplus funds – Stronger gross volumes + 2,650 In 1999, Alecta allocated a total of SEK 734 million of – Increased volumes of core niche products + 580 its premium surpluses to companies within the Group. – Lower volumes, other products – 940 At the end of the year, SEK 50 (133) million of these – Decreased sales of slabs – 390 surplus funds remained, and these are expected to be Trading and processing operations utilised during the first half of 2006. – Increased sales + 30 Increased processing costs – 140 Sold operations Other + 57 The subsidiary, SSAB HardTech, was sold on December Change in operating profit + 1,847 31, 2004, yielding a tax-exempt capital gain of SEK 825 million. The transaction contributed SEK 1,425 million Changes in exchange rates compared with 2004 con- to cash flow, which is included in the cash flow for 2005. tributed approx. SEK 300 million to profit, primarily In the comparison figures for 2004, the capital gain and as a consequence of a positive exchange rate effect on SSAB HardTech’s ongoing results are reported separately raw materials costs. from the remaining operations. As a consequence of lower net debt, financial items

20 | SSAB ANNUAL REPORT 2005 improved and amounted to SEK – 64 (– 82) million and propose to the General Meeting that an offer be made thus profit after financial items amounted to SEK 5,671 to redeem shares in the amount of approx. SEK 2,200 (3,806) million. million. Such a redemption and the proposed dividend will increase the net debt/equity ratio to approx. 30%. Taxes Information regarding the structure of the redemption Tax for the year of SEK 1,603 (1,096) million consists programme will be provided in connection with notice of current tax in the amount of SEK 1,719 (1,375) to attend the General Meeting. The Board of Directors’ million, deferred tax of SEK – 139 (– 309) million, and complete proposed resolutions will be available in the a share in the taxes of affiliated companies of SEK 23 middle of April. (30) million. The effective tax rate for the Group was 28 (24)%. The lower tax rate in the preceding year was Capital expenditures due primarily to the fact that the capital gain on the sale During the year, decisions were taken regarding new of SSAB HardTech was exempt from taxation. investments totalling SEK 836 (1,037) million. The largest individual projects are the relining of the Profitability and equity ratio smaller blast furnace in Oxelösund during the summer Net profit after tax and minority interests increased by of 2006 at a cost of SEK 140 million and the purchase SEK 428 million to SEK 4,021 (3,593) million, corres- of railway trucks for slab transports at a cost of SEK ponding to earnings per share of SEK 42.21 (35.61). 140 million. The sold operations are included in the net profit for Of ongoing major projects, approx. SEK 500 million 2004, including the capital gain of SEK 937 million, relates to investments in increased quenched steel pro- corresponding to SEK 9.29 per share. duction capacity. The project will continue until the Excluding last year’s capital gain on the sale of summer of 2007. The stage completed during the year SSAB HardTech, return on capital employed before tax increased capacity by approx. 10% and, in total, a increased to 34 (29)% and return on equity after tax gradual increase of 35% in capacity will be achieved. increased to 30 (25)%. The equity ratio amounted to Another major ongoing project is the modernisation 66 (60)% and the net debt/equity ratio to 3 (13)%. of the tandem mill in Borlänge at a total cost of SEK 180 Profitability and net debt/equity ratio compared with million, which is being carried out during the summer the profitability targets are set forth in diagrams in the breaks in 2004–2006. section, Strategy and Goals. Capital expenditure payments amounted to SEK 853 (644) million. Dividend and redemption of shares The Board proposes to the General Meeting that the Financing and liquidity dividend be increased to SEK 9.00 (7.50) per share, Working capital increased by SEK 1,281 million during amounting to SEK 818 (757) million. The Board also the year. This was due primarily to increased prices for proposes a 3:1 share split. raw materials and steel. Inventories increased by just over The net debt/equity ratio declined during the year to SEK 1,100 million, of which approx. SEK 800 million 3% and the Board believes that such a strong balance was attributable to increased raw materials prices. It has sheet is not required in order to ensure the development been possible during the year to decrease the number of of the business in the medium term. Thus, the Board will days’ credit granted to customers. However, as a result

SSAB ANNUAL REPORT 2005 | 21 Subsidiaries' sales, profit/loss and return on capital employed 1) Sales Operating Profit after Return on capital profit/loss financial items employed, % SEK millions 2004 2005 2004 2005 2004 2005 2004 2005 Subsidiaries: SSAB Tunnplåt 12,693 14,219 2,572 3,175 2,502 3,128 37 40 SSAB Oxelösund 6,947 9,135 757 1,994 702 1,957 17 39 Plannja 1,218 1,377 73 80 68 76 21 20 Tibnor 6,641 7,423 482 426 484 428 36 27 Other subsidiaries 703 868 26 47 27 48

Parent company: Parent company 2)00 – 66 – 74 – 20 – 53 Affiliated companies – – 90 87 90 87

Group adjustments – 4,490 – 5,218 – 46 0 – 47 0 Total, remaining operations 23,712 27,804 3,888 5,735 3,806 5,671 Sold operations 3) 919 – 999 – 982 – Total, including sold operations 4) 24,631 27,804 4,887 5,735 4,788 5,671 29 34 1) The comparison figures for 2004 have been adjusted in accordance with IFRS. 2) Excluding dividends from subsidiaries and affiliated companies and excluding capital gains on sales of subsidiaries. The profit in the parent company units consists primarily of administrative costs and a positive figure for financial items. 3) Relates to SSAB HardTech, including capital gain. 4) The return on capital employed is calculated excluding the capital gain upon the sale of SSAB HardTech.

Consolidated balance sheet The Group’s cash flow and cash flow per subsidiary is 31 Dec. 31 Dec. shown in the tables on the adjacent page. SEK millions 2004 2005 As a consequence of the positive cash flow, net debt Assets at year-end amounted to SEK 407 (1,718) million and Intangible assets 14 12 the net debt/equity ratio declined to 3 (13%). Tangible assets 7,759 7,651 Financial assets 460 422 Research and development Deferred tax claims 67 83 The Group’s focus on the core niche products, extra Inventories 5,664 6,788 and ultra high-strength sheet and quenched steels Accounts receivable 4,003 4,327 requires a combination of advanced material develop- Other current interest-bearing receivables 79 946 ment, production development and market development. Other current receivables 1,996 707 The goal of the development work is to create the best Liquid assets 1,576 884 possible conditions for profitable transactions, based on Total assets 21,618 21,820 the customers’ needs. Added value is created for the customers through Equity and liabilities active co-operation with customers, based on knowledge Equity for shareholders in the company 13,005 14,184 of the unique qualities of the core niche products and Minority shares 186 180 how they can be exploited in order to create competitive Total equity 13,191 14,364 products. An important success factor for a fruitful Deferred tax liabilities 1,505 1,361 co-operation is that it is commenced at an early stage Other long-term provisions 206 207 so that design solutions and production methods can Long-term interest-bearing liabilities 1,634 1,139 be adapted for a cost-efficient use of these steels. Current interest-bearing liabilities 528 616 Materials development is focused on the core niche Other current liabilities 4,554 4,133 products with respect to greater strength and hardness, Total equity and liabilities 21,618 21,820 better formability, and adaptation to selected niche markets. This is combined with development of application know-how. of the higher steel prices, accounts receivable increased by The overriding goal of process development is to just over SEK 300 million. In total, cash flow amounted reduce manufacturing costs for the entire production to SEK 4,230 (1,992) million, of which the sold operations programme simultaneously with improvements in product represented SEK 1,425 (100) million. qualities. During the production of slabs, the conditions

22 | SSAB ANNUAL REPORT 2005 Cash flow from the steel operations, customers are offered education SEK millions 2004 2005 and training within various application areas, and thereby Profit after financial items obtain deeper knowledge regarding the possibilities (excl. affiliated companies) 3,749 5,576 afforded by the core niche products. During the year, Reversal of depreciation 1,008 951 seminars for the automotive industry have been held in Current tax – 1,375 – 1,720 several countries under the name, Open Your Mind. Other reversals + 29 + 57 Together with the customers, new design solutions have Change in working capital – 1,003 – 1,281 been developed in various groups, such as Knowledge Sold operations + 182 – Service Center, Conceptual Design Group and Wear Total operating activities 2,590 3,583 Technology Group. Investing activities – 516 – 778 Within the area of hot-rolled sheet, intensive develop- Sold activities – 82 + 1,425 ment work has been carried out during the year on a new Total investing activities – 598 647 ultra high-strength steel, Domex 900. This steel has been Cash flow 1,992 4,230 developed for applications within heavy transport, lifting Cash flow from ongoing operations differs from a presentation in accordance with IFRS and load handling. A new series of cold-rolled extra and insofar as cash flow is affected by current tax costs, i.e. the tax which is to be paid. The difference between this tax and the tax which has actually been paid is thereby regarded ultra high-strength steels that are specially intended for roll as a financial debt/claim. In a presentation in accordance with IFRS, on the other hand, forming are under development. A cold-rolled ultra high- the cash flow from operating activities is affected by the tax actually paid during the year, SEK –2,478 (–354) million. strength steel, Docol 1500, will be introduced in 2006. The development of the hot dip galvanised ultra-high- strength product programme is proceeding towards Cash flow per subsidiary increased high strength and more products. These steels SEK millions 2004 2005 are intended primarily for passenger vehicle applications. SSAB Tunnplåt + 1,465 + 1,571 A new group of extra high-strength hot dip galvanised SSAB Oxelösund + 309 + 595 sheet with extremely good formability has been introduced Plannja – 34 + 95 under the name, Dogal 1000 DPX. Development work Tibnor + 74 + 426 is underway to produce a group of zinc-plated ultra high- Other subsidiaries + 56 + 16 strength steel, which will be launched in 2006. Parent company + 22 + 102 Among quenched steels, the HARDOX abrasion- Total, remaining operations + 1,892 + 2,805 resistant steels are being constantly upgraded and the Sold operations + 100 + 1,425 product range expanded with new, improved products. Total + 1,992 + 4,230 Successful development work has been carried out in order to achieve a high level of flatness for thin and wide plate. During the year, HARDOX Extreme, with are established for uniformity in the qualities of a type a hardness of up to 700 Brinell, was introduced for the of steel. In conjunction with rolling and quenching, the mining industry. WELDOX 1300, which was introduced hardness, toughness, flatness and fine surface of the man- during the year, makes possible the design of even ufactured sheet are determined. At the Group’s metal- stronger and lighter mobile cranes and truck cranes. lurgy plants, rolling mills and further processing lines, Development of applications for the building industry improvement work is constantly taking place in order takes place within the processing operations. The Group’s to imbue the finished steel with the intended qualities. leading position within roof, wall and rainwater run-off Skills-enhancement work is taking place constantly in products in steel is a result of a very effective process order for the customers to be able to utilise the advantages and product development work in close co-operation of the core niche products. Today, the Group has at its with both users and architects. disposal extensive material which describes the best ways R&D costs in the steel operations amounts to approx. in which these steels can be used and exploited in various SEK 150 million. Various national and international applications. Examples include manuals on design and networks play an important role in long-term and dimensioning, jointing (a new edition of the Jointing fundamental R&D. Important partners in the Group’s Manual was launched in 2005) and forming, as well as R&D network include the Swerea (Swedish research) calculation programmes such as WeldCalc™ (welding) institutions, MEFOS and KIMAB, the industry organisa- and WearCalc™ (wear and tear) and simulation pro- tions, Jernkontoret (the Swedish Steel Producers Associ- grammes regarding loading and manufacturing operations. ation), Eurofer (European Confederation of Iron and During the year, a web-based customer support tool was Steel Industries) and the International Iron and Steel launched under the name, SSABDirekt.com. Institute, as well as various universities and colleges. The Through courses and seminars conducted by experts Group takes part in a number of development projects

SSAB ANNUAL REPORT 2005 | 23 financed jointly with other steel companies and the EU’s goal is that all employees shall participate in discussions Research Fund for Coal and Steel. regarding the meaning of the respective subsidiary’s ethical Subsidiaries are approved for deliveries within the guidelines. scope of, among other things, ISO 9000:2000 and ISO/TS 16949 and thereby fulfil the customers’ demands that the Personnel operations possess approved quality assurance systems. As a result of continued efficiency measures, the total number of employees declined by 110 and, at year-end, Ethical issues amounted to 8,391 (8,501). The Group’s work methods must at all times be characterised by respect for the countries and environments in Number of employees at year-end which the Group operates, and respect for employees 2004 2005 Change % and co-operation partners. The Group has the following SSAB Tunnplåt 4,299 4,207 – 2 guiding principles for responsible business practice: SSAB Oxelösund 2,593 2,596 0 Plannja 465 465 0 • On all markets and in all operations where SSAB Tibnor 1,018 990 – 3 acts, we shall comply with laws, fulfil agreements and Other 126 133 + 6 comply with generally accepted business practices. Total 8,501 8,391 – 1 • We comply with the United Nations’ Global Compact’s advisory principles for companies. These principles relate As shown in the diagram below, the age structure for to human rights, working conditions, the environment, white-collar employees continues to be such that the as well as corruption and bribery. Group will lose many experienced and skilled employees during the next few years through retirement. Thus, All subsidiaries have established guidelines with respect much work is being devoted to identifying the areas to ethical issues. Decisions regarding each subsidiary’s in which retirement is taking place and focusing skills- ethical guidelines have been preceded by extensive reviews enhancement activities on those areas. by various management and work groups. In this way, Skills development work has continued during the solid support is created for responsible business practices year. The activities are aimed, among other things, at even before the guidelines are introduced. employees being able to utilise new techniques and new During the year, the ethical work has continued by methods, also as a preparation for new work duties in informing all employees of subsidiaries about the guiding the future. Further development of technicians takes place principles and what they entail. Each subsidiary’s guide- regularly, as does training aimed at further improving lines have been described in articles in staff magazines quality and precision in the operations. and on the Intranet, discussed at various management Within the management training programme, there is seminars and have been integrated into the management a joint Group-focus on developing younger persons who development programmes. The work has involved, among possess management potential. A model for assessment other things, a review of rules regarding travel, customer of manager performance and development potential has and supplier relations, as well as procurement routines. been introduced as well as a development programme for In addition, the number of audits of subcontractors has managers on various levels. Special measures have been increased. In 2006, the work will be expanded and the taken to increase the percentage of female managers.

24 | SSAB ANNUAL REPORT 2005 In order to meet future recruitment needs for well- The adjustment of the reporting for 2004 to IFRS has educated employees, co-operation is developed with entailed very small changes in the reported results and university colleges and high schools. Co-operation is reported financial position. A compilation showing the continuing with, among others, the Royal Institute of changes which nevertheless affect the 2004 comparison Technology and Luleå University of Technology. In order year is presented in Note 26. to increase interest in the steel industry, the film, “Our Steel”, was produced during the year together with the Prospects for 2006 Swedish Steel Producers’ Association. The film is primarily In 2006, global steel demand – propelled along by intended to be distributed to middle school pupils. China – is expected to remain strong. In Europe, steel Rehabilitation work has continued during the year, consumption is expected to be essentially unchanged. as well as prophylactic activities within ergonomy and The steel operations’ volumes of core niche products, keep-fit programmes. Such measures have contributed extra and ultra high-strength sheet and quenched steels, to reducing sick leave absences to 7 (8)% for blue collar are expected to continue to increase in 2006. The rate employees, while the figure has remained unchanged at 4 of growth for, primarily, quenched steels, is expected to (4)% for white collar employees. Sick leave absence broken be higher than in 2005, when it was partially restricted down by gender and age group is shown in Note 18. by access to production capacity. Turnover of personnel remained low but increased to Based on the agreements which have been entered 4 (3)%. into, the steel operations’ prices in local currencies dur- The number of accidents declined. Focus on the working ing the first quarter will be approx. 3% lower than dur- environment has continued through safety training and ing the fourth quarter. other prophylactic measures. Proper reporting of near World market prices in local currencies for iron ore accidents is a prerequisite in order that experiences gained 2006 are still not known. As far as coal is concerned, from near accidents can be passed on to other employees, world market prices in local currencies are expected to so that they can avoid the risk of repeating mistakes or fall by 10% compared with the agreements signed in risk factors. 2005. The price for the approx. 30% of coal volumes The work involving partial retirement of blue collar which were purchased under two year agreements will, employees has continued. The purpose of the retirement however, increase. The iron ore agreements will impact is to enable such employees to remain in work until on earnings from the beginning of the year, while the ordinary retirement age and to facilitate an exchange impact of the coal agreements will be felt commencing of skills. The pension, which requires at least half-time the end of the second quarter. employment, is paid in the amount of approx. 65% Thanks to a number of cost cutting measures, it is of the lost earnings from work. Thus far, 150 partial believed that it will be possible to maintain processing pensions have been granted. costs at the same level as in 2005. All employees participate in a profit-sharing scheme. The table below shows the approximate effect in 2006 This scheme was started in 1994 and entitles employees on profit after financial items, as well as on earnings per to participate in profits over a minimum level which, for share, as a consequence of changes in significant factors. 2005, was SEK 1,625 million. Due to the good results for the year, the profit-sharing ceiling of SEK 24,000 (18,000) Sensitivity analysis was reached. The profit share for an employee working full Effect on time thus amounted to SEK 19,300 (14,500) before tax. Change Effect on profit, earnings per In total, payments to employees amounted to SEK % SEK millions share, SEK 4,085 (3,970) million, equal to 15 (17)% of sales. Prices – steel operations 10 1,850 14.75 Volumes – steel operations 5 450 3.55 Transition to IFRS 2005 Volumes – trading Commencing 2005, the consolidated financial statements operations 10 120 0.95 are prepared in accordance with the international Margins – trading operations 2%-pts 150 1.20 accounting standards (IFRS/IAS) in the form in which Wage costs 2 80 0.65 they have been adopted by the EU. In many respects, Prices – coal, coke and however, accounting in Sweden was already adapted in iron ore 10 530 4.20 this direction since the recommendations issued by the Krona index 10 640 5.10 Swedish Financial Accounting Standards Council have largely corresponded to those standards. The provisions require that the comparison year, 2004, shall also be reported in accordance with IFRS.

SSAB ANNUAL REPORT 2005 | 25 SSAB Tunnplåt

Anders Werme, President SSAB Tunnplåt is the largest manufacturer of steel sheet in the Nordic region and one of the leading companies in Europe within the area of high-strength sheet. Production capacity currently amounts to almost 3 million tonnes per year. The product range includes sheet in the thickness range 0.10–16 mm with a maximum width of 1,600 mm. The products are marketed under the Domex, Docol, Dogal, Dobel and Prelaq trade marks. SSAB Tunnplåt’s strategy is based on growth within the area of extra and ultra high-strength sheet and on becoming the leading company in Europe for high- strength sheet, while at the same time maintaining a SEK millions 2003 2004 2005 leading position for all sheet products on the domestic Sales 10,583 12,693 14,219 market in Scandinavia. Profit 722 2,502 3,128 High-strength sheet can be exploited to reduce weight Cash flow 182 1,465 1,571 in a design or to increase the strength of the design Capital expenditures 623 341 464 without any change in weight. Hot-rolled extra and Capital employed 7,021 7,968 8,283 ultra high-strength sheet are used, among other things, Return on capital in the automotive industry, primarily in heavy vehicles employed (%) 13 37 40 and by container manufacturers. Cold-rolled extra and Number of employees 4,604 4,507 4,411 ultra high-strength sheet are used primarily for safety For definitions, see Note 29. components in the automotive industry. Galvanised extra and ultra high-strength sheet are used in applications that require a high level of anti-corrosion protection. The main competitors within extra and ultra high-strength sheet are Thyssen Krupp and Arcelor. Ordinary sheet is used primarily within the engineering, construction, and automotive industries. Competitors within these sectors consist of most Western European steel companies. The heavy production takes place in two localities. An ore-based metallurgy comprising coking plant, blast furnace, and steel mill for the production of slabs is located in Luleå, while rolling mills as well as coating and further processing lines are situated in Borlänge. The metallurgy capacity in Luleå is not sufficient to supply all sheet manufacturing needs. The remaining slabs required are, therefore, purchased from the Group company, SSAB Oxelösund. Further processing is also carried out through organic coating in Finspång and through cutting to size at subsidiaries in Sweden, Denmark, Holland, Italy and Great Britain. The affiliated company, Cogent Power, is one of the largest producers of electric steels in Europe and the largest company in Europe for the stamping of electric steels.

26 | SSAB ANNUAL REPORT 2005 High-strength sheet is used in applications in which high strength in combination with low weight is required. The high- strength steels are used in, among other areas, the automotive industry for heavy vehicles, by crane manufacturers, and for bearing components in containers. The production line includes both hot- and cold-rolled as well as metal and organic-coated sheet. Approx. 50% of the deliveries are high-strength sheet.

The market Sheet is the largest product group within the commercial steels sector and accounts for approximately one half of the European market for commercial steels. The price structure for sheet is relatively similar on the larger markets in Europe. Demand for sheet remained strong at the beginning of the year but levelled out during the second quarter. At the end of the second quarter, the inflow of orders weakened and prices came under pressure pending the third quarter. The inflow of orders was also weak at times during the second half of the year. However, prices stabilised in the fourth quarter after the major producers in Europe had adjusted their production to a lower level of demand. Deliveries of extra and ultra high-strength sheet increased to 507 (447) thousand tonnes. The increase in deliveries was related to both new as well as existing customers in essentially all markets. The largest growth has been within the heavy transport vehicles and passenger car segment. SSAB Tunnplåt’s total deliveries decreased to 2,311 (2,492) thousand tonnes. Sheet consumption in Sweden weakened somewhat compared with last year and SSAB Tunnplåt’s market share fell marginally.

SSAB ANNUAL REPORT 2005 | 27 3 8. Slabs Steel slabs for the manufacture of sheet are transported by rail from Luleå to Borlänge.

1 9. Slabs Steel slabs are also delivered by rail from SSAB Oxelösund.

4 10. Reheating Furnace Before being rolled, slabs are heated to approximately 1,200°C. 10 9

2 6 5

1. Coking Plant 5. LD Converter The coking plant converts imported coal to blast furnace coke. Before hot metal is charged to the steel furnaces, it is de-sulphurised. In the LD process, the hot metal is converted 2. Pellets to crude steel by oxygen blowing. Iron ore in the form of pellets is charged into the blast furnace. 6. Ladle Furnace 3. Blast Furnace The crude steel is purified and the steel grade adjusted by the The blast furnace process releases oxygen from the iron ore. addition of alloying metals. At this stage, temperature and Coke and coal powder are added for this process. Hot metal is quality are fine-tuned. 8 tapped from the blast furnace. 7. Continuous Casting 4. Steel Plant Molten steel is cast into slabs in a process where casting is The hot metal is refined to steel. The entire steel making process carried out in a continuous flow. The slabs are cut for transport from LD converters to continuous casting takes about three hours. and processing.

Exports accounted for a slightly increased share of Profit sales, at 66 (65)%. The shares of deliveries represented Profit increased by SEK 626 million to SEK 3,128 by the largest markets are shown in the table below: (2,502) million. Share of deliveries (%) 2003 2004 2005 Increased volumes of extra and ultra high-strength Sweden 35 35 34 sheet and price increases carried out during the first Italy 12 12 11 quarter, together with unchanged processing costs, Germany 12 11 9 resulted in an increase in profit notwithstanding heavily Denmark 7 7 6 increased raw materials costs. USA 0 2 5 Great Britain 6 6 4 Capital expenditures Norway 4 4 4 During the year, decisions were taken regarding measures Finland 5 4 4 to rationalise the handling of slab within metallurgy, the France 5 5 3 purchase of railway trucks for slab transports and the Spain 3 3 3 replacement of the thickness regulation control system Holland 3 3 3 in the hot-rolling strip mill. Others 8 8 14 The upgrading of one of the continuous casting Total 100 100 100 machines in order to increase extra and ultra high-strength sheet capacity was carried out during the autumn. The upgrading of the tandem mill is continuing and Production will be finally completed in the summer of 2006. Due to cut-backs in production during the autumn, slab production amounted to 2,058 (2,171) thousand tonnes. Product and process development Production at the hot-rolling strip mill declined to 2,440 Product development is concentrated on extra and ultra (2,633) thousand tonnes. high-strength steels, and focused on higher strengths, Production, kt 2003 2004 2005 Change in % improved formability and adaptation to specific market Coke 618 733 741 + 1 segments. Slabs 2,044 2,171 2,058 – 5 Development projects in co-operation with customers Hot-rolled 1,417 1,382 1,384 – are one of the cornerstones of the business operations. Cold-rolled 502 494 483 – 2 The aim of the co-operation is to contribute to enhancing Metal-coated 327 258 216 – 16 the competitiveness of the Group’s customers through Organic-coated 234 265 245 – 8 the advantages afforded by the high-strength steels.

28 | SSAB ANNUAL REPORT 2005 11 Hot Rolling Strip Mill 12. Coiler 14. Cold-Rolling Mill The slab is first rolled in a rougher to a thickness of approx- The hot strips are reeled up into large coils which either go The pickled strips are cold-rolled in a tandem mill giving them imately 30 mm after which it is rolled up into a coil box. on to cold-rolling, are sold as hot-rolled coils, or are cut a better finish and closer tolerance. From the tandem mill, the Thereafter, it is rolled through six finishing stands. to sized sheets. sheet goes on to either annealing or to the metalising lines.

13. Pickling 15. Annealing In the pickling process, the iron oxide scale is removed from Annealing gives the sheet more uniform internal and surface the surface of the hot-rolled strips by dipping them in properties. Heat treatment, trim rolling, edge trimming, and hydrochloric acid. reeling takes place in a continuous process. 11 16. Processing The sheet is further processed in lines for galvanising, and painting.

13 14 16

During the year, development projects have been carried The result is a weight reduction of 1 tonne which can out together with manufacturers of trucks and trailers, be exploited for increased loads, thereby enhancing the passenger cars, and their suppliers, and with other competitiveness of both CMT and its customers. engineering companies. A new Sheet Manual has been In connection with the awarding of the prize, the developed and will be introduced in 2006. “Swedish Steel Prize Inspiration Seminars 2005” were With respect to hot-rolled steel, product and process arranged. Almost 400 participants from around the development investments are focused on producing world participated, in a single day, in some ten lectures a new range of ultra high-strength steels. These will be on the topic “The world in 50 years’ time”. used primarily within the heavy transport, lifting and load-handling segments. Within the cold-rolled product range, development is taking place of extra and ultra high-strength steels that are especially adapted for roll- forming, as well as an adaptation of the product range to various automotive standards. Extra high-strength hot dip galvanised steel with extremely good formability has been developed and was introduced in 2004 under the name, Dogal 800 DPX. An additional steel in this range was introduced in 2005 under the name, Dogal 1000 DPX. The development of the extra high-strength hot dip galvanised steel product range is being carried further with increased high strength as an objective and several products will be released onto the market in 2006. The extra and ultra high-strength hot dip galvanised steel products are primarily intended for passenger vehicle applications. The seventh annual Swedish Steel Prize was awarded during the year. The prize, which is awarded for the innovative utilisation of high-strength sheet, was awarded to the Swedish container manufacturer, Cargo Modul Trading (CMT). CMT has developed a new container using very thin cold-rolled ultra high-strength sheet.

SSAB ANNUAL REPORT 2005 | 29 SSAB Oxelösund

Bengt Nilsson, President SSAB Oxelösund is the world’s leading manufacturer of quenched steels. Quenched steels refers to plate with extra high strength and good weldability in combination with high abrasion-resistance and good formability. The qualities provide the users with the possibility to design and manufacture light, strong products with good total economy. The main products within quenched steels are abrasion-resistant steels, HARDOX, and construction steels, WELDOX. The HARDOX products are used in applications in which there are stringent requirements with regard to hardness, high strength, and toughness, in combination with good welding and bending characteristics. Important SEK millions 2003 2004 2005 areas of use include construction machinery and mining Sales 5,468 6,947 9,135 equipment. Profit 312 702 1,957 The most prominent characteristics of the WELDOX Cash flow 135 309 595 products are good weldability and formability in com- Capital expenditures 271 234 303 bination with high strength, as well as flatness and fine Capital employed 4,486 4,784 5,487 surfaces. WELDOX products are used, among other Return on capital things, in the manufacture of cranes, bridges, and offshore employed (%) 9 17 39 equipment. Number of employees 2,791 2,696 2,785 Competitors within the quenched steels sector are See Note 29 for definitions. primarily Thyssen Krupp and Dillingen in Europe, as well as Mittal Steel and Algoma in North America. Ordinary plate is used in the general engineering industry, shipbuilding industry and, to an increasing extent, the wind power industry. The majority of large Western European plate producers are competitors within the ordinary plate sector. Manufacturing in Oxelösund is carried out in an integrated process from iron ore to finished plate in thicknesses of 3–155 mm and widths of up to 3,500 mm. Thanks to the flexibility of the production equipment, it is possible to deliver plate with characteristics that are tailor-made for the needs of different customers.

The market During the past decade, market and distribution capacity have been gradually expanded through, among other things, the establishment of almost 30 sales companies around the world. During the year, companies were established in Serbia, Romania and Chile. Demand for quenched steels remained strong throughout the year and it was possible to gradually increase prices. However, for most of the year deliveries were restricted by available production capacity. Through various measures it has, though, been possible gradually to eliminate bottlenecks in the production flow and thus deliveries for the year as a whole increased by 6% to 473 (446) thousand tonnes. The increase has primarily taken place to existing customers with an even geographic spread.

30 | SSAB ANNUAL REPORT 2005 Quenched steels, i.e. the abrasion-resistant HARDOX steels and the extra high-strength structural WELDOX steels are used in applications with extreme demands for high strength in combination with good weldability or high abrasion resistance. The quenched steels are sold throughout the world and used in, among other areas, construction and mining equipment and mobile cranes. A little more than 70% of the deliveries consist of quenched steels.

For capacity reasons, deliveries of ordinary plate decreased by 20%. Most of the volumes were delivered on neighbouring markets. Prices for ordinary plate increased during the year but levelled off during the fourth quarter. Exports accounted for 90 (87)% of sales. The largest markets are shown in the following table:

Share of deliveries (%) 2003 2004 2005 Germany 21 19 20 Sweden 13 13 10 Denmark 10 10 10 Italy 5 5 5 Great Britain 3 4 4 Finland 4 3 3 Other EU countries *) 20 19 18 USA 4 7 7 Canada 2 3 4 South Africa 2 3 3 Asia 9 7 6 Others 7 7 10 Total 100 100 100 *) 2003 is adjusted to cover EU 25.

Production Plate production during the year fell by 3% to 632 (651) thousand tonnes. Slab production decreased by 5% to 1,584 (1,663) thousand tonnes. Almost one-third of this volume was delivered to the Group company, SSAB Tunnplåt, and

SSAB ANNUAL REPORT 2005 | 31 7. Continuous Casting 3 Molten steel is cast into slabs in a process where casting is carried out in a continuous flow. The slabs are cut for transport and processing. 1 8. Slabs 4 Steel slabs for the manufacture of sheet are transported by rail to SSAB Tunnplåt in Borlänge.

9. Reheating Furnace Before being rolled, slabs are heated to approximately 1,200°C.

9 7

2 5 6

1. Coking Plant 4. Steel Plant The coking plant converts imported coal to blast furnace coke. The hot metal is refined to steel. The entire steel making process from LD converter to continuous casting takes about three hours. 2. Pellets Iron ore in the form of pellets is charged into the blast furnaces. 5. LD Converter Before hot metal is charged to the steel furnaces, it is 3. Blast Furnace de-sulphurised. In the LD process, the hot metal is converted The blast furnace process releases oxygen from the iron ore. to crude steel by oxygen blowing. 8 Coke and coal powder are added for this process. Hot metal is tapped from the blast furnaces. 6. Ladle Furnace The crude steel is purified and the steel grade adjusted by the addition of alloying metals. At this stage, temperature and quality are fine-tuned.

less than 10% was sold to other steel companies. The remaining slab volumes were processed into plate.

Production, kt 2003 2004 2005 Change in % Coke 441 446 446 0 Slabs 1,576 1,663 1,584 – 5 Plate 646 651 632 – 3

Profit Profit after financial items increased by SEK 1,255 million to SEK 1,957 (702) million. As a consequence of increased volumes of quenched steels and implemented price increases, it was possible to increase profits notwithstanding heavily increased raw materials costs.

Capital expenditures In recent years, investments have been carried out in order to facilitate continued growth within quenched steels. In addition to investments in rolling and quenching lines, resources have also been invested within marketing and distribution. During the year, investments have been started totalling SEK 500 million to eliminate bottlenecks in the quenched steel production flow. The work will continue until the summer of 2007 and will allow, in total, for a gradual increase in quenched steel capacity of 35%. Decisions have been taken regarding the focus of an extensive upgrading of the metallurgy operations.

32 | SSAB ANNUAL REPORT 2005 10. Four-High Rolling Mill 12. Sizing In the four-high rolling mill, slabs are rolled into plate with The plate is marked and sheared to size in a shear train or in thicknesses of 3–155 mm and widths of up to 3,500 mm. a gas-cutting machine.

11. Direct Cooling 13. Heat Treatment In order to obtain the right toughness and strength, the newly The plate is quenched and tempered in order to achieve the rolled plate undergoes accelerated cooling with water to a desired strength and toughness. determined temperature. 14. Fabrication A large portion of the plate is blasted and painted.

Development recycling and mining industries. The most abrasion- Product development resources are concentrated on resistant variant thus far in the product range has been quenched steels. The use of quenched steels provides launched under the name, HARDOX Extreme, with a a number of advantages for users, including lighter hardness of up to 700 Brinell. HARDOX Extreme is designs and reduced downtimes for replacement of used for demanding applications in the mining industry. worn parts. The WELDOX construction steels are also being con- In order to meet increasing demand for lightweight stantly developed and WELDOX 1300 was introduced steel structures, e.g. for manufacturers of mobile cranes during the year. This product is the world’s highest and concrete transport vehicles, improved methods strength construction steel which renders possible the are being developed for the rolling and quenching of construction of extremely advanced designs. This product thinner dimensions. The development and production will primarily be used for mobile and truck cranes. possibilities within these areas have been significantly The TOOLOX tool steel, which was introduced in improved in the new quenching mill for thin plate. Sweden in 2002, has now been launched on a number The development of quenched steels is taking place of European markets. TOOLOX has improved adapt- in close co-operation with customers and new, improved ability compared with traditional tool steels. steels are often tested in especially demanding applications at the customer. The development work involves applications engineers and experts within both development and production. In order further to increase knowledge about, and the need for, quenched steels, a new marketing function has been created with the task of developing, together with the customers, cost-efficient solutions using the HARDOX abrasion-resistant steels. The HARDOX abrasion-resistant steels are being regularly upgraded and the product range expanded to include new, improved products. During the year, several HARDOX variations have been introduced, including HARDOX 550. This product possesses unique qualities adapted for applications within the

SSAB ANNUAL REPORT 2005 | 33 Plannja

Thomas Björk, President new markets, improved logistics and shorter lead times as important constituent elements. The product range consists of a comprehensive range of flat and profiled building sheet, sheet roofing tiles, rain water goods, and sandwich-type wall panels. The products are used as load-bearing structures and as roofing and wall cladding for both residential and industrial premises. Plannja’s marketing and sales are aimed at the contractor, sheet metal work, and consumer markets. Most organic-coating of sheet is carried out at the company’s own organic-coating line in Luleå. The profiling of building sheet takes place in Luleå and at SEK millions 2003 2004 2005 subsidiaries in Denmark, Finland, and Poland. The Sales 1,148 1,218 1,377 manufacture of wall sections is concentrated in Luleå, Profit 50 68 76 while rainwater run-off products are manufactured by Cash flow 58 – 34 95 the subsidiary, Plannja Siba, in Järnforsen. Capital expenditures 27 23 25 Most of the operations are based on the use of metal- Capital employed 322 385 345 coated sheet. However, a small part of the production Return on capital is based on aluminium. Plannja’s annual consumption employed (%) 17 21 20 of sheet amounts to approx. 95 thousand tonnes. Most Number of employees 456 460 469 of the material is supplied by SSAB Tunnplåt. See Note 29 for definitions. Plannja’s market share in the contractor and consumer markets in Sweden is just over 30%. Competitors include Lindab and Ruukki.

The market Demand for building sheet products, mainly for the sheet metal industry and the building trade, improved in Sweden as a result of an increase in construction. The market in Poland normalised after the unusually strong increase in demand which preceded the increase in value added tax in conjunction with Poland’s entry into the EU in 2004. In total, Plannja’s sales during the year increased by Processing is of great strategic importance for the 13% to SEK 1,377 (1,218) million. Increased volumes Group’s possibility to maintain its strong domestic accounted for 5% of the increase. market position within the sheet sector. The domestic market accounted for an increased share Through many years of investment in product and of sales at 47 (44)%. The largest markets are shown in market development accompanied by strategic corporate the following table. acquisitions, Plannja has become one of the leading European producers of building sheet with a geographical focus on the Nordic and Baltic regions, as well as Central Share of sales (%) 2003 2004 2005 and Eastern Europe. Sweden 42 44 47 Based on the vision “Plannja shall be the building Other Nordic countries 35 36 38 market’s first choice as co-operation partner for sheet EU excl. Nordic countries *) 17 16 11 products and systems within our business concept”, a Others 6 4 4 strategy has been developed which is focused on profitable Total 100 100 100 growth. This strategy emphasises, among other things, *) 2003 is adjusted to cover EU 25.

34 | SSAB ANNUAL REPORT 2005 Construction materials in metal- and organic-coated profiled sheet are used both as supporting structures as well as roofing and facing products for residential and industrial premises as well as offices and schools,etc. The facing product, Plannja Panel, the beam system, Plannja Combideck and Plannja Siba’s water run-off products are examples of Plannja’s focus on complete and fully-planned systems solutions for both large and small construction projects.

Profit Profit after financial items increased by SEK 8 million and amounted to SEK 76 (68) million. The increase in profit was primarily due to increased volumes.

Capital expenditures During the year, a new distribution centre for sheet metal products was constructed and brought into use in Järnforsen. A new office was inaugurated at the factory in Joutseno in Finland. During the year, decisions were taken to invest in trimming shears for the painting line and a new recoiler line in Luleå. The automation of the factory in Järnforsen has continued with purchases of new tools and robots.

Development Development work during the year was concentrated on the Plannja Panel wall sections. In addition, a new extra-resistant paint coating system, Plannja Hardcoat, was introduced. The development in Järnforsen of new pipe brackets for the rainwater run-off system was completed and the profiling lines in Denmark were equipped with con- densation insulation equipment.

SSAB ANNUAL REPORT 2005 | 35 Tibnor

Mikael Nyquist, President A significant portion of Tibnor’s customers within the engineering industry are suppliers to the Swedish export industry. The largest competitors among distribution companies in Sweden are Bröderna Edstrand and Ruukki, as well as a number of companies with a narrow product focus, which are either independent or owned by foreign manufacturers. Within the scope of Tibnor’s business concept, the company endeavours, with strong and cost-efficient sales, warehouse and distribution functions, to be an important partner in the supply of various types of steel and metal products to industry. This is achieved SEK millions 2003 2004 2005 by offering a wide range of products combined with Sales 5,334 6,641 7,423 a wide range of services, with the aim that Tibnor shall Profit 91 484 428 be used as a first stage in the customer's own production. Cash flow 138 74 426 Tibnor’s traditional core business lies within the areas Capital expenditures 43 40 54 of steel and stainless steel in which a complete range Capital employed 1,248 1,635 1,471 of commercial steels, sheet, plate, special steels, pipes Return on capital and stainless steel are supplied to industry. In addition, employed (%) 8 36 27 the business operations include the sale of metals and Number of employees 1,093 1,080 1,035 building-related steel products. Tibnor’s subsidiaries See Note 29 for definitions. in the Nordic countries and Poland supply customers in those countries with a selection of steel and metal products based on market conditions. As a consequence of customers’ demands for tailor- made logistics solutions, steel and metal products are, to an increasing extent, being delivered pre-treated for immediate use in the customer's production. Resources for material pre-treatment, such as slitting and cutting to size of sheet, are provided in co-operation with SSAB Tunnplåt’s subsidiary, Dickson PSC. Tibnor also has its own production centres for pre-treatment of other materials with respect to cutting in lengths, blasting, organic coating, figure cutting, etc. In addition, Tibnor is able to supply production resources through a network of partners in various areas of expertise. Tibnor is the leading trading company on the Swedish Within the non-ferrous metals area, specialisation steel market and constitutes an important sales channel has taken place in trading in metals for industrial use. for SSAB Tunnplåt and SSAB Oxelösund, primarily on Within the metals area in Sweden, Finland and Denmark, the Swedish market. Tibnor is owned by SSAB (85%) Tibnor is the pre-eminent distributor of semi-finished and Outokompu Stainless (15%). goods and raw materials of aluminium, copper, brass The supply of steel to the Swedish market takes and zinc. place through steel trading companies or directly from Tibnor is one of Sweden’s leading suppliers of re- Swedish and foreign steel mills. Other companies include inforcement products, with the largest construction various Steel Service Centres and companies specialising companies in the country constituting its most important within a limited product sector. customer group. Through two plants for the manufacture Tibnor enjoys a leading position within steel and of insertion-ready rebar products, the company is also metal trading within the Nordic region, with its own able to provide tailor-made reinforcement solutions, in subsidiaries in the Nordic countries and in Poland. The addition to standard materials. Tibnor is also one of most important customer sectors are companies within Sweden’s leading suppliers of sheet piling, which is used the engineering, processing, and building industries. in the laying of foundations.

36 | SSAB ANNUAL REPORT 2005 With the market’s broadest selection of commercial steels, special steels, tubing and stainless steel and with a nation-wide logistics system, Tibnor has become a natural link in its customer’s production chains. The steel is delivered blasted, pre-painted, cut, sheared or slitted in order to be capable of being placed directly in the customer’s production process. Metals and building-related products supplement the product range.

The market Tibnor’s sales amounted to SEK 7,423 (6,641) million, an increase of 12% compared with last year. Higher prices offset reduced volumes. The reduction in volumes amounted to 6% and affected all steel products with the exception of special steels and reinforcements. Steel and residential construction increased during the year, resulting in strong demand for beams and reinforcement. During the year, there was a certain decrease in non- ferrous metal volumes, which was offset by significant price increases. With respect to stainless steels, the high price level of alloys dampened demand. The processing industry is seeking substitutes in order to reduce costs, a factor which has negatively affected stainless steels.

SEK millions 2003 2004 2005 Change in % Steel 1,260 1,338 1,465 + 9 Sheet and plate 1,827 2,505 2,841 + 13 Special steels 634 804 1,011 + 26 Stainless steel 452 609 636 + 4 Metals 837 990 1,038 + 5 Construction 279 349 385 + 10 Other 45 46 47 + 2 Total 5,334 6,641 7,423 + 12

Profit Profit was somewhat lower than last year and amounted to SEK 428 (484) million.

SSAB ANNUAL REPORT 2005 | 37 Other companies

Profit after financial items per company Demand for processed sheet weakened both in Norway SEK millions 2003 2004 2005 and Sweden. However, thanks to higher prices, sales Cogent Power – 318 – 180 – 6 increased to SEK 640 (549) million. Profit after financial Norsk Stål – 4 142 145 items weakened to SEK 30 (38) million. Norsk Stål Tynnplater – 6 38 30 Lulekraft 0 0 0 Lulekraft Oxelösunds Hamn 7 12 18 Lulekraft operates a combined heat and power plant in Luleå and is owned by SSAB (50%) and the municipality of Luleå (50%). The combined heat and power Cogent Power plant utilises energy-rich gases from SSAB Tunnplåt’s The company was formed in 1991 through a merger of slabs manufacture and produced 732 GWh of district SSAB and British Steel’s operations within the electric heat and 618 GWh of electricity. The district heat steels sector and is one of the largest producers of electric is sold to Luleå Energi, which distributes it to approx. steels in Europe. Cogent Power is owned by Corus (75%) 20,000 households in the municipality of Luleå. The and SSAB Tunnplåt (25%). Manufacture takes place at electricity is sold to SSAB Tunnplåt. There were 33 Newport in South Wales and in Surahammar. In 2000, (33) employees. the German company, Kienle&Spiess, was acquired. Sales increased to SEK 312 (296) million. Profit after This is the largest company in Europe for the stamping financial items amounted to SEK 0 (0) million. of electrical steels, with production facilities in Germany, Great Britain, Hungary, and the United States. There Oxelösunds Hamn were in total 2,417 (2,430) employees. The port operations in Oxelösund are among the largest Demand improved during the year within both electric in Sweden. The port has excellent draught conditions steels and the stamping operations. Sales increased to and plays an important role in the Group’s extensive SEK 4,236 (3,595) million. The result was affected by a imports of raw materials and exports of sheet and plate. write-off of goodwill in the amount of SEK 264 million Oxelösunds Hamn is owned by SSAB Oxelösund as a result of adjustment to the assessed market value. (50%) and the municipality of Oxelösund (50%). Nevertheless, the result improved to SEK – 6 (– 180) There were 213 (208) employees. million. The improvement was due to stronger margins Sales increased somewhat to SEK 210 (198) million. and lower costs. Profit after financial items increased to SEK 18 (12) million. Norsk Stål Norsk Stål is Norway’s largest steel wholesaler with a market share of just over 40%. There were 265 (270) employees. Norsk Stål is owned by SSAB (50%) and Corus (50%). Demand for steel in Norway increased within both shipbuilding and offshore drilling and sales increased to SEK 2,285 (1,690) million. As a consequence of higher volumes but weaker margins, profit after financial items was SEK 145 (142) million.

Norsk Stål Tynnplater Norsk Stål Tynnplater is Norway’s largest steel service centre with a market share of approx. 60%. There were 58 (60) employees. Norsk Stål Tynnplater is owned by SSAB (50%) and Corus (50%).

38 | SSAB ANNUAL REPORT 2005 FINANCIAL REPORTS Consolidated profit and loss account

SEK millions 2004 2005 Sales (Note 1) 23,712 27,804 Cost of goods sold (Note 2) – 18,381 – 20,642 Gross profit 5,331 7,162

Selling expenses (Note 2) – 1,353 – 1,489 Administrative expenses (Note 2) – 173 – 199 Other operating revenue (Note 1) 293 351 Other operating expenses (Note 2) – 267 – 185

Shares in earnings of affiliated companies (Note 3) 57 95 Operating profit 3,888 5,735 Financial income (Note 4) 68 77 Financial expenses (Note 4) – 150 – 141 Profit after financial items 3,806 5,671

Tax (Note 5) – 1,096 – 1,603 Profit after tax for remaining operations 2,710 4,068 Profit after tax for sold operations (Note 23) 937 – Net profit for the year 3,647 4,068 Of which attributable to: – the parent company’s shareholders 3,593 4,021 – minority interests 54 47

Earnings per share, SEK (Note 29) 35.61 42.21 Earnings per share excluding sold operations, SEK 26.32 42.21 Dividend per share – 2005 proposal 7.50 9.00

SSAB ANNUAL REPORT 2005 | 39 Consolidated balance sheet

SEK millions 2004 2005 ASSETS Fixed assets Intangible assets (Note 6) 14 12 Tangible assets (Note 7) 7,759 7,651 Participations in affiliated companies (Notes 3, 8) 358 381 Financial assets (Note 8) 102 41 Deferred tax claims (Note 14) 67 83 Total fixed assets 8,300 8,168

Current assets Inventories (Note 9) 5,664 6,788 Accounts receivable (Note 3) 4,003 4,327 Prepaid expenses and accrued revenue (Notes 3, 10) 270 218 Current tax claims 12 24 Other current interest-bearing receivables (Note 11) 79 946 Other current receivables 1,714 465 Liquid assets (Note 11) 1,576 884 Total current assets 13,318 13,652

Total assets 21,618 21,820

EQUITY AND LIABILITIES Equity Share capital 2,522 2,273 Other reserves 533 590 Retained earnings 9,950 11,321 Total equity for shareholders in the company 13,005 14,184 Minority shares incl. minority’s share of earnings 186 180 Total equity 13,191 14,364

Long-term liabilities Long-term interest-bearing liabilities (Note 15) 1,634 1,139 Provisions for pensions (Note 13) 136 136 Deferred tax liabilities (Note 14) 1,505 1,361 Other long-term provisions 70 71 Total long-term liabilities 3,345 2,707

Current liabilities Current interest-bearing liabilities (Note 15) 528 616 Accounts payable (Note 3) 1,879 2,023 Accrued expenses and deferred revenue (Note 16) 1,216 1,377 Current tax liabilities 1,148 403 Other current liabilities 311 330 Total current liabilities 5,082 4,749

Total equity and liabilities 21,618 21,820

Pledged assets (Note 20) 72 61 Contingent liabilities (Note 21) 38 78

40 | SSAB ANNUAL REPORT 2005 The Groups changes in equity

ContrI- Trans- Share buted lation Retained Minority Total SEK millions capital funds reserve earnings Total interest equity Equity, December 31, 20031) 2,522 560 – 6,962 10,044 151 10,195 Effect of change in accounting principles – – – – 0 – 0 Adjusted balance, January 1, 2004 2,522 560 – 6,962 10,044 151 10,195 Translation difference (Note 12) – – – 27 – – 27 – – 27 Profit for the year – – – 3,593 3,593 54 3,647 Total changes, excluding transactions with the company’s owners – – – 27 3,593 3,566 54 3,620 Dividend (Note 12) – – – – 605 – 605 – 19 – 624 Equity, December 31, 2004 2,522 560 – 27 9,950 13,005 186 13,191

Equity, December 31, 2004 2,522 560 – 27 9,950 13,005 186 13,191 Effect of change in accounting principles – – – – 49 – 49 – – 49 Adjusted balance, January 1, 2005 2,522 560 – 27 9,901 12,956 186 13,142 Translation difference (Note 12) – – 51 – 51 1 52 Change in affiliated companies’ equity – – 6 – 6 – 6 Profit for the year – – – 4,021 4,021 47 4,068 Total changes, excluding transactions with the company’s owners – – 57 4,021 4,078 48 4,126 Redemption – 249 – – – 1,844 – 2,093 – – 2,093 Dividend (Note 12) – – – – 757 – 757 – 54 – 811 Equity, December 31, 2005 2,273 560 30 11,321 14,184 180 14,364

1) The restricted reserves excluding share capital as previously reported in accordance with Swedish rules, amounting to SEK 3,103 million in accordance with the annual report as per December 31, 2003, have, in conjunction with a review of the origin of these reserves as per December 31, 2003, been divided into contributed funds (from shareholders in the company) in the amount of SEK 560 million, while the remainder has been allocated to Retained earnings.

SSAB ANNUAL REPORT 2005 | 41 Consolidated cash flow statement

SEK millions 2004 2005 BUSINESS OPERATIONS Cash flow from operating activities Profit after financial items (Note 22) + 3,806 + 5,671 Reversal of non-cash items Non-distributed share in affiliated company’s earnings – 53 – 45 Depreciation and write-downs + 1,008 + 951 Profit upon sale of fixed assets – 10 + 6 Other reversals + 35 + 1 Tax paid – 354 – 2,478 + 4,432 + 4,106 Working capital Inventories (+decrease) – 954 – 1,123 Accounts receivable (+decrease) – 848 – 352 Accounts payable (+increase) + 628 + 156 Other current receivables (+decrease) – 50 – 20 Other current liabilities (+increase) + 221 + 58 – 1,003 – 1,281 Sold operations (Note 23) + 192 – Cash flow from operating activities + 3,621 + 2,825

INVESTING ACTIVITIES Investments in plants – 644 – 853 Repaid equity in affiliated companies + 27 – Sale of plants + 43 + 14 Other long-term receivables (+decrease) + 58 + 61 Sold operations (Note 23) – 82 + 1,425 Cash flow from investing activities – 598 + 647

FINANCING ACTIVITIES Redemption of shares – – 2,093 Dividend to shareholders – 605 – 757 New loans – – Repayment/amortisation of loans – 1,356 – 501 Other financing (+increase) – 19 – 813 Cash flow from financing activities – 1,980 – 4,164

CHANGE IN LIQUID ASSETS + 1,043 – 692

LIQUID ASSETS Balance on January 1 + 533 + 1,576 Change in liquid assets + 1,043 – 692 Balance on December 31 + 1,576 + 884 Contracted, non-utilised bank credit + 1,908 + 1,876 Disposable liquid assets + 3,484 + 2,760

42 | SSAB ANNUAL REPORT 2005 Parent Company’s profit and loss account

SEK millions 2004 2005 Gross profit 0 0

Administrative expenses (Note 2) – 68 – 82 Other operating revenue (Note 1) 2 8 Operating profit – 66 – 74

Dividends from subsidiaries (Note 4) 904 2,621 Financial items (Note 4) 1,092 69 Profit after financial items 1,930 2,616

Tax allocation reserve 148 30 Profit before tax 2,078 2,646

Tax (Note 5) – 33 + 7 Net profit for the year 2,045 2,653

SSAB ANNUAL REPORT 2005 | 43 Parent Company’s balance sheet

SEK millions 2004 2005 ASSETS Fixed assets Tangible assets (Note 7) 1 1 Financial assets (Note 8) 2,422 2,307 Deferred tax claims (Note 14) 0 1 Total fixed assets 2,423 2,309

Current assets Receivables from subsidiaries 4,491 5,703 Prepaid expenses and accrued revenue (Note 10) 23 12 Current tax claims – – Other current interest-bearing receivables (Note 11) 75 927 Other current receivables 1,514 193 Liquid assets (Note 11) 1,438 641 Total current assets 7,541 7,476

Total assets 9,964 9,785

EQUITY AND LIABILITIES Equity Restricted equity: Share capital 2,522 2,273 Premium reserve 20 – Statutory reserve 640 909 Unrestricted equity: Profit brought forward 1,245 822 Net profit for the year 2,045 2,653 Total equity 6,472 6,657

Untaxed reserves (Note 14) 30 –

Provisions Provisions for pensions 5 5 Total provisions 5 5

Long-term liabilities Liabilities to subsidiaries 0 1 Other long-term interest-bearing liabilities (Note 15) 1,536 1,050 Total long-term liabilities 1,536 1,051

Current liabilities Liabilities to subsidiaries 1,226 1,170 Current interest-bearing liabilities (Note 15) 476 581 Accrued expenses and deferred revenue (Note 16) 73 83 Current tax liabilities 32 142 Other current liabilities 114 96 Total current liabilities 1,921 2,072

Total equity and liabilities 9,964 9,785

Pledged assets (Note 20) 0 0 Contingent liabilities (Note 21) 141 178

44 | SSAB ANNUAL REPORT 2005 The Parent Company’s changes in equity

Restricted Equity Unrestricted Equity Share Premium Statutory Profit Brought Profit for SEK millions Capital Reserve Reserve Forward the Year Equity, December 31, 2003 2,522 20 640 1,048 804 Carry forward of previous year’s profit – – – 804 – 804 Group contributions provided – – – – 2 – Dividend (Note 12) – – – – 605 – Profit for the year – – – – 2,045 Equity, December 31, 2004 2,522 20 640 1,245 2,045

Equity, December 31, 2004 2,522 20 640 1,245 2,045 Carry forward of previous year’s profit – – – 2,045 – 2,045 Group contributions received – – – 530 – Tax on Group contributions – – – – 148 – Reclassification of share premium reserve – – 20 20 – – Redemption (Note 12) – 249 – 249 – 2,093 – Dividend (Note 12) – – – – 757 – Profit for the year – – – – 2,653 Equity, December 31, 2005 2,273 – 909 822 2,653

SSAB ANNUAL REPORT 2005 | 45 Parent Company’s cash flow statement

SEK millions 2004 2005 BUSINESS OPERATIONS Cash flow from operating activities Profit after financial items (excl. dividends from subsidiaries) (Note 22) + 1,026 – 5 Reversal of non-cash items Depreciation + 0 + 0 Profit upon sale of subsidiaries – 1,045 – Other reversals – 12 – 5 Paid tax – 3 – 31 – 34 – 41 Working capital (Note 22) Current receivables (+ decrease) – 50 – 51 Current liabilities (+ increase) + 78 – 7 Commercial intra-Group transactions + 1 + 102 + 29 + 44 Cash flow from operating activities – 5 + 3

INVESTING ACTIVITIES Investments in plants 0 0 Sold plants 0 + 6 Sale of subsidiaries 0 + 1,425 Other long-term receivables (+ decrease) + 57 + 55 Cash flow from investing activities + 57 + 1,486

FINANCING ACTIVITIES Dividend to shareholders – 605 – 757 Redemption of shares – – 2,093 Dividends from subsidiaries + 904 + 2,621 Group contributions – 1 – New loans – – Repayment/amortisation of loans – 1,403 – 381 Financial intra-Group transactions + 2,076 – 782 Other financing (+ increase) + 4 – 894 Cash flow from financing activities + 975 – 2,286

CHANGES IN LIQUID ASSETS + 1,027 – 797

LIQUID ASSETS Balance on January 1 + 411 + 1,438 Changes in liquid assets + 1,027 – 797 Balance on December 31 + 1,438 + 641

Contracted, non-utilised bank credit + 1,908 + 1,876 Disposable liquid assets + 3,346 + 2,517

46 | SSAB ANNUAL REPORT 2005 Notes

Table of contents, Notes Accounting and valuation principles

47 Accounting and valuation principles Principles for preparation of the report 53 Note 1 Sales and other operating revenue The consolidated financial statements have been prepared in accordance with the Swedish Annual 53 Note 2 Operating expenses Reports Act as well as International Financial Reporting (including compensation to employees) Standards (IFRS) issued by the International Accounting 56 Note 3 Affiliated companies Standards Board (IASB) with interpretation statements 56 Note 4 Financial items issued by the International Financial Reporting Interpre- 58 Note 5 Taxes tations Committee (IFRIC), as such have been adopted 58 Note 6 Intangible assets by the EU. This financial report is the first complete financial report prepared in accordance with IFRS. In 59 Note 7 Tangible assets connection with the transition from previously applied 61 Note 8 Financial assets and participations accounting principles, the Group has applied IFRS 1, in affiliated companies which is the standard that describes the manner in 62 Note 9 Inventories which the transition to IFRS shall be reported. In addi- 62 Note 10 Pre-paid expenses and accrued revenue tion, the Swedish Financial Accounting Standards Council’s Recommendation RR 30, Supplementary 63 Note 11 Other current interest-bearing Reporting Rules for Groups, has been applied. receivables/Liquid assets The consolidated financial statements have been 63 Note 12 Equity prepared in accordance with the acquisition method 64 Note 13 Pensions provisions except with respect to certain financial assets and 65 Note 14 Deferred tax liabilities and liabilities (including derivative instruments), which are tax claims/Untaxed reserves valued at fair value via the Profit and Loss Account. 66 Note 15 Interest-bearing liabilities The Parent Company applies the same accounting principles as the Group, except where stated below in 67 Note 16 Accrued expenses and deferred revenue a particular section. The differences that exist between 67 Note 17 Net debt the principles applied by the Parent Company and the 68 Note 18 Average number of employees, Group are due to limitations on the possibilities to proportion of women and sick leave apply IFRS to the Parent Company as a consequence 69 Note 19 Leasing of the provisions of Swedish Annual Reports Act and the Swedish Pension Obligations (Security) Act and 69 Note 20 Pledged assets also, in certain cases, for tax reasons. In addition, 69 Note 21 Contingent liabilities the Swedish Financial Account Standards Council’s 70 Note 22 Cash flow statement Recommendation RR32, Reporting by Legal Entities, 70 Note 23 Acquisitions/sale of operations has been applied. Note 26 contains a summary with explanations 71 Note 24 Business areas of the manner in which the transition to IFRS has 73 Note 25 Financial risk management affected the Group’s financial results and position 75 Note 26 Transition to IFRS 2005 as well as reported cash flow. 77 Note 27 Critical estimations and assessments 77 Note 28 Future standards Consolidated financial statements The consolidated financial statements include 78 Note 29 Definitions SSAB Svenskt Stål AB and the companies in which 78 Note 30 Considerations in conjunction with the Parent Company directly or indirectly owns proposed disposition of profits shares representing more than 50% of the voting capital or otherwise exercises a controlling influence. Companies which are not subsidiaries but in which SSAB owns at least 20% of the voting capital or otherwise exercises a significant influence are reported as affiliated companies in accordance with the equity method. In the Parent Company, however, affiliated companies are reported in accordance with the acquisition value method.

SSAB ANNUAL REPORT 2005 | 47 NOTES

The Groups’s annual accounts are prepared in accord- are reported as revenue/expenses in the Consolidated ance with the acquisition method, entailing that Profit and Loss Account. the equity of a subsidiary at the time of acquisition Goodwill and adjustments of assets and liabilities to – defined as the difference between the fair value of fair value in connection with the acquisition of foreign identifiable assets, liabilities and possible obligations subsidiaries are treated as assets and liabilities in the – is eliminated in its entirety against the acquisition foreign operation and thus translated in accordance price. Any outstanding, non-eliminated part of the with the same principles as the foreign subsidiaries. acquisition price is reported as goodwill. If the acquisition price is less than the fair value for the net assets Revenue recognition of the acquired subsidiary, the difference is reported Sales are reported after the crucial risks and benefit directly in the Profit and Loss Account. associated with title are transferred to the buyer and Acquired companies are included in the consolidated no right of disposition or possibility of actual control financial statements commencing the day on which of the goods remains. In most cases, this means that a controlling influence is obtained, while sold com- sales are reported upon delivery of the goods to the panies are reported up to the day on which the con- customer in accordance with agreed delivery terms trolling influence ceases. and conditions. The sale is reported less value added Intra-Group transactions, dealings and unrealised tax, discounts, returns and freight. Intra-Group sales profits are eliminated in the consolidated financial are eliminated in the consolidated financial statements. statements. With respect to other revenue, interest revenue is re- In the Consolidated Cash Flow Statement, pur- ported in accordance with the effective yield and divi- chase prices for acquired or sold operations are dend when the entitlement to the dividend is assessed reported under the headings Acquired new operations as certain. Dividends from subsidiaries are reported by and sold operations. The assets and liabilities held the Parent Company when they are received. in the acquired/sold operations at the time of the acquisition/sale are, therefore, not included in the Pricing between Group companies cash flow statement. Pricing of deliveries of goods and services between companies in the Group takes place at comparable Transactions in foreign currencies market levels. Deliveries of slabs from SSAB Oxelösund Transactions in foreign currencies are reported at to SSAB Tunnplåt, however, are set at cost price. the exchange rate on the transaction date. In certain cases, the actual rate is approximated to the average Government grants rate during a month. At the end of the month, receiv- Government aid and grants are allocated over the ables and liabilities in foreign currency are translated same period as the expenses which the grant is in- in accordance with the closing day rate at that time. tended to compensate. Subsidies provided as com- Exchange rate differences relating to the operations pensation for expenses are recognised in the Profit are reported in the operating profit, while differences and Loss Account as an expense reduction. Subsidies attributable to financial assets and liabilities are related to assets are recognised in the balance sheet reported as a net sum among financial items. through a reduction in the reported value of the assets. The Profit and Loss Accounts of foreign subsidiaries are translated into Swedish kronor at the average ex- Research and development expenses change rates for the year, while their balance sheets Research expenses are booked as they are incurred. are translated into Swedish kronor in accordance with Development expenses may be capitalised under the closing day rate. Any translation differences that certain strict conditions. However this requires, arise are transferred directly to the Group’s equity and among other things, that future economic benefits reported in the item “Translation Reserve”. can be demonstrated at the time the expenses are Loans or other financial instruments taken up in incurred. At present there are no such projects and order to hedge net assets in foreign subsidiaries are thus development expenditures are also booked reported in the consolidated financial statements at as expenses. the closing day rate. Any exchange rate differences less deferred taxes are transferred directly to equity Expenses for development of software and thereby set off against the translation differences Expenses for development and acquisition of new soft- which arise in conjunction with the translation of these ware are capitalised and reported as an intangible asset subsidiaries’ balance sheets into Swedish kronor. provided they have a significant value for the company Upon sales of foreign subsidiaries, the total trans- in the future and where they can be deemed to have lation differences that relate to the foreign subsidiary an economic life in excess of three years. Expenses for

48 | SSAB ANNUAL REPORT 2005 NOTES

training and maintenance of software are, however, re-classified as an asset with a limited life span. The booked directly as expenses. asset’s use period is then calculated and depreciation commences. Tangible and intangible assets Fixed assets are reported at acquisition value less Leased fixed assets deduction for accumulated depreciation and any Expenses for fixed assets that are leased instead of accumulated write-downs. Depreciation is based owned are primarily reported as lease expenses (opera- on the acquisition value of the assets and estimated tional leasing). Where the leasing agreements contain period of use. The acquisition value includes expenses terms and conditions pursuant to which the Group directly attributable to the acquisition of the asset. enjoys the economic advantages and incurs the eco- Any loan expenses in conjunction with the construc- nomic risks that are associated with ownership of the tion and design of fixed assets are not added to property (financial leasing), they are reported in the the acquisition expenses but, rather, booked as consolidated balance sheet under ‘Fixed Assets’ and expenses when incurred. Restoration expenses in depreciated over the use period (the shorter of the connection with disposals of fixed assets are included economic lifespan and the outstanding leasing period). in the acquisition value only where the criteria for In the Parent Company, all leasing agreements are a provision for such restoration expenses may be reported as operational. deemed fulfilled. Land is assumed to have a perpetual period of use Financial assets and thus is not depreciated. Other tangible assets are Financial assets include liquid assets, accounts classified into Groups for calculation of depreciation, receivable, shares and participations, loan claims and based on the estimated period of use in accordance derivative instruments. They are reported initially at with the following table. acquisition value corresponding to the fair value of the assets plus a supplement for transaction costs, Useful life, with the exception of assets that are valued at fair Examples of items years value. Reporting thereafter takes place depending on the manner in which the asset is classified. Financial Vehicles, office equipment and computers 3–10 assets are removed from the balance sheet when Light machinery 7–15 the debt/instrument is finally paid or ceases to apply Heavy machinery or is transferred through all risks and benefits being Relining of blast furnaces 12–15 assigned to an external party. Steel furnaces, rolling mills and cranes 15–20 Spot purchases and sales of financial assets are Blast furnaces and coke ovens 20–25 reported on the settlement day, i.e. the day on which Buildings and land improvements 20–50 the asset is delivered. Accounts receivable are reported in the balance sheet when an invoice has been sent. The use period of the assets is assessed annually The fair value of listed financial assets corresponds and adjusted where required. The assets are normally to the asset’s listed transaction price on the balance depreciated to zero without any remaining residual sheet date. The fair value of unlisted financial assets value. is determined through use of valuation techniques, Intangible assets are classified in the same manner for example, recently conducted transactions, price into two groups, where assets with a limited life span for similar instruments and discounted cash flows. are deemed to have a depreciation period of 3–5 Financial assets are classified in four categories: years and assets with an unlimited life span are not “holdings for trading”, “holdings to maturity”, “loan depreciated at all. claims and accounts receivable” and “assets for sale”. The linear depreciation method is used for all types of fixed assets with a limited use period. Where the ● Assets that are acquired primarily in order to ex- book value of an asset exceeds the expected recovery ploit profits upon short-term price fluctuations are value, the asset is written down to such value. classified as “holdings for trading” and reported Assets with an unlimited life span (including good- as short-term investments if the term to maturity will) are reviewed annually for any reduction in value is less than three months on the acquisition date or otherwise where signs indicate a decline in value. and as other current interest-bearing receivables if Where the estimated recovery value is less than the the term to maturity is between three and twelve book value, the asset is written down to the recovery months. Derivative instruments are classified as value. Assessment of the value of an asset with an holdings for trading except where used for hedge unlimited life span may also result in the asset being accounting. Assets in this category are valued

SSAB ANNUAL REPORT 2005 | 49 NOTES

regularly at fair value and changes in value are ments with an original term to maturity of less than reported in the Profit and Loss Account. three months (short-term investments). Investments with an original term to maturity of between three ● Assets with a fixed maturity date and which are and twelve months are reported under “Other current intended to be held until maturity are classified as interest-bearing receivables” and classified as assets “holdings to maturity” and reported as financial valued at the fair value via the Profit and Loss Account. assets, except for those parts that mature within twelve months, which are reported as other current Inventories interest-bearing receivables. Assets in this category Inventories are valued at the lower of acquisition cost are valued at the accrued acquisition value. The and net realizable value, where the acquisition value accrued acquisition value is determined based on is calculated in accordance with the FIFO method (first the effective rate of interest which is calculated on in, first out). The net realizable value is normally cal- the acquisition date. During the year, the Group culated as the sales price less production and sales held no instruments in this category. costs. With respect to raw materials and products in ● Loan claims and account receivables are financial the trading operations, the replacement cost is used assets that are not derivatives, which have fixed as the best gauge of the net realizable value. How- or determinable payments and which are not listed ever, raw materials are not written down below the on an active market. The claims arise when cash, acquisition value where the end product in which they goods or services are provided directly to the bor- are included is expected to be sold at a price which rower without an intention of trading in the receiv- exceeds the manufacturing cost. Work in progress ables. Precisely as with the preceding category, and finished inventories are valued at the lower of assets in this category are valued at the accrued the manufacturing cost and the net realizable value. acquisition value. Necessary provisions are made for obsolescence.

● Assets which are held for an undetermined period Employees’ benefits of time but which can be sold should liquidity needs Pensions arise or upon changes in interest rates are classified Within the Group there are both contribution-based as “assets for sale” and reported as financial assets. and benefit-based pension plans. Generally, the Assets in this category are valued regularly at the plans are financed through payments to insurance fair value with value changes against equity. On companies or funds. the date when the investments are removed from In the contribution-based plans, fixed fees are paid the balance sheet, any previously reported accumu- to a separate legal entity and there is no obligation, lated profit or loss in equity is transferred to the legal or informal, to pay any additional fees. In the Profit and Loss Account. contribution-based plans, payments are recognised Other shares and participations as a cost during the period when the employees have Consist primarily of unlisted holdings and belong to performed the services to which the fees relate. The the category of financial assets valued at fair value via blue collar employees in Sweden are covered by such the Profit and Loss Account. a contribution-based plan. In the benefit-based plans, compensation is payable Long term receivables to employees and former employees based on salary Long term receivables are receivables held without at the time of retirement and number of years in ser- an intention of trading in the claim. Parts where the vice. The Group bears the risk that the cost for the outstanding holding period is less than one year are promised payments will be higher than estimated. reported among other current interest-bearing receiv- In the consolidated balance sheet, the net value ables. The receivables belong to the category, “Loan of estimated present value of the obligations and claims and accounts receivable”. fair value of the managed assets is reported either Accounts receivable as a long-term provision or as a long-term financial Accounts receivable are classified in the category, claim. In those cases where a surplus in a plan cannot “Loan claims and accounts receivable”. Accounts be utilised, only that part of the surplus which can receivable are reported at the amount which is be recovered through reduced future fees or refunds expected to be received in payment, based on an is reported. Set-offs of a surplus in one fund against individual assessment of uncertain claims. a deficit in another fund takes place only where a right of set-off exists. Liquid assets Pension costs and pension obligations for benefit- Liquid assets include cash, immediately accessible based plans are calculated in accordance with the bank balances as well as other money market instru- Projected Unit Credit Method. The method allocates

50 | SSAB ANNUAL REPORT 2005 NOTES

the cost for pensions as the employees perform the Environmental restoration expenses services that increase their entitlement to future com- Environmental restoration expenses associated with pensation. The assumption is calculated by independent previous operations and which do not contribute to actuaries and constitutes the present value of the current or future revenue are booked as a cost when anticipated future disbursements. The discount rate incurred. The environmental undertaking is calculated that is applied corresponds to the rate of interest on based on interpretations of applicable environmental top-rated corporate bonds or government bonds with legislation and regulations and is reported when it a term which corresponds to the average term for the is likely that payment liability will be incurred and obligations. The most important actuarial assumptions a reasonable estimation can be made of such amount. are stated in Note 13. Provisions have not been made for land clean-up Actuarial profits or losses may arise upon determina- in order to prepare the industrial areas for other use tion of the present value of the obligations and the in the future since it is not possible to reasonably fair value of the managed assets. These arise either estimate when such clean-up will take place. due to the actual result deviating from previously- made assumptions, or changes in the assumptions. Financial liabilities Such actuarial profits and losses are recognised in Financial liabilities include loan debts, accounts pay- their entirety in the Group’s results when they arise. able and derivatives. They are reported initially at White collar employees in Sweden are covered by acquisition value corresponding to the net fair value a collective benefit-based plan, the ITP (supplementary after deductions for transaction costs. Reporting pensions for salaried employees) plan. The ITP plan thereafter takes place depending on the manner in has been financed through the purchase of pension which the liabilities are classified. Financial liabilities insurance with the mutual insurance company, Alecta. are removed from the balance sheet when the debt/ However, at present no information is available which instrument is paid in full or ceases to apply or is trans- makes it possible to report this plan as a benefit- ferred through all risks and benefits being assigned based plan. Accordingly, the plan is reported as to an external party. a contributions-based plan, entailing that the pre- Loan debts miums paid to Alecta during the year are reported Loan debts are valued initially at fair value and there- as pension costs. after at accrued acquisition value. The accrued acquisi- The Parent Company and other legal entities tion value is determined based on the effective rate within the Group report benefit-based pension plans of interest calculated when the loan was taken up. in accordance with the local rules in the respective Accordingly, surplus values and under-values as well country. as direct issue costs are allocated over the loan period. Profit shares and variable salary Long-term loan debts have an anticipated term to All employees are covered by a profit-sharing system maturity in excess of one year while current loan which entitles them to a share in the profit above debts have a term to maturity of less than one year. a minimum level. Group Management and a number Derivative instruments of other senior executives also have salaries which Currency derivatives in the form of forward contracts contain a variable element related to the profit level. and swaps are used to hedge the exchange rates on The costs for these systems are booked as accrued sales orders and purchasing orders and to hedge expenses regularly during the year as soon as it Swedish kronor payment flows on foreign loans. is likely that the profit level will exceed the profit All derivative instruments are reported in the threshold requirement. balance sheet at fair value. The method for reporting Share-related compensation accrued profit/loss differs, however, depending on No share-related compensation is paid within the the purpose of the derivative instrument. When a Group. derivative contract is entered into, it is characterised as hedging of the fair value of a reported asset/liability Provisions or of a delivery order (“fair value hedging”), hedging Provisions are reported when the Group has an obliga- of a planned transaction (“cash flow hedging”), tion as a result of an event that has occurred and where hedging of a net investment in a foreign company it is likely that payments will be demanded for fulfilment or as a derivative instrument which does not meet the of the obligation. A further requirement is that it is requirements for hedging transactions. possible to make a reliable estimation of the amount Changes in the fair value of derivative instruments to be paid out. which are categorised as, and meet the requirements

SSAB ANNUAL REPORT 2005 | 51 NOTES

for, “fair value hedging” are reported in the Profit and Group inventory transactions, untaxed reserves in the Loss Account together with changes in the fair value form of tax allocation reserves and non-utilised losses of the asset/liability or the delivery order to which the carried forward. A deferred tax claim due to losses hedging relates. carried forward is, however, recognised as an asset Changes in fair value of derivative instruments only to the extent that it is likely that deductions can which are characterised as, and meet the requirements be made against future surpluses. for, cash flow hedging are reported in equity as hedg- In the Parent Company’s balance sheet, the accu- ing reserves until such time as the hedged interest is mulated values of accelerated depreciation and other entered in the books. When the hedged interest is untaxed reserves are reported in the item “untaxed entered in the books, the result from the derivative reserves” without deduction of the deferred tax. instrument is also reported in the Profit and Loss In the Parent Company’s Profit and Loss Account, Account. However, where a planned transaction is no changes in the untaxed reserves are reported on a longer expected to occur, the profit or loss attributed separate line. thus far to the hedging reserve is transferred immediately to the Profit and Loss Account. Dividends Hedging of net investments in foreign companies Dividends proposed by the Board of Directors do not is reported in the same manner as cash flow hedging. reduce equity until the Annual General Meeting has Changes in value of derivative instruments are re- adopted a resolution on payment of the dividend. ported in the translation reserve in equity. Certain derivative transactions do not meet the Group contributions in the Parent Company formal requirements for hedge accounting. Changes Group contributions and the tax consequences there- in fair value with respect to such derivatives are re- of are reported directly against equity and thus do not ported in the Profit and Loss Account. affect the result. The fair value of currency forward contracts and currency swaps is calculated based on prevailing for- Cash flow statement ward contract prices on the balance sheet day, while The cash flow statement is prepared in accordance interest rate swaps are valued calculated on the basis with the indirect method. Liquid assets in the cash of future discounted cash flows. flow statement consist of cash and bank balances as well as short-term investments with a term to maturity Taxes of less than three months from the acquisition dates The Group’s reported tax expenses consist of tax and which are exposed to only an insignificant risk of on the taxable earnings of Group companies for the change in value. period as well as any adjustments with respect to tax for previous periods, shares in the tax of affiliated Segment reporting companies and changes in deferred tax. Business segments Deferred tax is calculated in order to correspond The Group is organized into separate sub-groups, to the tax consequence which arises when final tax is SSAB Tunnplåt, SSAB Oxelösund, Plannja and Tibnor. triggered. It corresponds to the net effect of tax on all (SSAB HardTech was sold at the end of 2004.) In addi- differences between the tax value of assets and liabil- tion, there are a number of foreign sales companies ities and the value for accounting purposes (temporary that are owned directly by the Parent Company. The differences), applying the future tax rates already subsidiaries constitute the primary division basis and, decided upon or announced which will apply at the since they are separate legal entities, the presentations time it is expected that the tax will be realised. in Note 24 are based on their complete financial reports. Temporary differences arise primarily through accel- A detailed description of the subsidiaries and their erated depreciation of fixed assets, profit from intra- operations is presented on pages 26–38.

52 | SSAB ANNUAL REPORT 2005 NOTES

1 SALES AND OTHER OPERATING REVENUE Sales per product area Group SEK millions 2004 2005 Hot-rolled sheet 5,794 7,233 Cold-rolled and metal-coated sheet 3,782 4,338 Organic-coated and profiled sheet 3,166 3,416 Plate 4,919 6,676 Trading operations 4,271 4,600 Slabs 982 660 By-products 793 874 Other 5 7 Total, remaining operations 23,712 27,804 Sold operations (SSAB HardTech) 919 – Total 24,631 27,804 Sales broken down per business segment and geographic market are set forth in the Group review on pages 22 and 19 as well as Note 24.

Other operating revenue Group Parent Company SEK millions 2004 2005 2004 2005 Sales of purchased energy and media 146 84 – – Net exchange profit 39 137 – – Profit from sale of fixed assets 6 12 0 6 Other 102 118 2 2 Total, remaining operations 293 351 2 8 Sold operations 825 – – – Total 1,118 351 2 8

2 OPERATING EXPENSES Type of cost Group Parent Company SEK millions 2004 2005 2004 2005 Raw materials in the steel operations 5,437 7,137 – – Purchased products and other input materials in the steel operations 1,199 1,104 – – Purchased products in the processing and trading operations 4,080 4,964 – – Materials and services 3,073 3,443 10 12 Energy 1,083 1,170 – – Compensation to employees 3,988 4,085 38 50 Depreciation 1,008 951 0 0 Other 306 – 339 20 20 Total, remaining operations 20,174 22,515 – – Sold operations (SSAB HardTech) 745 – – – Total 20,919 22,515 68 82

Services’ includes fees and compensation to accounting firms in the following amounts: Auditing fees PricewaterhouseCoopers 3 3 1 1 KPMG 1 1 – – Others 2 1 – – Total auditing fees 6 5 1 1

Continuation of note 2 on next page.

SSAB ANNUAL REPORT 2005 | 53 NOTES

2 OPERATING EXPENSES, CONTINUATION

Other compensation to accounting firms Group Parent Company SEK millions 2004 2005 2004 2005 PricewaterhouseCoopers 5 3 0 1 KPMG 0 0 0 0 Others 1 2 – – Total other compensation 6 5 0 1

Operating expenses have been reduced by the following government grants: Group Parent Company SEK millions 2004 2005 2004 2005 Freight support 13 11 – – Investment subsidy 0 0 – – Other 4 4 – – Total, remaining operations 17 15 – – Sold operations (SSAB HardTech) 12 – – – Total 27 15 – –

Directors, Presidents, and Other Compensation to employees Executive Vice Presidents employees SEK millions 2004 2005 2004 2005 Parent Company 1) 9 12 13 14 Subsidiaries in Sweden 20 18 2,307 2,338 Subsidiaries outside Sweden: Canada 1 1 21 21 Denmark 4 4 58 61 Finland 3 3 35 38 France 0 0 7 9 Germany 0 0 23 25 Italy 3 3 17 16 Netherlands 1 0 8 9 Norway 2 2 12 15 Poland 3 4 11 13 South Africa 1 1 15 19 UK 1 1 24 22 USA 1 1 18 19 Other countries 0 2 26 30 Total wages and salarie 2) 49 52 2,595 2,649

Social security expenses 22 29 1,173 1,164 (of which, pension expenses) (11) (16) (273) (303) Profit-sharing scheme 1 1 130 171 Other expenses for benefits to employees 1 1 17 18 Total, remaining operations 73 83 3,915 4,002 Sold operations (SSAB HardTech) 4 – 238 – Total compensation to employees 77 83 4,153 4,002

1) Relates only to personnel employed and working within the Parent Company. Personnel in certain major subsidiaries are form- ally employed in the Parent Company but are listed in terms of number (Note 18) and expense in the respective subsidiaries. 2) Total wages and salaries include profit-based salaries to Presidents and Executive Vice Presidents in the amount of SEK 7 (4) million, of which SEK 5 (3) million are included in the Parent Company. Continuation of note 2 on next page.

54 | SSAB ANNUAL REPORT 2005 NOTES

2 OPERATING EXPENSES, CONTINUATION Terms of employment for the Group’s senior executives

Board of Directors Fees to the Chairman of the Board of Directors amounted to SEK 800,000 (600,000) and to the members of the Board of Directors (excluding CEO) to SEK 300,000 (250,000). In addition, members of Board committees received SEK 50,000 for each committee in which the member was included. In total, the Board of Directors received SEK 2,850,000 (2,100,000) in fees.

Board member Presence Fees Board Audit Compensation Board Committee Elected Position meetings committee committee fees fees Elected by General Meeting Sverker Martin-Löf 2003 Chairman 11 3 3 800,000 100,000 Carl Bennet 2004 Member 11 – – 300,000 – Anders G Carlberg 1986 Member 11 3 – 300,000 50,000 Per-Olof Eriksson 1986 Member 10 – – 300,000 – Marianne Nivert 2002 Member 11 2 – 300,000 50,000 Anders Nyrén 2003 Member 11 – 3 300,000 50,000 Matti Sundberg 2004 Member 11 – – 300,000 – Anders Ullberg 2001 Member, CEO 11 – – – – Employee representatives Sture Bergvall *) Ordinary 6 – – – – Bo Jerräng Ordinary 10 – – – – Bert Johansson Ordinary 11 – – – – Owe Jansson Alternate 11 – – – – Ola Parten*) Alternate 6 – – – – Claes Ström Alternate 10 – – – – *) Appointed in conjunction with the 2005 General Meeting, after which six meetings were held.

Salaries and compensation for the Chief Executive based and, at present, is estimated to amount to approx. Officer and other senior executives 30% of the fixed salary. The commitment is covered by in- Within the Board of Directors there is a compensation surance. The cost for pension amounted to 145 (65)% of committee which issues a proposal regarding the salary the fixed salary. The entire pension commitment is inviolable. and other employment terms and conditions for the Chief However, the above-stated benefit levels are conditional Executive Officer, determines the salary and other employ- on the Chief Executive Officer continuing to serve until the ment terms and conditions for Group Management, and also age of 60. establishes salary limits and employment terms and condi- There is a 12-month period of notice in the event of tions for other senior executives. The committee consists of dismissal by the company. In addition, in such a situation Sverker Martin-Löf (chairman) and Anders Nyrén. The Chief severance payment equivalent to 12 months’ salary is payable. Executive Officer is a co-opted member of the committee but Termination by the Chief Executive Officer is subject to six does not participate in discussions concerning his own salary months’ notice and, in such situation, there is no entitlement and employment terms and conditions. to severance payment. Compensation to the Chief Executive Officer and other members of Group Management consists of a fixed and Other Group Management a variable salary element. The variable salary is related to Total compensation and benefits to the four members of the Group’s return on equity and may not exceed 45% of Group Management, excluding the Chief Executive Officer, the fixed salary. There is no share-related compensation. amounted to SEK 12.0 (10.9) million, of which SEK 3.9 (3.1) However, members of Group Management have undertaken million consisted of profit-based variable salary, which will to acquire SSAB shares through the market for a portion of be paid during 2006 (2005). the variable salary. The retirement age is 65. Pensions are in part determined as benefits and in part based on contributions and the com- President and Chief Executive Officer mitments are covered by insurance. Pension premium costs Total compensation amounted to SEK 6.6 (6.0) million, of amounted to 26 (17)% of the total fixed salary. which SEK 2.0 (1.8) million consisted of the profit-based There is a 12-month period of notice in the event of dis- variable salary, which will be paid during 2006 (2005). missal by the company. In addition, in such situation severance The earliest retirement age is 60. Pension between the ages payment equivalent to 12 months’ salary is payable. Termina- of 60 and 65 is determined as benefit-based and amounts to tion by the employee is subject to six months’ notice and, in 65% of the fixed salary. Thereafter, the pension is contribution- such situation, there is no entitlement to severance payment.

SSAB ANNUAL REPORT 2005 | 55 NOTES

3 AFFILIATED COMPANIES Share in earnings and share of equity Share in earnings Share of equity SEK millions 2004 2005 2004 2005 Cogent Power Ltd – 40 – 1 150 143 Lulekraft AB 0 0 10 10 Norsk Stål A/S 71 72 122 140 Norsk Stål Tynnplater A/S 19 15 30 38 Oxelösunds Hamn AB 7 9 46 50 Total 57 95 358 381 Affiliated companies are presented in detail in the Report of the Directors on page 38.

Receivables from affiliated companies Group Parent Company SEK millions 2004 2005 2004 2005 Included in the balance sheet item: Financial assets 32 26 – – Accounts receivable 133 137 – – Accrued revenue 25 0 – – Total 190 163 – –

Liabilities to affiliated companies Group Parent Company SEK millions 2004 2005 2004 2005 Included in the balance sheet item: Accounts payable 30 35 – – Accrued expenses and deferred revenue – 29 – – Total 30 64 – –

The following transactions with affiliated companies occurred during the year. Cogent Power purchased steel from SSAB Tunnplåt for SEK 496 (305) million. Lulekraft purchased gas from SSAB Tunnplåt for SEK 270 (255) million and resold electricity to Lulekraft for SEK 147 (104) million. Norsk Stål and Norsk Stål Tynnplater purchased steel from the steel operations for SEK 325 (238) million. Oxelösunds Hamn sold port services to SSAB Oxelösund for SEK 189 (183) million and purchased other services for SEK 10 (11) million. The transactions took place at market prices.

4 FINANCIAL ITEMS The Group SEK millions 2004 2005 Financial income Interest income 45 75 Other dividends 2 1 Net profit upon sale of disposable financial assets 0 0 Net revaluation of financial assets/liabilities – – Net exchange rate differences 25 – Other 0 1 Total financial income 72 77

Continuation of note 4 on next page.

56 | SSAB ANNUAL REPORT 2005 NOTES

4 FINANCIAL ITEMS, CONTINUATION

The Group SEK millions 2004 2005 Financial expenses Interest expenses 142 117 Estimated financial expenses, pension liabilities 6 7 Net exchange rate differences – 10 Other 6 7

Total financial expenses 154 141

Financial income and expenses for remaining operations – 82 – 64 Sold operations (SSAB HardTech) – 17 – Financial income and expenses – 99 – 64

Parent Company SEK millions 2004 2005 Financial income Dividends from subsidiaries 904 2,621 Dividends from affiliated companies – 48 Capital gains on sale of subsidiaries 1,045 – Profit from other securities and claims which constitute fixed assets Dividends – – Interest income from subsidiaries 25 – Other interest income 13 14 Capital gains on sales – – Exchange rate differences – – Other interest income and similar income Interest income from subsidiaries 135 112 Other interest income 15 38 Capital gains on sales – – Recovered written-down investments – – Exchange rate differences 22 – Total financial income 2,159 2,833

Financial expenses Interest expenses to subsidiaries 21 18 Other interest expenses 142 105 Estimated financial expenses on pension liabilities 0 0 Exchange rate differences – 20 Other 0 0 Total financial expenses 163 143

Financial income and expenses 1,996 2,690

SSAB ANNUAL REPORT 2005 | 57 NOTES

5 TAXES Tax expenses Group Parent Company SEK millions 2004 2005 2004 2005 Swedish corporate income taxes 1,265 1,602 33 – 7 Foreign corporate income taxes 110 117 – – Total current tax expenses 1,375 1,719 33 – 7 Deferred taxes – 309 – 139 0 0 Share in taxes of affiliated companies 30 23 – – Reported tax expenses in remaining operations 1,096 1,603 33 – 7 Sold operations (SSAB HardTech) 45 – – – Reported tax expenses 1,141 1,603 33 – 7

Reconciliation of tax rates Group Parent Company % 2004 2005 2004 2005 Applicable tax rate in Sweden 28 28 28 28 Tax effect of: non-deductible expenses 0 0 0 0 non-taxable sale of SSAB HardTech – 5 – – 14 – other non-taxable income 0 0 – 12 – 28 other tax rates applicable to foreign subsidiaries and affiliated companies 1 0 – – taxes relating to an earlier period 0 0 0 0 losses carried forward which it is believed cannot be utilised 0 0 – – previous non-booked tax claims for losses carried forward 0 0 – – Effective tax rate 24 28 2 0

The Parent Company’s other non-taxable income consists primarily of dividends from subsidiaries.

6 INTANGIBLE ASSETS Patents, Tenancy Total Group licences, and rights and intangible SEK millions similar rights similar rights Goodwill assets Acquisition value, Jan. 1, 2004 113 3 119 235 Acquisitions 1 – 0 1 Sales and disposals – 12 – – 8 – 20 Translation differences 0 0 0 0 Acquisition value, Dec. 31, 2004 102 3 111 216

Acquisition value, Jan. 1, 2005 102 3 111 216 Acquisitions 0 0 – 0 Sales and disposals – 36 – 3 – 111 – 150 Translation differences 1 – – 1 Acquisition value, Dec. 31, 2005 67 0 0 67

Continuation of note 6 on next page.

58 | SSAB ANNUAL REPORT 2005 NOTES

6 INTANGIBLE ASSETS, CONTINUATION

Summa Patents, Tenancy Total Group licences, and rights and intangible SEK millions similar rights similar rights Goodwill assets Accum. depreciation, Jan. 1, 2004 92 3 108 203 Sales and disposals – 12 – – 8 – 20 Depreciation/write-downs for the year 8 0 10 18 Translation differences 0011 Accum. depreciation, Dec. 31, 2004 88 3 111 202

Accum. depreciation, Jan. 1, 2005 88 3 111 202 Sales and disposals – 36 – 3 – 111 – 150 Depreciation for the year 3 – – 3 Translation differences 0 – – 0 Accum. depreciation, Dec. 31, 2005 55 0 0 55 Residual value according to plan, Dec. 31, 2004 14 0 0 14 Residual value according to plan, Dec. 31, 2005 12 0 0 12 Depreciation for the year is included in the Profit and Loss Account in the amount of SEK 1 (2) million for costs of goods sold, SEK 2 (14) million for selling expenses, and SEK – (2) million for other operating expenses. As a method for limiting emissions of carbon dioxide, in 2005 the EU introduced a system of emission rights. The group was allocated emission rights of 19.9 million tonnes for the period 2005–2007, of which 5.9 million tonnes have been used during the year. No rights have been bought or sold during the year. The emission rights are reported as intangible fixed assets booked at the acquisition value (0). There are no internally-processed assets.

7 TANGIBLE ASSETS Assets under Land and Equipment, construction Total Group and improve- tools and and advances tangible SEK millions ments Buildings Machinery installations to suppliers assets Acquisition value, Jan. 1, 2004 353 2,821 16,463 783 296 20,716 Acquisitions 6 14 607 41 58 726 Deduction through sale of companies – 24 – 215 – 762 – 24 – 5 – 1,030 Sales and disposals – 4 – 43 – 110 – 63 – – 220 Reclassifications 0 2 58 – 14 – 67 – 21 Translation differences – 1 – 11 – 39 1 – 4 – 54 Acquisition value, Dec. 31, 2004 330 2,568 16,217 724 278 20,117

Acquisition value, Jan. 1, 2005 330 2,568 16,217 724 278 20,117 Acquisitions 16 20 516 44 256 852 Sales and disposals 0 – 1 – 200 – 56 – – 257 Reclassifications 6 2 – 148 162 – 21 1 Translation differences 0 6 14 6 0 26 Acquisition value, Dec. 31, 2005 352 2,595 16,399 880 513 20,739

Continuation of note 7 on next page.

SSAB ANNUAL REPORT 2005 | 59 NOTES

7 TANGIBLE ASSETS, CONTINUATION

Assets under Land and Equipment, construction Total Group land improve- tools and and advances tangible SEK millions ments Buildings Machinery installations to suppliers assets Accum. depreciation, Jan. 1, 2004 49 1,512 9,915 570 – 12,046 Accum. depreciation upon sale of companies – 1 – 66 – 452 – 17 – – 536 Sales and disposals – 2 – 24 – 83 – 52 – – 161 Reclassifications 0 0 – 4 – 16 – – 20 Depreciation for the year 7 99 883 64 – 1,053 Translation differences 0 – 3 – 21 0 – – 24 Accum. depreciation, Dec. 31, 2004 53 1,518 10,238 549 – 12,358

Accum. depreciation, Jan.1, 2005 53 1,518 10,238 549 – 12,358 Sales and disposals 0 –1 – 190 – 47 – – 238 Reclassifications 0 – – 90 90 – 0 Depreciation for the year 7 88 773 80 – 948 Translation differences 0 3 12 5 – 20 Accum. Depreciation, Dec. 31, 2005 60 1,608 10,743 677 – 13,088 Residual value according to plan, Dec. 31, 2004 277 1,050 5,979 175 278 7,759 Residual value according to plan, Dec. 31, 2005 292 987 5,656 203 513 7,651 The item “Machinery” includes financial leasing agreements amounting to SEK 92 (92) million in acquisition value and SEK 62 (69) million in residual value according to plan. The tax assessment value of real property in Sweden amounts to SEK 2,627 (2,620) million, while the corresponding property’s residual value according to plan amounts to SEK 1,062 (1,152) million. As per the balance sheet date, there were contracted investments in fixed assets valued at SEK 375 million which were not reported in the financial statements.

Equipment, Total Parent Company Land and land Buildings tools and tangible SEK millions improvements and land installations assets Acquisition value, Jan. 1, 2004 0044 Acquisitions – – 0 0 Sales and disposals – – 0 0 Acquisition value, Dec. 31, 2004 0044 Acquisition value, Jan. 1, 2005 0044 Acquisitions –––– Sales and disposals 0 0 – 1 – 1 Acquisition value, Dec. 31, 2005 – – 3 3 Accum. depreciation, Jan. 1, 2004 – 0 3 3 Sales and disposals – – 0 0 Depreciation for the year – 0 0 0 Accum. depreciation, Dec. 31, 2004 – 0 3 3 Accum. depreciation, Jan. 1, 2005 – 0 3 3 Sales and disposals – 0 – 1 – 1 Depreciation for the year – 0 0 0 Accum. depreciation, Dec. 31, 2005 – – 2 2 Residual value according to plan, Dec. 31, 2004 0011 Residual value according to plan, Dec. 31, 2005 – – 1 1 The tax assessment value of real property in Sweden amounts to SEK – (3) million, while the residual value according to plan of corresponding property amounts to SEK – (0) million.

60 | SSAB ANNUAL REPORT 2005 NOTES

8 FINANCIAL ASSETS Long-term Equity Other receivables, Other Total shares in Group shares and affiliated long-term financial affiliated SEK millions participations companies receivables assets companies Book value, Jan. 1 6 32 64 102 358 Investments 0 – 0 0 – Sales/amortisation 0 – 8 – 55 – 63 – Shares in profits after tax – – – – 72 Dividends – – – – – 50 Translation differences 0 2 0 2 1 Book value, Dec. 31 6 26 9 41 381 Other shares and participations consist primarily of unlisted holdings and are included in the category of financial assets valued at fair value via the Profit and Loss Account. The book value is assumed to correspond to the fair value. Long-term receivables from affiliated companies and other long-term receivables are receivables which are not intended to be traded, valued at accrued acquisition value. All of the affiliated companies are unlisted.

Shares in Other Receiv- Shares affiliated shares and ables Other Total Parent Company in sub- compa- partici- from sub- long-term financial SEK millions sidiaries nies pations sidiaries receivables assets Acquisition value, Jan. 1 2,253 51 3 60 55 2,422 Investments – – 0 – – 0 Sales/amortisation – – – – 60 – 55 – 115 Residual value according to plan 2,253 51 3 – – 2,307

Book Company Registered Holdings, value, SEK Shares and participations reg. number office number %2) millions Parent Company’s shares and participations in subsidiaries Swedish operating subsidiaries: Plannja AB 556121-1417 Luleå 80,000 100 16 SSAB Oxelösund AB 556313-7933 Oxelösund 1,000 100 450 SSAB Tunnplåt AB 556313-7941 Borlänge 1,000 100 1,500 Tibnor AB 556004-4447 Stockholm 850,000 85 283 Foreign operating subsidiaries 1) 3 Dormant subsidiaries 1

Total 2,253

1) A complete specification of other shares and participations is available from SSAB’s Group headquarters in Stockholm. 2) The percentages indicate the equity share which, in all cases, also corresponds to the portion of the voting capital.

Continuation of note 8 on next page.

SSAB ANNUAL REPORT 2005 | 61 NOTES

8 FINANCIAL ASSETS, CONTINUATION Book Company Registered Holdings, value, Shares and participations reg. number office number %2) SEK millions Parent Company’s shares in affiliated companies Lulekraft AB Luleå 100,000 50 10 Norsk Stål A/S Norway 31,750 50 29 Norsk Stål Tynnplater A/S Norway 13,250 50 12 Total Parent Company’s shares in affiliated companies 51

Subsidiaries’ shares and participations in affiliated companies Cogent Power Ltd Great Britain 50,166,800 25 143 Oxelösunds Hamn AB Oxelösund 50,000 50 50 Total 193

Equity shares in affiliated companies’ equity in excess of the book value in the Parent Company 137

Total of Group participations in affiliated companies 381

Parent Company’s other shares and participations Tenant-owned apartments 3 Total 3

Subsidiaries’ other shares and participations 1) 3

Total of Group’s other shares and participations 6

9 INVENTORIES Group Parent Company SEK millions 2004 2005 2004 2005 Raw materials, consumables, and semi-finished goods 2,486 3,019 – – Work in progress 186 234 – – Stocks of finished goods 2,990 3,533 – – Advances to suppliers 2 2 – – Total 5,664 6,788 – –

SEK 789 million of the inventory value is valued at net realizable value.

10 PRE-PAID EXPENSES AND ACCRUED REVENUE Group Parent Company SEK millions 2004 2005 2004 2005 Delivered, non-invoiced goods and services 67 29 – – Bonuses, discounts, licences, and suchlike 22 28 1 1 Pre-paid rents 20 28 – – Accrued interest revenue 15 10 14 10 Unsettled insurance indemnification, etc. 146 123 8 1 Total 270 218 23 12

62 | SSAB ANNUAL REPORT 2005 NOTES

11 OTHER CURRENT INTEREST-BEARING RECEIVABLES/LIQUID ASSETS Other current interest-bearing receivables Group Parent Company SEK millions 2004 2005 2004 2005 Short-term investments (terms to maturity more than three months) – 895 – 895 Current part of receivables from SPP/Alecta funds 79 50 75 32 Other – 1 – – Total current interest-bearing receivables 79 946 75 927

Liquid assets Group Parent Company SEK millions 2004 2005 2004 2005 Cash and bank balances 378 494 240 251 Short-term investment (terms to maturity less than three months) 1,198 390 1,198 390 Total liquid assets 1,576 884 1,438 641 All short-term investments are included in the category of holdings for trading and are valued at the actual value via the Profit and Loss Account. Short-term investments with terms to maturity of less than three months consist of day deposits at banks, while those with terms to maturity in excess of three months fall due in January/February 2006 and carry a rate of interest of 1.64%.

12 EQUITY The share capital amounts to SEK 2,273.2 (2,522.4) million, divided into 90.9 (100.9) million shares, each with a nominal value of SEK 25. 67.2 (74.5) million of the shares are Class A shares while 23.7 (26.4) million are Class B shares. All shares are unrestricted shares. Each Class A share entitles the holder to one vote, while each Class B share entitles the holder to one-tenth of one vote. No shares are owned by the Company itself or its subsidiaries.

Change in shares/share capital 2004 2005 Number Share Number of Share of shares, capital, shares, capital, millions SEK millions millions SEK millions Opening balance, January 1 100.9 2,522.4 100.9 2,522.4 Redemption of shares *) – – – 10.0 – 249.2 Closing balance, December 31 100.9 2,522.4 90.9 2,273.2 *) During the year, the shareholders were invited to submit every tenth share for redemption at a price of SEK 210. In total, almost 10 million shares were submitted for redemption. The redemption amount of SEK 2,093 million was paid out on June 10.

Contributed funds amount to SEK 560 (560) million and consist of funds paid in by the shareholders in connection with new issues, in excess of the nominal value of the shares. Exchange rate differences which arise upon translation of the balance sheets of foreign subsidiaries into Swedish kronor are transferred to the translation reserve. Exchange rate differences in conjunction with the translation of loans or other financial instruments taken up in order to hedge the exchange rate of net assets of foreign subsidiaries are also transferred to the translation reserve. The accumulated translation differences amount to SEK 30 (– 27) million.

Changes in the translation reserve Group SEK millions 2004 2005 Opening balance, January 1 – – 27 Translation of foreign subsidiaries and affiliated companies – 27 57 Forward contracts for equity hedge – – Closing balance, December 31 – 27 30 The Group’s profit brought forward includes an equity method reserve in the amount of SEK 179 (156) million. The equity method reserve consists of profits that have accumulated in affiliated companies after acquisition and which have not yet been distributed. The proposed but as yet not resolved upon dividend for 2005 amounts to SEK 818 (757) million, equal to SEK 9.00 (7.50) per share. The amount has not been reported as a liability.

SSAB ANNUAL REPORT 2005 | 63 NOTES

13 PENSION PROVISIONS Within the Group, there are both contribution-based and benefit-based pension plans. In respect of contribution-based plans and pension plans purchased from Alecta, the premiums relating to the period that has passed are reported as expenses for the year. The scope of benefit-based pension plans in the Group is very limited. The benefit-based plans are, in principle, unfunded.

The following provisions for pension liabilities have been made in the balance sheet. The Group SEK millions 2004 2005 Funded pension liabilities 26 26 Fair value of managed assets – 23 – 26 Pension liabilities less managed assets 3 0 Unfunded pension liabilities 133 136 Pension provisions 136 136

The total pension expenses are broken down as follows: The Group SEK millions 2004 2005 Charges for contribution-based plans 167 174 Charges for pension insurance policies with Alecta *) 52 61 Pension costs, benefit-based plans 13 12 Special employer’s contributions 68 62 Other 1 0 Total pension expenses 301 309 *) Alecta’s surplus can be allocated to the policy holders and/or the insured’s. At the end of 2005, Alecta’s surplus in the form of the collective funding level amounted to 128 (128)%. The collective funding level consists of the market value of Alecta’s assets as a percentage of insurance undertakings calculated in accordance with Alecta’s actuarial calculation assumptions, which do not accord with IAS 19.

Specification of changes in the item “Pension provisions”. The Group SEK millions 2004 2005 Pension liabilities, opening balance 142 136 Changed accounting rules – 7 – Adjusted opening balance 135 136 Benefits earned during the year 25 21 Interest expenses 6 7 Paid benefits – 29 – 28 Other – 1 0 Pension liabilities, closing balance 136 136

Actuarial calculation assumptions The actuarial calculation of pension liabilities and pension expenses is based on the following assumptions. % 2004 2005 Discount rate 5.5 4.0 Inflation 2.0 2.0 Anticipated increase in salaries 3.0 2.5 Personnel turnover 3.0 1.0 Increase in income-base amount 2.5 2.5 Return on managed assets 6.5 5.5

64 | SSAB ANNUAL REPORT 2005 NOTES

14 DEFERRED TAX LIABILITIES AND TAX CLAIMS/UNTAXED RESERVES Deferred tax liabilities and tax claims Group Parent Company SEK millions 2004 2005 2004 2005 Deferred tax liabilities have arisen through accelerated depreciation of fixed assets 1,402 1,361 – – through tax allocation reserves 106 – – – through other temporary differences – 3 0 – – Total deferred tax liabilities 1,505 1,361 – –

Deferred tax claims have arisen through pension provisions 54 44 0 1 through non-utilised losses carried forward 1 9 – – through other temporary differences 12 30 – – Total deferred tax claims 67 83 0 1 Deferred tax on profit carried forward in subsidiaries and affiliated companies is not taken into consideration. To the extent profits are transferred to the Parent Company, such transfer is normally exempt from taxation. To the extent such a transfer is not exempt from taxation, the Parent Company determines the date of such a transfer and such a transfer will not take place within the foreseeable future.

Changes in deferred tax liabilities Group Parent Company SEK millions 2004 2005 2004 2005 Opening balance 1,872 1,505 – – Changes against result – 300 – 124 – – Changes against equity – 1 – 19 – – Change through sale of subsidiary – 70 0 – – Translation difference 4 – 1 – – Closing balance 1,505 1,361 – –

Changes in deferred tax claims Group Parent Company SEK millions 2004 2005 2004 2005 Opening balance 69 67 0 0 Changes against result 6 15 0 0 Changes against equity 18 0 – – Change through sale of subsidiary – 24 0 – – Translation difference – 2 1 – – Closing balance 67 83 0 1

Untaxed reserves Parent Company SEK millions 2004 2005 Tax allocation reserve 30 – Untaxed reserves are divided in the Group between equity and deferred taxes. A corresponding division is not made in the Parent Company. The deferred tax on the Parent Company’s untaxed reserves amounts to SEK – (8) million.

SSAB ANNUAL REPORT 2005 | 65 NOTES

15 INTEREST-BEARING LIABILITIES Long-term interesting-bearing liabilities Group Parent Company SEK millions 2004 2005 2004 2005 Foreign loans 88 1 87 – Bonds (Euroloan) 286 291 286 291 MTN programme 1) 1,550 1,250 1,550 1,250 Financial leasing agreements 69 62 – – Other 35 32 – – Total 2,028 1,636 1,923 1,541

Less amortisation, 2005 and 2006 – 394 – 497 – 387 – 491 Total long-term interesting-bearing liabilities 1,634 1,139 1,536 1,050

1) Specification of MTN programme:

Issued/ Interest rate Outstanding, MSEK matures Loan (nominal) % 2004 2005 Fixed interest 2000-2005 Nr 107 6.50 100 – 2000-2007 Nr 109 6.50 100 100 2000-2005 Nr 111 6.15 200 – 2001-2006 Nr 112 6.00 200 200 2001-2008 Nr 113 6.40 150 150 2001-2006 Nr 114 6.05 150 150 2003-2008 Nr 117 4.30 50 50 2003-2008 Nr 118 4.345 100 100 2003-2008 Nr 119 4.312 100 100 2003-2009 Nr 120 5.30 100 100 Variable interest 2002-2008 Nr 115 Stibor +0.625 150 150 2002-2010 Nr 116 Stibor +0.75 150 150 Total MTN-programme 1,550 1,250

Repayment of long-term interest-bearing liabilities SEK millions 2006 2007 2008 2009 2010 Later Group 497 258 557 106 156 62 Parent Company 491 250 550 100 150 –

Amounts falling due for interest rate renegotiation SEK millions 2006 2007 2008 2009 2010 Later Group 948 107 407 106 6 62 Parent Company 941 100 400 100 – –

Continuation of note 15 on next page.

66 | SSAB ANNUAL REPORT 2005 NOTES

15 INTEREST-BEARING LIABILITIES, CONTINUATION Current interest-bearing liabilities Group Parent Company SEK millions 2004 2005 2004 2005 Current part of long-term liabilities 394 497 387 491 Overdraft facilities 134 119 89 90 Other – – – – Total current interest-bearing liabilities 528 616 476 581 Loan debts are valued at the accrued acquisition value. Currency risks associated with foreign loans and bonds (which are issued in Euro) are hedged through currency swaps. Both the currency part of the loan and the currency swaps are regularly valued at fair value and changes in value are reported in the Profit and Loss Account. In order to reduce the total average fixed interest rate period of the loans, the fixed interest for two of the MTN loans, nos. 114 and 117, has been converted into variable interest through two interest rate swaps. Both the interest rate swaps and the two MTN loans are valued at fair value and changes in value are reported in the Profit and Loss Account.

16 ACCRUED EXPENSES AND DEFERRED REVENUE Group Parent Company SEK millions 2004 2005 2004 2005 Accrued personnel expenses 857 905 15 17 Non-invoiced goods and services received 200 181 – – Accrued interest expenses 57 41 56 40 Accrued discounts, bonuses, and complaints 27 34 – – Hedge-reported purchasing orders, coal and iron ore – 31 – – Expenses accrued vis-à-vis affiliated companies – 29 – – Energy taxes 17 15 – – Other items 58 141 2 26 Total 1,216 1,377 73 83

17 NET DEBT Group Parent Company SEK millions 2004 2005 2004 2005 Cash and bank balances 378 494 240 251 Short-term investments 1,198 390 1,198 390 Short-term investments > 3 months – 895 – 895 Receivables from subsidiaries – – 4,549 5,703 Current tax claims 12 24 – – Other receivables 140 84 133 32 Interest-bearing assets 1,728 1,887 6,120 7,271 Current interest-bearing liabilities 528 616 476 581 Long-term interest-bearing liabilities 1,634 1,139 1,536 1,051 Pension provisions 136 136 5 5 Liabilities to subsidiaries – – 1,226 1,067 Current tax liabilities 1,148 403 32 142 Interest-bearing liabilities 3,446 2,294 3,275 2,846 Net debt 1,718 407 – 2,845 – 4,425

SSAB ANNUAL REPORT 2005 | 67 NOTES

18 AVERAGE NUMBER OF EMPLOYEES, PROPORTION OF WOMEN, AND SICK LEAVE No. of employees Women, % 2004 2005 2004 2005 Parent Company Sweden 18 18 32 32 Total Parent Company 18 18 32 32

Subsidiaries Sweden 8,051 7,985 17 17 Canada 40 45 8 9 Denmark 152 138 25 25 Finland 123 125 25 25 Germany 36 40 25 33 Great Britain 57 47 35 34 Italy 63 57 26 27 Norway 35 33 20 20 Poland 92 92 22 27 South Africa 71 103 23 17 USA 28 32 22 22 Other countries < 20 employees 100 117 22 28 Total, subsidiaries 8,848 8,814 17 18 Sold operations 546 – Total, Group 9,412 8,832 17 18 The figures are based on a normal number of working hours per year in different production areas. Consideration has been given, among other things, to different forms of shift work. The percentage of women relates to the number of employees on December 31. Women accounted for 3(3)% of the members of all Boards of Directors in the Group, while the figure for the Parent Company’s Board of Directors was 9 (9)%. The percentage of women in management groups (including Presidents) in the Group amounted to 6 (6)%. Group Management consists of five men.

Personnel sick leave The Group 1) Parent Company 2) (% of ordinary work time) 2004 2005 2004 2005 Total sick leave absence 7 6 3 1 of which 60 days or more 66% 63% 67% 0% Sick leave absence per group women 10 9 men 6 6 aged 29 and younger 4 3 aged 30–49 6 6 aged 50 and older 9 8 1) Relates to the Group’s employees in Sweden. 2) Sickness in the Parent Company is reported only as a total since there are only 19 employees.

68 | SSAB ANNUAL REPORT 2005 NOTES

19 LEASING Operational leasing Group Parent Company SEK millions 2004 2005 2004 2005 Minimum leasing charges during the year 50 45 4 4 The agreed minimum leasing charges relating to operational leasing agreements that cannot be terminated amount to SEK 42 million for 2006; a total of SEK 79 million for 2007–2010; and to SEK 0 million for the years after 2010. Operational leasing includes lease agreements for property, premises, and rolling stock for transportation in the steel operations.

Financial leasing Group Parent Company SEK millions 2004 2005 2004 2005 Minimum leasing charges during the year 12 12 – – Agreed minimum leasing charges amount to SEK 12 million for 2006; a total of SEK 32 million for 2007–2010; and to SEK 60 million for the years after 2010. The present value of financial leasing liabilities amounts to SEK 62 (69) million. Financial leasing includes one switchgear and rolling stock for transportation in the steel operations.

20 PLEDGED ASSETS Group Parent Company SEK millions 2004 2005 2004 2005 For own long-term liabilities Real property mortgages 9 9 – – Floating charges 33 22 – – Total for own long-term liabilities 42 31 – –

Other pledged assets Real property mortgages 30 30 – – Total other pledged assets 30 30 0 0

Total pledged assets 72 61 0 0

21 CONTINGENT LIABILITIES Group Parent Company SEK millions 2004 2005 2004 2005 Guarantees 1 1 0 0 Guarantees for subsidiaries’obligations – – 109 107 Other contingent liabilities 37 77 32 71 Total contingent liabilities 38 78 141 178 SSAB Tunnplåt is involved in a dispute with an insurance company concerning a blast furnace breakdown in 1997. SSAB Tunnplåt has sued the insurance company for SEK 165 million in addition to the amount of SEK 110 million that has already been paid out. The insurance company’s counterclaim is for repayment of the amount paid out. The anticipated outcome of the dispute has been taken into consideration in the results. The Group is otherwise involved in a very limited number of legal disputes concerning bankruptcy matters, warranties and complaints. The anticipated outcome of these cases has been taken into consideration in the results.

SSAB ANNUAL REPORT 2005 | 69 NOTES

22 CASH FLOW STATEMENT Financial items The cash flow statement is based on the financial items included in the Profit and Loss Account. The adjustment from booked interest to paid interest takes place through the change in accrued interest being represented by changes in Working Capital. The interest payments amount to: Paid interest Group Parent Company SEK millions 2004 2005 2004 2005 Interest received during the period 43 80 182 168 Interest paid during the period – 169 – 141 – 166 – 139

Exchange rate differences regarding liquid assets Exchange rate differences on opening liquid assets in foreign subsidiaries are included in the item ‘Other Financing’ in the amount of 0 12 – –

23 ACQUISITION/SALE OF OPERATIONS During the year, no operations were acquired or sold. The value of assets and liabilities sold in 2004 amounted to: Acquisitions Sales SEK million 2004 2005 2004 2005 Fixed assets – – 499 – Inventories – – 118 – Accounts receivable – – 121 – Other receivables – – 45 – Liquid assets – – 0 – Deferred tax – – – 47 – Accounts payable – – – 32 – Other liabilities – – – 102 – Booked profit on the sale – – 850 – As yet unreceived purchase price – – – 1,425 – Received purchase price – – 27 1,425 Liquid assets in the acquired/sold companies – – 0 – Affect on the Group’s liquid assets – – 27 1,425

In 2004, SSAB HardTech - which also constituted a separate business segment within SSAB – was sold. The comparison figures for 2004 have been adjusted for the sold operations. The results from these sold operations amounted to: SEK millions 2004 2005 Sales 919 – Costs of goods sold – 700 – Selling expenses – 30 – Administration expenses – 15 – Financial items – 17 – Profit after financial items 157 – Tax – 45 – Profit for operations after tax 112 – Capital gain on sale 825 – Tax on capital gain – – Net profit from sold operations 937 – Earnings per share from sold operations (SEK) 9.29 – In 2004, the SSAB HardTech business segment had a cash flow from operating activities of SEK + 192 million and cash flow from investing activities of SEK – 82 million.

70 | SSAB ANNUAL REPORT 2005 NOTES

24 BUSINESS AREAS Business segments

Sales and results per subsidiary Total of which Operating Profit after Return on sales internal profit 3) financial capital sales items 3) employed, % SEK millions 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 Subsidiaries: SSAB Tunnplåt 12,693 14,219 2,138 2,615 2,572 3,175 2,502 3,128 37 40 SSAB Oxelösund 6,947 9,135 2,227 2,460 757 1,994 702 1,957 17 39 Plannja 1,218 1,377 3 4 73 80 68 76 21 20 Tibnor 6,641 7,423 32 37 482 426 484 428 36 27 Other 703 868 0 0 26 47 27 48

Parent Company: Parent Company 1)–– – – – 66 – 74 – 20 – 53 Affiliated companies 2)–– – – 90 87 90 87 Sold operations 919 – – – 999 – 982 – Group adjustment – 4,490 – 5,218 – 4,400 – 5,116 – 46 0 – 47 0 Total 24,631 27,804 – – 4,887 5,735 4,788 5,671 34 34

1) Excluding dividends from subsidiaries and excluding capital gains on sales of subsidiaries. The result in the Parent Company consists of primarily administration expenses and a positive figure for financial items. 2) Relates to the participations owned by the Parent Company in the affiliated companies, Lulekraft, Norsk Stål and Norsk Stål Tynnplater. 3) Operating profit and profit after financial items includes shares in the results of affiliated companies in the amount of SEK – 1 (– 45) million for SSAB Tunnplåt and SEK 9 (7) million for SSAB Oxelösund.

Balance sheet and cash flow information per subsidiary Assets Liabilities Depreciation Investments Cash flow SEK millions 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 Subsidiaries: SSAB Tunnplåt 10,442 10,631 5,390 5,109 538 499 341 463 + 1,465 + 1,571 SSAB Oxelösund 6,348 7,235 4,022 4,377 344 348 234 303 + 309 + 595 Plannja 565 502 340 270 33 31 23 26 – 34 + 95 Tibnor 2,699 2,540 1,460 1,338 87 66 40 54 + 74 + 426 Other 205 420 162 354 4 4 6 7 + 56 + 16

Parent Company 9,964 9,785 3,492 3,128 0 0 0 0 + 22 + 102 Sold operations – – – – 65 – 83 – + 100 + 1,425 Group adjustment – 8,610 – 9,293 – 6,253 – 7,120 1 3 – – – –

Total 21,613 21,820 8,613 7,456 1,072 951 727 853 + 1,992 + 4,230

1) SSAB HardTech was sold at the end of 2004. Depreciation, investments and cash flow until the date of the sale have been included in the presentation for 2004, whereas assets and liabilities as per the end of the year have not been included.

Continuation of note 24 on next page.

SSAB ANNUAL REPORT 2005 | 71 NOTES

24 BUSINESS AREAS, CONTINUATION Geographic segments The Group’s export sales are focused primarily on Europe. However, as a consequence of growth in the Group’s niche products, sales on more distant markets are increasing. Only a small portion of the Group’s steel products are manufactured outside Sweden and thus investments abroad are small.

The table below shows the breakdown of the Group’s sales per country/region, irrespective of where the products are manufactured. SEK millions 2004 % 2005 % Sweden 8,389 35 9,988 36 Germany 2,078 9 2,446 9 Italy 1,671 7 1,962 7 Denmark 1,582 7 1,767 6 Finland 1,737 7 1,608 6 Great Britain 1,151 5 1,072 4 Benelux countries 1,112 5 1,132 4 France 739 3 657 2 Other EU countries 2,124 9 2,413 9 Norway 765 3 886 3 Other European countries 245 1 418 1 North America 1,009 4 1,598 6 Asia 616 3 1,259 5 Other markets 494 2 598 2 Total, remaining operations 23,712 100 27,804 100 Sold operations 919 – Total 24,631 27,804

The table below shows the reported value of assets and investments broken down by geographic segment according to the location of the assets. Assets Investments SEK millions 2004 % 2005 % 2004 % 2005 % Sweden 19,436 90 19,371 89 615 95 800 94 EU-25 (excl. Sweden) 1,827 9 1,734 8 24 4 38 4 Other European countries 57 0 20 0 00 00 North America 180 1 488 2 20 51 Asia 71 0 109 1 00 20 Rest of the world 42 0 98 0 31 81 Total, remaining operations 21,613 100 21,820 100 644 100 853 100 Sold operations – – 83 – Total 21,613 21,820 727 853

72 | SSAB ANNUAL REPORT 2005 NOTES

25 FINANCIAL RISK MANAGEMENT

Financial risk management is governed by the Group’s finance 2.2 (2.6) years. The maturity structure in the coming years policy. Most financial transactions take place through the is shown in Note 15. Parent Company’s finance division. Liquidity in the subsidiaries is handled through a central Group account system or in local cash pools. Excess liquidity Currency risks is used primarily to reduce debts. At year-end, liquid assets The Group’s currency risks are handled by the Parent Com- including short-term investments amounted to SEK 1,779 pany. The aim of the management of transaction exposure (1,576) million, of which SEK 895 (0) million consisted of is to reduce the effects on contracted flows of changes in short-term investments with a term to maturity in excess of exchange rates. Thus, subsidiaries hedge their sales and pur- three months on the date of acquisition, which are thus not chases in foreign currency with the Parent Company when included among liquid assets in the balance sheet. the currency risk arises. In most cases, this occurs upon the Binding credit facilities are in place to minimise the risk signing of the order. To the extent the Parent Company is that the raising of capital in the future will become difficult unable to match the flows, the remaining currency risks are or expensive. The Group’s liquidity reserves consisting of covered through futures contracts. Since orders in hand in liquid assets, short-term investments and non-utilised binding the steel operations normally correspond only to six-seven credit facilities amounted at year-end to SEK 3,655 (3,484) weeks’ production, the Group’s currency policy means that million, corresponding to 13 (15)% of sales. changes in exchange rates affect the Group’s results relatively quickly. On the purchasing side, however, currency futures Interest rate risks are, on average, for a longer term. The sensitivity analysis on The Group’s interest rate risks relate to changes in market page 25 shows the amount by which changes in exchange interest rates and their effects on debt and investments. rates affect the Group’s profits and earnings per share. Long-term borrowing via the MTN Programme or the private Sales on export markets take place primarily in local cur- investment market takes place primarily at fixed interest rencies. Export sales create currency inflows, primarily in rates during the loan term. The fixed interest periods on bor- EUR but also in USD and other European currencies. Inflows rowing may be varied within established risk limits through of other currencies are relatively limited. use of interest rate swaps. Purchases of, primarily, iron ore and coal, take place in USD. At year-end, the Group’s total loan debts amounted to In addition, there are currency outflows as a consequence SEK 1,755 (2,162) million with an average fixed interest of major investments, which partly take place in foreign cur- period of 3.2 (3.8) years. Loans that fall due for interest rate rencies, primarily EUR. renegotiation in the coming years are set forth in Note 15. All in all, this means that the Group has a net outflow of The Groups’s interest-bearing assets amounted to SEK USD and a net inflow of other currencies. The net inflow of 1,887 (1,728) million and consisted almost entirely of short- foreign currencies amounted to SEK 6,400 (6,400) million. term investments at variable rates of interest. The Group’s most important currency flows are shown in the diagram on page 19. Credit risks Net investments in the form of equity in foreign subsidiaries Credit risks arise in conjunction with the investment of liquid and affiliated companies amount to less than 6% of the Group’s assets and as counterparty risks in conjunction with derivative total equity and thus the translation exposure is relatively transactions. In order to limit the financial credit risks, max- limited. In addition, the exposure is limited due to the fact imum permitted counterparty risks are established with re- that major net investments in foreign subsidiaries and affili- spect to approved counterparties. An approved counterparty ated companies are hedged, primarily through borrowing in must have a credit rating of not less than A- from Standard the same currency. & Poor’s or A3 from Moody’s. When calculating the counter- Currency risks that arise in conjunction with borrowing party risk, exchange rate profits are set off against exchange in foreign currency are hedged up to the principal amount. rate losses if agreements in accordance with the International Swaps and Derivatives Association are involved. The total Financing risk and liquidity risk counterparty risks in derivatives at year-end amounted to Borrowing is focused on securing the Group’s needs for loan SEK 131 (59) million. financing and takes place primarily in the Parent Company. The excess liquidity is invested in treasury bills or certificates Of the total borrowing of SEK 1,755 (2,162) million, only 7 of deposit with short-terms until maturity. (5)% consists of financing which takes place directly between In addition to the above, there are credit risks associated subsidiaries and an external lender. These cases primarily with accounts receivable; these do not fall under financial consist of assumed liabilities in acquired companies and risk management but, rather, are handled in the respective financial leasing. subsidiaries. The risks are, however, spread out over a large A Swedish MTN (Medium Term Note) Programme is used number of customers. In addition, individual credit rating for borrowing for terms of one to ten years, whilst a Swedish tests are conducted and limits imposed for each customer. Commercial Paper Programme is used for borrowing for shorter terms. In each of these programmes there is a limit Insurance of SEK 2,000 million. In addition, there is a Euro Commercial All industrial operations are associated with risks that must be Paper Programme of MUSD 100 which, however, was not taken into consideration, managed, and prevented. The most utilised during the year. The Swedish Commercial Paper Pro- prominent risks are personal injury, damage to property, and gramme is rated by Standard & Poor’s at K-1 and the MTN risks of financial losses as a consequence of the occurrence programme at BBB+. At year-end, borrowing within the of insured events. The Group purchases insurance to cover MTN Programme amounted to SEK 1,250 (1,550) million. these types of risks. The Group’s financial position is such that The Swedish Commercial Paper Programme was not utilised insurance shall primarily consist of catastrophe cover. This en- during the year. tails insurance solutions with reasonably high levels of excess. At year-end, long-term borrowing amounted to SEK 1,636 (2,028) million and had an average term to maturity of

Continuation of note 25 on next page.

SSAB ANNUAL REPORT 2005 | 73 NOTES

25 FINANCIAL RISK MANAGEMENT, CONTINUATION

Valuation of financial instruments Valuation of other financial assets and liabilities Currency derivatives and interest rate swaps The table below shows the reported value compared with According to the financing policy, currency hedging is always the assessed fair value per type of financial asset and liability. used in connection with the signing of purchase and sales orders and in conjunction with hedging of foreign loans to SEK millions Reported Fair Swedish kronor. Currency derivatives are used solely to hedge value value currency risks and all currency derivatives are valued at fair value in the balance sheet. Financial assets In order for currency hedging to meet the requirements 1. Short-term investments 390 390 for hedge reporting in accordance with IAS 39, changes in 2. Short-term investments 895 895 value of currency derivatives may not affect earnings but, (term in excess of 3 months) rather, are set off against corresponding changes in value of 3. SPP surplus funds 50 50 the hedged order. Such accounting is currently applied only 4. Accounts receivable 4,327 4,327 with respect to currency derivatives relating to coal and iron 5. Receivables from affiliated ore contracts. companies 26 26 With respect to other currency hedging, changes in the fair value of the currency derivative may affect earnings on Financial liabilities a continuous basis until the order is delivered. 6. Other short-term loans – 119 – 119 At year-end, purchase and sales orders in respect of 7. MTN programme – 1,250 – 1,305 which currency futures had been executed totalled SEK 13.0 7. Bonds – 291 – 291 (12.5) billion. Currency futures had an average outstanding 8. Other financial liabilities – 95 – 95 term until expiry of 4.3 (5.4) months and, at year-end, had 9. Accounts payable – 2,023 – 2,023 a booked actual value of SEK + 74 million, while hedge reported purchase orders were booked at SEK – 31 million, 1. Short-term investments consist of day deposits at banks resulting in a net profit of SEK + 43 million. with short terms until maturity and fair value is the same as In addition to currency derivatives to hedge commercial the acquisition value. flows, there are two currency swaps to hedge the payment 2. Short-term investments with terms until maturity in excess flow in Swedish kronor of two bonds issued in euro. The cur- of 3 months are classified as holdings for trading and are rency derivatives are valued at fair value and, in accordance valued at fair value with changes in value via the Profit and with the rules relating to hedge accounting, the loans are also Loss Account. valued at fair value. Changes in value of currency derivatives and loans are reported net in the Profit and Loss Account. 3. It is expected that SPP’s surplus funds will be used during At present, cash flow hedging is not applied in the Group, the first half of 2006 and the reported value constitutes the nor is there any hedging of net investments in foreign acquisition value. companies. 4. Accounts receivable are reported at the amount which is In order to reduce the fixed interest rate period on the expected to be paid following an individual assessment of total debt portfolio, two loans under the MTN programme bad debts. The net value of the accounts receivable before with fixed interest rates have been swapped to variable write down for bad debts amounted to SEK 4,358 million. interest rates. According to IAS 39, changes in value of the There is no concentration of credit risks since the Group has swaps may not affect earnings but may be set off against a large number of customers spread throughout the world. corresponding changes in value of the loans. The conditions for a “fair value hedging” are fulfilled, en- 5. Receivables from affiliated companies are held until they tailing that changes in value of both the interest rate swaps fall due and are valued at acquisition value. and the two loans are reported in the Profit and Loss Account. 6. Other short-term loans consist primarily of overdraft facilities, the acquisition value of which constitutes a fair Derivative values, December 31, 2005 approximation of the fair value. SEK millions Assets Liabilities 7. The MTN programme and bonds are reported at the Currency derivative for “fair value acquisition value. Fair value has been calculated based on hedging” of flows 153 79 the applicable rate of interest at the end of the year for Currency derivatives for “fair value the remaining terms to maturity. hedging” of loans 6 – 8. Other financial liabilities consist of financial leasing debts, Interest rate swaps for “fair value SEK 62 million, and various small loans, SEK 33 million, where hedging” 1 – the reported value is deemed to correspond to fair value. Total derivatives reported in “other current assets/liabilities” 160 79 In 2005, net exchange rate differences have been booked Change in value of hedged assets in the amount of SEK + 200 (+ 29) million in Operating (purchase orders) – 31 Profit and in the amount of SEK – 10 (+ 21) million in Finan- Change in value of hedged debt cial Items. (Euro loan) – 6 Changes in exchange rates between 2004 and 2005 have Change in value of hedged debt contributed to profit in the amount of approx. SEK 300 (450) (MTN loan) – 1 million, primarily due to the fact that raw materials costs Net 160 117 are largely dollar based; however, this effect on profit will primarily be felt as lower raw materials costs. The net unrealised derivative values which affected earnings for the year thus amounted to SEK + 43 million.

74 | SSAB ANNUAL REPORT 2005 NOTES

26 TRANSITION TO IFRS 2005

Commencing 2005, the consolidated financial statements are ● to exercise the possibility to set at zero the accumulated prepared in accordance with the International Accounting translation differences in equity as per January 1, 2004; Standards (IFRS/IAS) as such have been adopted by the EU. ● to exercise the possibility to regard the written up value of Up to and including 2004, Recommendations and State- real estate as the acquisition value of the properties; ments issued by the Swedish Financial Accounting Standards ● to exercise the possibility not to apply IAS 32 and 39 with Council had been applied. The transition to IFRS is reported respect to financial instruments in conjunction with the in accordance with IFRS 1, “First time adoption of Interna- translation of the comparison year, 2004. tional Financial Reporting Standards”. IFRS 1 prescribes that the comparison year, 2004, shall be reported in accordance Comparison year 2004 with IFRS. Financial information regarding earlier financial The adjustment of 2004 to IFRS entails very small changes in years has not been translated. The main rule entails that all the reported profit and reported financial position. The table IFRS/IAS standards shall be applied retroactively. However, below shows the adjustments that have been made in order the transition rules in IFRS 1 allow for the possibility not to to convert the reporting for 2004 to IFRS. (The effects of apply certain of the standards retroactively. the sold SSAB HardTech business segment are reported in a separate column.) SSAB has chosen: ● to exercise the possibility not to apply IFRS to acquisition calculations regarding business acquisitions prior to January 1, 2004;

Profit and loss account 2004 Adjust- Effect 2004 in Swedish ment of sold accordance SEK millions Note rules to IFRS operations with IFRS Sales 24,631 – 919 23,712 Costs of sold goods – 19,081 + 700 –18,381 Gross profit 5,550 – 219 5,331

Selling expenses 1) – 1,382 – 1 + 30 – 1,353 Administration expenses – 188 + 15 – 173 Other operating revenues 1,118 – 825 293 Other operating expenses – 267 – – 267

Shares in profit of affiliated companies before tax 2) 52 + 5 – 57 Operating profit 4,883 + 4 – 999 3,888 Financial items – 99 – + 17 – 82 Profit after financial items 4,784 + 4 – 982 3,806

Tax – 1,141 – + 45 –1,096 Minority shares 3) – 54 + 54 – – Profit after tax, remaining operations 3,589 + 58 – 937 2,710 Profit after tax, sold operations – – 937 937 Profit for the year 3,589 + 58 – 3,647

Of which relating to: the parent company’s shareholders + 4 3,593 minority interests 3) + 54 54

Continuation of note 26 on next page.

SSAB ANNUAL REPORT 2005 | 75 NOTES

26 TRANSITION TO IFRS 2005, CONTINUATION Balance sheet Jan. 1, 2004 (start date) Dec. 31, 2004 Adjust- Adjust- Swedish ment Swedish ment SEK millions Note rules to IFRS IFRS rules to IFRS IFRS ASSETS Fixed assets Intangible assets 32 – 32 14 14 Tangible assets 8,670 – 8,670 7,759 7,759 Financial assets 2) 506 – 506 455 + 5 460 Deferred tax claims 69 – 69 67 67 Total fixed assets 9,277 – 9,277 8,295 + 5 8,300 Current assets Inventories 4,829 – 4,829 5,664 5,664 Accounts receivable 3,275 – 3,275 4,003 4,003 Prepaid expenses, accrued income 266 – 266 270 270 Current tax claims 14 14 12 12 Other current interest bearing receivables + 79 79 Other current receivables 417 – 417 1,793 – 79 1,714 Short-term investments 261 – 261 1,198 1,198 Cash and bank balances 272 – 272 378 378 Total current assets 9,334 – 9,334 13,318 – 13,318 Total assets 18,611 – 18,611 21,613 + 5 21,618 EQUITY AND LIABILITIES Equity Share capital 2,522 2,522 2,522 2,522 Other reserves 4) 3,103 – 2,543 560 2,605 – 2,072 533 Profit brought forward 4) 4,406 + 2,543 6,949 7,873 + 2,077 9,950 Total equity, company’s shareholders 10,031 – 10,031 13,000 + 5 13,005 Minority shares 3) – + 151 + 151 – + 186 186 Total equity 10,031 + 151 10,182 13,000 + 191 13,191 Minority shares 151 – 151 186 – 186 Provisions Pension provisions 142 – 142 136 – 136 Deferred tax 1,872 – 1,872 1,505 – 1,505 Other provisions 34 – 34 70 – 70 Total provisions 5) 2,048 – 2,048 1,711 – 1,711 Long-term liabilities Long-term interest bearing liabilities 2,180 2,180 1,634 1,634 Pension provisions 5) 142 142 + 136 136 Deferred tax 5) 1,872 1,872 + 1,505 1,505 Other long-term provisions 5) 34 34 + 70 70 Total long-term liabilities 2,180 + 2,048 4,228 1,634 + 1,711 3,345 Current liabilities Current interest bearing liabilities 1,390 1,390 528 528 Accounts payable 1,283 1,283 1,879 1,879 Accrued expenses and deferred revenue 1,194 1,194 1,216 1,216 Current tax liabilities 131 131 1,148 1,148 Other current liabilities 203 203 311 311 Total current liabilities 4,201 – 4,201 5,082 – 5,082 Total equity and liabilities 18,611 – 18,611 21,613 + 5 21,618

Continuation of note 26 on next page.

76 | SSAB ANNUAL REPORT 2005 NOTES

26 TRANSITION TO IFRS 2005, CONTINUATION

Notes reported among liabilities. This has entailed changes to a 1) In accordance with the IFRS rules, SSAB has chosen to report number of headings in the balance sheet, but no net effect tangible assets at acquisition value less depreciation. Previous and with no effect in the Profit and Loss Account. write-ups of property value may thereupon no longer be reported as write-ups. IFRS 1 offers, however, the possibility to Accumulated translation differences regard the written-up value of the properties as their acquisi- According to IAS 21, translation differences regarding invest- tion value. (Adjusts the result by SEK 1 million for the full year). ments in foreign operations must be reported as a separate item under equity. SSAB has chosen to set accumulated 2) According to IFRS 3, goodwill is to be tested for write- translation differences at zero as per January 1, 2004, in down at least once per year and is no longer amortised. Re- accordance with the transitional provisions in IFRS 1. porting in affiliated companies has been adjusted to correspond to IFRS, entailing that goodwill is no longer amortised. Cash flow statement Amortisation during 2004 has been reversed and, accord- In the cash flow from operating activities, SSAB has reported ingly, the result has been adjusted by SEK + 5 million for the current tax which is to be paid based on the reported taxable full year and the balance sheet item, Financial Assets, has profit. The difference between this amount and the amount been adjusted by the same amount. actually paid in the form of taxes has been reported as an 3) According to IAS 1, the minority’s share of equity is in- increase or decrease in the cash flow from the financing cluded as a separate item under “Equity” in the balance activities. IFRS does not allow this approach and, accordingly, sheet, instead of between Liabilities and Equity. The minority’s in the cash flow statement for 2004 the cash flow from share of profit for the year shall be included in the reported ongoing operations has been increased by SEK 1,031 million, net profit in the Profit and Loss Account and thus is no longer while the cash flow from financing activities decreased by deducted from the profit. The Profit and Loss Account includes SEK 1,031 million. SSAB follows, however, an operating cash a specification of the portion of the profit for the year that flow which is not affected by this change. relates to the owners of the Parent Company and to the respective minority owners of subsidiaries. As a consequence, Application of IAS 32 and 39 commencing 2005 reported equity increases by SEK 151 million as per 1 January IAS 32 and IAS 39 regarding financial instruments are applied 2004 and by SEK 186 million as per 31 December 2004. commencing January 1, 2005 and, pursuant to IFRS 1, SSAB Reported profit for the year increases by SEK 54 million. has chosen not to translate the comparison figures for 2004. Adjustments against previously applied principles are reported 4) According to Swedish rules, equity is reported divided into in the balance sheet as per January 1, 2005 directly against restricted and unrestricted reserves, where the unrestricted equity. Derivatives in the form of currency futures contracts reserves are available for distribution. IFRS does not have have been valued in accordance therewith which, after con- any corresponding division. According to the Swedish rules, sideration to deferred taxes, resulted in a negative item of restricted reserves (excluding share capital) amounting to SEK 100 million as per January 1, 2005. However, some of SEK 3,103 million as per December 31, 2003 have, upon a the assets which the currency futures contracts are intended review of the origin of these reserves as per January 1, 2004, to hedge have been revalued applying hedge accounting, been divided into Contributed Funds (from the shareholders yielding a positive item of SEK 55 million and entailing a of the parent company) in the amount of SEK 560 million, net effect on equity of SEK 45 million. Hedge accounting while the remaining amount has been allocated to Profit of currency and interest rate swaps on bonds entails that Brought Forward. equity was reduced by a further SEK 4 million. Thus, the 5) According to Swedish rules, provisions constituted a sep- implementation of IAS 39 resulted in a total decrease in arate part of the balance sheet. According to IFRS, they are equity of SEK 49 million.

27 CRITICAL ESTIMATIONS AND ASSESSMENTS

Important assessments upon application A large part of the Group’s pension liabilities with respect to of the accounting principles salaried employees are benefit based and insured on a col- In the steel operations’ industrial areas, there is a need for lective basis with Alecta. Since it is not possible at present to future land clean up. In accordance with applicable rules, obtain information from Alecta regarding the Group’s share such clean up will only become relevant when SSAB ceases of the obligations and managed assets, the pension plan to conduct operations in the area. At present, it is not pos- signed with Alecta is reported as a contributions-based plan. sible to assess if and when operations will cease and, accordingly, no provision has been made for such land clean up. The funding level reported by Alecta at the end of the year does not indicate the existence of a deficit; however, it has Important sources of uncertainty in estimations not been possible to obtain any detailed information from Estimations regarding the results of a dispute with an insur- Alecta regarding the amount of the pension liabilities. ance company concerning a blast furnace breakdown in 1997 and a dispute against a bankruptcy estate are based on assessments of future outcome.

28 FUTURE STANDARDS

At the time of preparation of this annual report, IASB has force on January 1, 2006. None of these will have any published a number of additional standards, supplements to material effect on SSAB’s accounting. standards and interpretations, several of which entered into

SSAB ANNUAL REPORT 2005 | 77 NOTES

29 DEFINITIONS

Sales Value added Sales less deduction for value added tax, discounts, Sales and other operating revenue less depreciation returns, and freight. and expenses for purchased goods and services. Equity Earnings per share Total equity according to the Consolidated Balance Profit after taxes, excluding minority interests, divided Sheet. by the average number of shares. Capital employed P/E ratio Total assets less non-interest-bearing current and Share price at year-end divided by earnings per share. long-term liabilities. Equity per share Liquid assets Equity, excluding minority interests, divided by number Cash and bank balances, as well as short-term of shares at year-end. investments with a term to maturity of less than Direct yield three months on the date of acquisition. Dividend as a percentage of the share price at year-end. Net debt Interest-bearing liabilities less interest-bearing assets. Definitions for subsidiary company tables: Return on equity after tax Profit for the year after taxes as a percentage of Profit average equity during the year. Profit after financial items. Return on capital employed before tax Capital expenditures Operating profit before shares in affiliated companies Capital expenditures capitalized during the year. plus financial revenue as a percentage of average capital employed during the year. Capital employed Equity ratio Capital employed at year-end. Equity as a percentage of total assets. Return on capital employed Net debt/equity ratio Return on average capital employed. Net debt as a percentage of equity. Cash flow Number of employees Funds generated from operating activities including Average number of employees. change in working capital and cash flow from investing activities. (Paid tax in the cash flow statement, however, adjusted instead to the actual tax which will be paid, based on the profit generated by the operations.)

30 CONSIDERATIONS IN CONJUNCTION WITH PROPOSED DISPOSITION OF PROFIT

At the 2006 Annual General Meeting, the shareholders shall, The Board of Directors believes that such a strong balance among other things, decide upon the dividend and redemption sheet is not required in order to ensure the development of programme proposed by the Board of Directors. the operations in the medium term and, accordingly, will At the end of 2005, the financial position is extremely propose to the General Meeting that a dividend be paid out strong and the Group is almost debt-free. The Group’s of SEK 9.00 (7.50) per share, equal to SEK 818 (757) million, profits brought forward amount to SEK 11,321 million and and that shares be redeemed for approx. SEK 2,200 million. the Parent’s Company’s unrestricted equity amounts to Such a dividend and redemption will increase the net SEK 3,475 million. Unrealised profits on the sale of financial debt/equity ratio to approx. 30%, which is in line with the instruments reported at market value account for only Group’s target. It is believed that it also will be possible to SEK 43 million of equity. Since the end of the year, nothing maintain liquidity at a satisfactory level. has occurred which has a material negative impact on the In the opinion of the Board of Directors, the proposed Group’s financial position. value transfers to the shareholders are thus defensible in light of the needs of the operations with respect to the financial position.

78 | SSAB ANNUAL REPORT 2005 REPORT OF THE BOARD OF DIRECTORS Disposition of profit

Proposed disposition of profit

The amount at the disposal of the Annual General Meeting is as follows:

Profit brought forward 822 Net profit for the year 2,653 SEK million 3,475

The Board of Directors and the President recommend that the profits be allocated in the following manner:

Dividend to the shareholders SEK 9.00 per share 818 To be carried forward 2,657 SEK million 3,475

As reported in the Consolidated Balance Sheet, the Group’s disposable earnings amounted to SEK 11,321 (9,950) million.

The annual report has been prepared in accordance with generally accepted practice for stock market companies. As far as is known, information provided corresponds with actual circumstances and nothing of material significance has been excluded which might affect the picture of the Company as created by the annual report.

Stockholm, February 9, 2006

Sverker Martin-Löf Carl Bennet Sture Bergvall Anders G Carlberg

Per-Olof Eriksson Bo Jerreng Bert Johansson Marianne Nivert

Anders Nyrén Matti Sundberg Anders Ullberg President

Our Auditors’ Report was submitted on February 14, 2006 PricewaterhouseCoopers AB

Claes Dahlén Authorised Public Accountant

SSAB ANNUAL REPORT 2005 | 79 Auditor’s report

To the general meeting of the shareholders of SSAB Svenskt Stål Aktiebolag (publ) Company no. 556016-3429.

We have audited the annual report, consolidated financial statements, accounting records and the administration by the Board of Directors and the President of SSAB Svenskt Stål Aktiebolag (publ) for 2005. The Board of Directors and the President are responsible for the accounts and administration of the Company and for ensuring that the annual report is prepared in accordance with the Swedish Annual Reports Act and that the international accounting standards, IFRS, as adopted by the EU, are applied in conjunction with the preparation of the consolidated financial statements. Our responsibility is to express an opinion on the annual report, the consolidated financial statements and administration based on our audit.

The audit has been conducted in accordance with Generally Accepted Auditing Standards in Sweden. Those Standards require that we plan and perform the audit to obtain reasonable assurance that the annual report and consolidated financial statements are free from material error. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President, as well as evaluating the overall presentation of information in the annual report and consolidated financial statements. As a basis for our opinion concerning discharge from liability, we have examined significant decisions, actions taken, and circumstances in the Company in order to be able to determine the liability to the Company, if any, of any Board Member or the President. We have also examined whether any Board Member or the President has, in some other way, acted in contravention of the Companies Act, the Annual Reports Act, or the Articles of Association. We believe that our audit provides a reasonable basis for our opinions set out below.

The annual report has been prepared in accordance with the Annual Reports Act and accurately represents the results and financial position of the Company in accordance with Generally Accepted Accounting Principles in Sweden. The consolidated financial statements have been prepared in accordance with the international accounting standards, IFRS, as adopted by the EU and in accordance with the Annual Reports Act and thereby accurately represent the results and financial position of the Group. The Report of the Board of Directors is consistent with other parts of the annual report and the consolidated financial statements, We recommend that the General Meeting adopt the Profit and Loss Accounts and balance sheets for the Parent Company and the Group, allocate the profit of the Parent Company in accordance with the proposal set forth in the Report of the Directors, and grant the Board Members and the President discharge from liability for the financial year.

Stockholm, February 14, 2006 PricewaterhouseCoopers AB

Claes Dahlén Authorised Public Accountant

80 | SSAB ANNUAL REPORT 2005 Group Management, staff and auditors

From left Bengt Nilsson, Martin Lindqvist, Anders Ullberg, Anders Werme and Göran Carlsson.

Anders Ullberg (1946), President and CEO. Bengt Nilsson (1961), President, SSAB Oxelösund M.Sc. in Economics M.Sc. in Technical Physics Employed since 1984. Employed since 2004. Member of Group Management since 1984. Member of Group Management since 2004. Shareholding: 18,500 shares. Options to buy Shareholding: 800 shares. 51,196 shares. Anders Werme (1956), President SSAB Tunnplåt Göran Carlsson (1954), Technology. Doctor of Technology, M.Sc.in Process Metallurgy M.Sc. in Process Metallurgy Employed since 1985. Employed since 1989. Member of Group Management since 2000. Member of Group Management since 2002. Shareholding: 3,180 shares. Options to buy Shareholding: 1,808 shares. Options to buy 11.588 shares. 2,574 shares. Martin Lindqvist (1962), Control and Finance. M.Sc. in Economics Employed since 1998. Member of Group Management since 2001. Holdings include shares owned by closely-associ- Shareholding: 1,800 shares. Options to buy ated persons. Call options have been purchased 7,599 shares. on the market for a part of paid variable salary.

Group staffs Auditors Control and Finance Martin Lindqvist PricewaterhouseCoopers AB Investor Relations Stefan Lundewall Elected at the Annual General Meeting in 2003 Legal Affairs Bo Legelius for a term until the close of the Annual General Public Affairs Ulrika Ekström Meeting in 2007. Auditor in charge: Claes Dahlén, Authorised Public Accountant

SSAB ANNUAL REPORT 2005 | 81 Board of Directors

APPOINTED BY THE GENERAL MEETING OF THE SHAREHOLDERS

Sverker Martin-Löf Carl Bennet Anders G Carlberg Per-Olof Eriksson (1943) Doctor of Technology, (1951) M.Sc. in Economics (1943) M.Sc. in Economics (1938) M.Sc. in Engineering, Dr. h.c. Tech. Dr. h.c. CEO of Axel Johnson Tech. Dr. h.c. Chairman of the Board of Board Member since 2004. International. Board Member since 1986. Directors since 2003. Chairman of the Board of Board Member since 1986. Chairman of the Board Chairman of the compensa- Directors of Elanders, Board Member: among of Directors of Callans Trä, tion committee and member Getinge, Swedish National other companies, Axel Odlander och Fredriksson of the audit committee. Agency for Higher Education, Johnson, Axel Johnson Inc., o Co. Chairman of the Board of Lifco and Sorb Industrier. Beijer Alma, Sapa and SäkI, Board Member: Assa Abloy, Directors of SCA and Skanska. Deputy Chairman of the Formerly, among other C C Systems, Elkem, Senea, Deputy Chairman of the Board of Directors of Boliden things, President and CEO Volvo and Öresund. Board of Directors of and TeliaSonera. of Saba and Nobel as well Formerly, among other Industrivärden. Board Member: AMS (the as Vice President of SSAB. things, President and CEO Board Member: Ericsson and Swedish Labour Market Shareholding: 1,600 shares. of Sandvik. Handelsbanken. Board) and member of the Shareholding: 5,000 shares. Formerly, among other things, Government’s Research President and CEO of SCA Committee. Shareholding: 5,000 shares. Formerly, among other Independent of the company. things, President and CEO of Getinge. Shareholding: 5,400 shares. Independent of the company and its major shareholders.

APPOINTED BY THE EMPLOYEES

Sture Bergvall Bo Jerräng Bert Johansson (1956) Electrician, (1947) Personnel, (1952) Electrician, SSAB Tunnplåt. SSAB Oxelösund. SSAB Tunnplåt. Employee representative Employee representative Employee representative since 2005. since 2004. since 1998.

82 | SSAB ANNUAL REPORT 2005 HONORARY CHAIRMAN

Björn Wahlström has served as honorary chairman of the Company since 1991.

Marianne Nivert Anders Nyrén Matti Sundberg Anders Ullberg (1940) B.A. (1954) M.Sc. in Economics, (1942) M.Sc, in Business and (1946) M.Sc. in Economics Board member since 2002. MBA Economic; Econ. Dr. h.c., President and CEO of SSAB Chairman of the Board of President and CEO of Industri- Mining Counsellor Svenskt Stål since 2000. Directors of Posten. värden. Board Member since 2004. Board Member since 2001. Chairman of Save the Board Member since 2003. Chairman of the Board of Chairman of the Board of Children Sweden and Deputy Chairman of the Association Directors of Ainax, Scania Directors of Boliden and Chairman of the Karolinska of Exchange-listed Companies Sverige and Oy Scan-Auto. Eneqvistbolagen. Chairman University Hospital. and the Association for Formerly, among other of the Council of the Board Member: Beijer Alma, Generally Accepted Principles things, President of Valmet Swedish Steel Producers’ the 4th AP Fund, System- in the Securities Market. and Ovako Steel. Association. bolaget, and Wallenstam. Deputy Chairman of the Shareholding: 1,000 shares. Board Member: Atlas Copco, Formerly, among other Board of Directors of Independent of the company Skandia and TietoEnator. things, President and CEO Handelsbanken. and its major shareholders. Formerly, among other things, of Telia. Board Member: Ernström- Vice President and CFO of Shareholding: 2,000 shares. gruppen, Industrivärden, SSAB. Independent of the company Sandvik, SCA, Shareholding: 18,500 shares. and its major shareholders. Skanska and SNS. Options to buy 51,196 shares. Formerly, among other things, Vice President of Skanska Shareholding: 750 shares. Independent of the company.

Alternate members

Secretary of the Board of Directors Bo Legelius, General Counsel

Holdings include shares owned by closely-associated persons. Owe Jansson Ola Parten Claes Ström (1945) Steelworker, (1953) Engineer, (1945) Accounts, SSAB Oxelösund. SSAB Tunnplåt SSAB Tunnplåt. Employee representative Employee representative Employee representative since 1990. since 2005. since 2003.

SSAB ANNUAL REPORT 2005 | 83 Addresses

Group Headquarters Foreign Subsidiaries China Finland SSAB Svenskt Stål SSAB Oxelösund SSAB Svenskt Stål Box 26208 Australia Representative Office Beijing Fredriksgatan 63 A 11 SE-100 40 Stockholm SSAB Swedish Steel Room A1902, FI-00 100 Helsinki Phone: Int. +46 8 45 45 700 P O Box 1443 Vantone New World Plaza Tel +358-9-686 60 30 Fax: Int. +46 8 45 45 725 AU-Booragoon, WA 6954 (Perth) Fuchengmenwai Fax +358-9-693 21 20 Visiting address: Tel +61-8-9315 5450 CN-100037 Beijing www.ssab.fi Birger Jarlsgatan 58 Tel +86 10 6858 79 61/62 Fax +61-8-9315 5451 Plannja www.ssab.se www.ssab.com.au Fax +86 10 6858 79 96 www.ssab.cn Terästie 8 FI-54 100 Joutseno Swedish Companies Austria SSAB Swedish Steel Tel +358-5-610 55 00 Plannja Beijing Representative Office Fax +358-5-610 56 00 SSAB Swedish Steel Room 330, Radisson SAS Hotel www.plannja.com SE-971 88 Luleå Linke Bahnzeile 24 Phone: Int. +46 920 929 00 No. 6A East Beisanhuan Road AT-2483 Ebreichsdorf CN-10028 Beijing Fax: Int. +46 920 929 12 Tel +43-2254-752 17 France www.plannja.com Tel +86 10 6466 34 41 Fax +43-2254-752 174 Fax +86 10 6466 34 42 SSAB Swedish Steel Plannja Siba www.ssab.at www.ssab.cn 114, Avenue Charles de Gaulle Box 143 FR-92522 Neuilly sur Seine Cedex SE-570 81 Järnforsen Brasil SSAB Swedish Steel Tel +33-1-5561 91 00 Phone: Int. +46 495 175 00 C.C. Wu Building, Room 2312 Fax +33-1-5561 91 09 Fax: Int. +46 495 505 25 SSAB Swedish Steel 302-308 Hennessy Road www.ssab.fr www.plannja.com Rua Commendador de Araújo Wan Chai 565-cj. 704 HK-Hongkong SSAB Merox CEP 80420-000 Tel +852-2564 07 82 Germany Fax +852-2563 21 02 SE-613 80 Oxelösund Centro Curitiba-Paraná SSAB Swedish Steel www.ssab.cn Phone: Int. +46 155 25 44 00 Tel +55-41-3014 9070 Grafenberger Allee 87 Fax: Int. +46 155 25 52 21 Fax +55-41-3014 7733 DE-40237 Düsseldorf www.merox.se www.ssab.com.br Czech Republic Tel +49-211-91250 SSAB Oxelösund SSAB Swedish Steel Fax +49-211-9125-129 SSAB Swedish Steel www.ssab.de SE-613 80 Oxelösund Rua Padre Garcia Velho Spartakovcu 3 Phone: Int. +46 155 25 40 00 73-cj. 13 CZ-708 15 Ostrava-Poruba SSAB Swedish Steel Fax: Int. + 46 155 25 40 73 CEP 05421-030 Pinheiros Tel +420-596-939 487 Immenhoferstrasse 19-21 www.ssabox.com Sao Paolo-SP Fax +420-596 939 486 DE-70180 Stuttgart Tel +55-11-3032 0393 SSAB Tunnplåt www.ssab.cz Tel +49-711-68 78 40 Fax +55-11-3032 0393 Fax +49-711-68 78 413 Head Office: www.ssab.com.br SE-781 84 Borlänge Denmark www.ssab.de Phone: Int.+46 243 700 00 Fax: Int. +46 243 720 00 Canada Plannja Greece Metallurgy: Postboks 727 SSAB Swedish Steel DK-9100 Aalborg SSAB Swedish Steel S-971 88 Luleå 1031 Cliveden Avenue Phone: Int. +46 920 920 00 Tel +45-98-10 11 11 18, Kaitezdistr. CA-Delta, BC Fax +45-98-10 10 01 Panorama Fax: Int. +46 920 927 14 Canada V3M 5V1 www.ssabtunnplat.com www.plannja.com GR-552 36 Thessaloniki Tel +1-604-526 37 00 Tel +30-2310-347 273 Tibnor Fax +1-604-526 01 77 SSAB Svensk Stål Fax +30-2310-347 271 Box 4260 www.ssab.ca Postboks 130 www.ssab.gr SE-102 66 Stockholm DK-2605 Bröndby Tel +45-43 20 50 00 Phone: Int. +46 8 702 40 00 Hungary Fax: Int. +46 8 702 23 55 Fax +45-43 20 15 18 www.plannja.com www.tibnor.se SSAB Swedish Steel Trading Lövér Krt. 31/A Estonia HU-9400 Sopron Tel +36-99-51 05 10 SSAB Swedish Steel Fax +36-99-51 05 11 Tule 22 www.ssab.hu EE-76505 Saue Tel +372-6-709 007 Fax +372-6-709 007 Indonesia www.ssab.ee SSAB Swedish Steel Graha Family P 110 Surabaya-60227 East Java Tel +62-31-753 3883 Fax +62-31-297 5207 www.ssab.co.id

84 | SSAB ANNUAL REPORT 2005 Italy The Netherlands Portugal Spain SSAB HARDOX Lamiere SSAB Prelaq SSAB Portugal-Comércio SSAB Swedish Steel Piazza Europa P.O. Box 2 EN3, Alto do Vale C/Manuel Uribe 13-15 Interporto di Parma NL-6640 AA Beuningen Vale de Santarém ES-28033 Madrid IT-43010 Tel +31-24-679 07 00 PT-2005-050 Santarém Tel +34-91 300 54 22 Loc.Bianconese-Fontevivo (PR) Fax +31-24-679 07 07 Tel +351-243-760 667 Fax +34-91 388 96 97 Tel +39-0521-61 88 23/24 www.ssabprelaq.com Fax +351-243-760 045 www.ssab.es Fax +39-0521-61 88 16 www.ssab.pt www.ssab.it SSAB Swedish Steel SSAB Swedish Steel P.O. Box 131 SSAB Swedish Steel Almacen No 4 SSAB Swedish Steel NL-6640 AC Beuningen Rua Sao Nicolau N.2 Zona Portuaria, S/N Via G. Di Vittorio No 6 Tel +31-24-679 05 50 Sala 407 ES-20110 Pasajes IT-250 16 Ghedi Fax +31-24-679 05 55 PT-4520-248 Santa Maria da Feira Tel +34-943-350 272 Tel +39-030-905 88 11 www.ssab.nl Tel +351-256-371 610 Fax +34-943-350 273 Fax +39-030-905 89 30 Fax +351-256-371 619 www.ssab.es www.ssab.it Norway www.ssab.pt Turkey Japan Plannja Russia Postboks 8 Leirdal SSAB Swedish Steel SSAB Swedish Steel NO-1008 Oslo SSAB Swedish Steel Perdemsac Plaza, Bayar Caddesi Kenchiku Kaikan 5 Fl Tel +47-23-28 85 00 Moskovskaya 21 Gülbahar Sokak 5-26-20 Shiba, Minato-Ku Fax +47-23-28 85 10 RU-141400 Khimki No:17, Kat:4/42 JP-Tokyo 108-0014 www.plannja.com Tel +7-095-74 52 097 81090 Kozyatayi Tel +81-3-3456 34 47 Fax +7-095-57-777-2682 TR-Istanbul Fax +81-3-3456 34 49 SSAB Svensk Stål www.ssab.ru Tel +90-216-445 59 54 www.ssab.jp Postboks 47 Fax +90-216-445 59 56 N-1313 Vøyenenga www.ssab.com.tr Tel +47-23-11 85 80 Singapore Korea Fax +47-67-15 35 90 SSAB Swedish Steel UK SSAB Swedish Steel www.ssab.no 11 Joo Koon Crescent 2F, Koami New bld. SG-Singapore 629022 SSAB Dobel Coated Steel 13-6 Yoido-dong Poland Tel +65-863 16 22 Narrowboat Way, Youngdeungpo-ku Fax +65-863 06 22 Hurst Business Park KR-150-870 Soeul SSAB Swedish Steel www.ssab.sg GB-Brierley Hill, Tel +82-2-761 61 72 Ul. Bernardynska 17/44 West Midlands DY5 1UF PL-02904 Warsaw Fax +82-2-761 61 73 Slovenia Tel +44-1384-746 60 www.ssab.co.kr Tel +48-22-643 59 28 Fax +44-1384-775 75 Fax +48-22-643 59 28 SSAB HARDOX Steel Trading www.swedishsteel.co.uk SSAB Tunnplåt www.ssab.pl Blejska Dobrava 17A Korea Branch SSAB Swedish Steel SSAB Swedish Steel SI-4273 Blejska Dobrava 8F, Koami New Building Tel +386-4586 62 30 De Salis Court, De Salis Drive 13-6 Yoido-dong Opacz, ul. Centralna 24 Hampton Lovett PL-0505816 Michalowice Fax +386-4587 42 72 Youngdeungpo-ku www.ssab.si GB-Droitwich, KR-Seoul Tel +48 22-353-13 14 Worcestershire WR9 OQE Tel +82-2-369-7272 Fax +48-22-723 04 86 Tel +44-1905-791 800 Telefax +82-2-3369-7279 www.ssab.pl South Africa Fax +44-1905-794 736 www.ssab.co.kr www.swedishsteel.co.uk Plannja SSAB HARDOX Ul.Bialolecka 233 P O Box 1391 Mexico PL-03-253 Warsaw ZA-Alberton 1450 USA Tel +48-22-814 10 60 Tel +27-11-908 1346/47 SSAB Swedish Steel Fax +48-22-814 08 60 Fax +27-11-908 1373 SSAB HARDOX Ave Jose Vasconcelos 1507 www.plannja.com www.ssab.co.za 4700 Grand Avenue Officina 204, Col Centro US-Pittsburgh, PA 15225 MX-66230 San Pedro SSAB Swedish Steel Tel +1-412-269 32 31 Nuevo León Private Bag X1 Fax +1-412-269 32 51 Tel +52-81-8192 9130 Postnet Suite 107 www.swedishsteel.com Fax +52-81-8192 2120 East Rand 1462 www.ssab.com.mx Tel +27-11-822 2570 SSAB Swedish Steel Fax +27-11-822 2584 4700 Grand Avenue www.swedishsteel.co.za US-Pittsburgh, PA 15225 Tel +1-412-269 21 20 Fax +1-412-269 21 24 www.swedishsteel.com

SSAB ANNUAL REPORT 2005 | SSAB Svenskt Stål AB Box 26208, SE-100 40 Stockholm, Sweden Annual Report 2005 Telephone int. +46 8-45 45 700. Telefax int. +46 8-45 45 725 Visiting address: Birger Jarlsgatan 58, Stockholm Email: [email protected] www.ssab.se

The bucket of LKAB's Toro 2500 loader, which is subjected to extreme stress, has been constructed of HARDOX 400 with bucket edges of HARDOX 500 and fastenings of WELDOX 700.