couv-rabat ra GB (1) 5/04/06 18:46 Page 1 Content (Flap) Advertising Campaign 1 Profile 2 Message from the Chairman of the Board of Directors 4 Interview with the CEO 6 Governing bodies 8 Global presence through strategic investments 10 Highlights 14 2005 Key Figures 16 Market information and financial information policy 23 Group presentation 24 Markets 27 Strategy 29 Production facilities 31 Group activity report Arcelor Annual Report 2005 32 Group consolidated management report 56 Risk related to Arcelor Group activities Designed and produced by ByTheWayCreacom 67 19, rue Galilée - 75116 Paris, France Sustainable development Phone: +33 1 53 57 60 60 Fax: + 33 1 53 57 60 61 105 Corporate governance and internal control procedures Printed by 106 Report of the Chairman of the Board of Directors Victor Buck - ZI Am Bann 3372 Leudelange - Luxembourg on Corporate Governance and the internal control procedures Photo credits Photo library Arcelor 135 S. Murez Financial and legal information Illustrations: 137 Consolidated Financial Statements © malulo - www.global100.org 217 Arcelor SA parent company financial statements Mori Building Development Co. Ltd 229 Legal information All rights reserved This document was printed on a TCF 238 Glossary (Total Chlorine Free) paper and is also available in French, Spanish and Arcelor Annual Report 2005 Brazilian Portuguese. (Flap) Steel production flow diagram 19, avenue de la Liberté L-2930 Luxembourg R.C. Luxembourg B 82 454 www.arcelor.com couv-rabat ra GB (1) 5/04/06 18:46 Page 2 How steel is made? A 3 stage process “To enable those who don’t know us to find out about us, and those who do to get IRON to know us better.” That was ORE how the CEO, Guy Dollé, summed up the aims of SINTERING PLANT SINTERED SMELTING PROCESS ELECTRIC PROCESS Arcelor’s new advertising ORE campaign. COAL The campaign has attracted COKE OVEN COKE widespread attention, being 2000˚C the Group’s first major SCRAP 1600˚C public pronouncement BLAST FURNACE PIG IRON CE since the merger. CRUDE STEEL 1400˚C ARC FURNA Launched in the autumn ELECTRIC of 2005 in 9 countries, the purpose of the advertising campaign is to raise Arcelor’s profile and 1600˚C increase its recognition OXYGEN CONVERTER among all its publics. CRUDE STEEL 1 DEVELOPMENT OF LIQUID STEEL DEVELOPMENT OF LIQUID STEEL 1 ADDITIVES The aim was to express ADDITIVES VACUUM VACUUM the Group’s true personality, as an innovative and REFINING RE creative actor, responsible O2 O2 UNIT FIN AR AR UN IN (ladle furnace) (ladIT G and international, with le fu rnac a concern for people e) and the environment. GRADED LIQUID GRADED LIQUID STEEL STEEL An actor that “listens”, helping to build tomorrow’s world. 2 MOULDING SEMI-FINISHED PRODUCTS MOULDING SEMI-FINISHED PRODUCTS 2 On the creative side, the CON BEAM campaign’s 8 illustrations OF O TINO SLAB BLANK G F N TS FLA US I challenge steel industry T PRO CASTING UC CASTROD DUCTS OUS stereotypes. U NG P IN LO ONT With a light touch they C conjure up a charming world of play, filled with 3 FROM BLANKS TO FINISHED PRODUCTS FROM BLANKS TO FINISHED PRODUCTS 3 surprises and the C ˚ 0 0 2 1200˚C 1 à à C ˚ 0 0 800˚C 8 e g a f f u a h c é réchauffage r e de d r u o Four F Four de réchauffage 800˚C à 1200˚C unexpected; a world REHEATING REHEATING FURNACE of colour and warmth. FURNACE 800˚C - 1200˚C HOT 800˚C - 1200˚C OF ROLL BEAM F FLA S T PRING SHEET T ODU ROLLINGDUC O SHEET PILE RO CTS. HOT LONG P Introduction-GB_2 5/04/06 19:12 Page 1 Profile Since it was formed in 2002, Arcelor has strengthened its positions in the production and supply of high-value-added steels and innovative “steel solutions” that meet the new requirements of steel users. This has enabled Arcelor to become a leading steel supplier to the automotive, construction, general industry, household appliances and packaging sectors. Arcelor has 96,000 employees in more than 60 countries. In 2005, it generated revenues of ?32.6bn, and produced 46.7 million tonnes of crude steel. Four years after its creation, Arcelor has convincingly demonstrated its resilience to the steel industry cycle and has beaten its targets. Arcelor's business and financial model is designed to maximise cash generation over the cycle and to ensure sustained profitability by focusing on building positions in high-margin products. Arcelor has a solid industrial development programme and manages its business portfolio in a very pro-active manner, emphasising value over volumes. Arcelor has bolstered its positions in flat carbon steels and automotive steels in particular. It has successfully captured new sources of growth in North and South America and China. The Group has a unique position in worldwide steel distribution. It also generates strong and stable earnings from its long carbon steels business. In Latin America, Arcelor Brasil was formed by combining the Group’s businesses in Brazil and Argentina. It has total production capacity of 11 million tonnes across 25 sites, and has ambitious expansion plans. The acquisition of Canadian steelmaker Dofasco supports Arcelor's global leadership strategy. Integrating Dofasco within Arcelor's international production network will lead to substantial value creation opportunities. The Dofasco acquisition gives Arcelor a major position in the world's largest automotive market. Arcelor’s international development is driven by a strategy with a balance between moving into high-growth emerging markets and supporting multinational clients in their global expansion, particularly in the automotive industry. Introduction-GB_2 5/04/06 19:12 Page 2 ARCELOR ANNUAL REPORT 2005 Message from the Chairman of the Board of Directors Dear Shareholders, between January and December 2005. Also, we have introduced a more dynamic dividend policy. The Board of Directors will be proposing to the Annual General Meeting a gross dividend of e1.20 per rcelor is proud of the outstanding results achieved in 2005. These showed a sharp share, compared with e0.65 for 2004. A improvement over the already excellent results reported in 2004 despite less favourable business conditions at the end of the year. Moreover, the Board has declared its support for a proactive dividend policy in the shape of a normalized payout rate of 30% over the business cycle, and has pledged to return excess cash to shareholders. A feature of 2005, indeed, was the fall in apparent steel consumption in our main markets due to a combination of massive inventory rundowns, steadily falling spot prices over the year and a significant Arcelor can face the future with confidence. After an outstanding year in 2005, we expect 2006 to be rise in the price of raw materials. another very good year for the steel market and for our Group. Arcelor will be stepping up the pace of transformation in regions where growth potential is high. With its larger scale, and while continuing to During the course of 2005, global steel output rose by 6%. Apparent consumption of finished steel push down costs, Arcelor expects to go on improving its performance and guaranteeing long-term products grew in roughly the same proportions and now exceeds 1 billion tonnes. However, this growth returns for its shareholders. was very unevenly spread across the major regions. Outside China, apparent consumption fell by 1%, The reorganised Group Management Board, with just four members, will facilitate this drive to boost mainly due to heavy inventory rundowns in the European Union (EU 25) and North America. China, performance. on the other hand, recorded a rise of 23%. Arcelor will be pursuing – and accelerating – the pace of development on a sound and enduring basis. Despite these conditions, Arcelor’s revenues rose by 8.1% to 32.6 billion euros, while EBIDTA amounted to In so doing, it will remain faithful to the philosophy that has guided it since its origins, namely ?5.6bn, versus ?4.5bn in 2004. Net profit amounted to ?3.8bn, compared with ?2.3bn in 2004, while respect for tough standards in terms of health and safety and sustainable development. strong cash generation enabled Arcelor to reduce net debt by ?1.3bn. The Group has also maintained its forward momentum in the social and ethical spheres. Arcelor was Return on capital employed reached 26.5% in 2005. Arcelor’s policy of favouring margins over volumes the first steel company to sign a global agreement on corporate social responsibility. This agreement and concentrating on high value added products, adopted at the Group’s inception, is proving both powerfully affirms Arcelor’s commitment to applying the same demanding social and environmental sound and highly profitable for our shareholders. standards throughout the Group. Arcelor has also instituted a Code of Ethics through which it will ensure compliance, wherever it operates around the world, with the same elementary rules of probity These outstanding results are clear evidence that the Arcelor model works and that its strategy is the that everyone is entitled to expect from a responsible corporation. right one. Further, Arcelor is compliant with the strictest standards of corporate governance. From its earliest days, Since its formation in 2002, after a resoundingly successful initial phase of integration and consolidation, Arcelor has been especially concerned with the scrupulous application of the rules of corporate in 2004 Arcelor embarked on a phase of transformation and growth with equal success. governance regarding transparency, quality of disclosure, and the balance of powers. The functions of Chairman of the Board of Directors and Chief Executive Officer are thus clearly separated.