ACERINOX

MÁSTER UNIVERSITARIO EN
GESTIÓN INTERNACIONAL DE
LA EMPRESA 16-17
ESTRATEGIA AVANZADA. CASOS DE

EMPRESAS INTERNACIONALIZADAS
Acerinox
 David de Pastors Pérez
Esta actividad es susceptible de ser cofinanciada por los Fondos Estructurales y de Inversión Europeos (Fondos EIE)
ACERINOX: MANAGING THE CHANGE IN THE
GLOBAL MARKET
September 2004
©: Caso realizado por David de Pastors Pérez, MBA Internacional (EOI).

Quedan reservados todos los derechos. (Ley de Propiedad Intelectual del 17 de noviembre de 1987 y Reales
Decretos). Documentación elaborada por EOI. Prohibida la reproducción total o parcial sin autorización
escrita de EOI.
Edición 2002, revisada en 2004
ACERINOX: Managing the change in the global market
INTRODUCTION _____________________________________________________ 5
STAINLESS STEEL ___________________________________________________ 5
ACERINOX __________________________________________________________ 8
The origins of ACERINOX ___________________________________________________ 8
The structure of ACERINOX today _____________________________________________ 9
Company strategy and philosophy _____________________________________________ 10
Efficiency in production processes __________________________________________________10
International Orientation __________________________________________________________14
Vertical integration and Horizontal diversification ______________________________________17
Innovation _____________________________________________________________________18
Financial Policy_________________________________________________________________19
Commitment to the company ______________________________________________________20
TOWARDS THE FUTURE ____________________________________________ 21
The company’s current situation ______________________________________________ 21
Facing up to the future ______________________________________________________ 22
Globalisation and International coordination __________________________________________22
E-Commerce ___________________________________________________________________23
Organic Growth versus Integrated Growth ____________________________________________23
SO NOW, WHAT? ____________________________________________________ 25
ANNEX I (Nickel consumption and stainless steel production) ________________ 26
ANNEX II (Demand for stainless steel products) ___________________________ 27
ANNEX III (The North American market for stainless steel)__________________ 31
ANNEX IV (Group Balance Sheets and Income Statements)___________________33
ANNEX V (Simplified Process for Making Stainless Steel)____________________35
***
THE COLUMBUS OPPORTUNITY______________________________________37
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INTRODUCTION
Thirty years after its foundation, ACERINOX felt that it needed, and not for the
first time, to find new areas for growth.
The management team remembered the time ten years before when they had
posed the question, “What next?” The strategic objectives the company had set
itself at the start had been fulfilled and its financial situation was sufficiently
sound for it to look around for new projects. Under the leadership of Chairman
Victoriano Muñoz, the management decided it should search for new
challenges to achieve sustained growth in ACERINOX.
During this ten-year period, ACERINOX had entered the US market by setting
up a production plant there. It had consolidated its presence on both the
Spanish and international markets by increasing its network of subsidiaries, and
it had increased the production capacity of its Algeciras plant, almost reaching
maximum levels, and continued raising its general levels of efficiency.
But the financial situation had not changed much. By maintaining its policy of
internal financing, ACERINOX had achieved its investment objectives while
maintaining the same level of economic solvency that it had at the start of the
ten-year period.
Over these years, the international market for stainless steel had had to cope
with a variety of situations with economic cycles of recession and expansion
and very volatile prices for both raw materials and end products that had forced
the sector to react fast. ACERINOX had dealt with all the difficulties with relative
ease, strengthening its market position even during unfavourable conditions.
The company management was again looking for new challenges. The people
were practically the same ones who had found alternatives for growth ten years
before. And their regular weekly meetings focused on a number of questions
that aimed to determine strategic plans of action for ACERINOX from then on:
• Was the time ripe for considering a merger with other companies?
• Should the sales policy be reviewed? Was it time to invest in new
technology?
• Should a new production plant be built?
• What countries should they concentrate on?
• Did e-commerce represent a threat or an opportunity?
STAINLESS STEEL
ACERINOX specialises in the production of stainless steel flat products but also
produces long products and stainless steel wire through two of its main
subsidiaries. Stainless steel flat products are made from alloys of common steel
Página 5 de 40
with chrome and nickel that are processed and polished and made to standard
measurements. The main applications for these products are in the food and
chemicals sector, the automobile industry, in the production of domestic
utensils, in construction and in industrial products. But the range of products
sold through the company’s commercial network is wider than this and meets
the needs of the different market segments in which the Spanish company is
present.
The main characteristics of the product are the following:
• The product is highly standardised on an international level.

• Large investments are required for production.
• International regulations stipulate the necessary characteristics of each type
of product, leaving a very small margin for product differentiation through
quality.
• The product is a cyclical one, with producers often being subject to
variations in the economic cycle although demand seems to be less
sensitive to recession than to periods of growth.
• Production costs depend to a large extent on the costs of the raw materials
required, namely, steel scrap, nickel, chrome, molybdenum and others.
• The prices of these raw materials are quoted on the world’s main
commodities markets and are therefore subject to the volatility that is
characteristic of such markets. This is especially true of nickel, the most
expensive raw material used in the production process.
• The main characteristic of demand is its uniformity. Stainless steel is
consumed throughout the world in very similar ranges and qualities and only
in the more developed countries is it required for “new applications” in the
fields of hygiene, the environment or safety.
• The main sectors requiring stainless steel end products are domestic
economies and the food and chemicals sectors, followed by construction
and automobiles.
International production of stainless steel reached about 17 million tonnes in

1999, with regional breakdown shown in the following graph:
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Production of Stainless Steel (year 1999)
Latin America
1% Africa
South-East Asia 3%
17%
Western Europe
36%
J
Japan
32% USA
11%
WesternOccidental
Europa Europe USA
Japón
Japan Sudeste Asiático
South-east Asia
Latinoamerica
Latin America Africa
Source.-- Metal Bulletin Researchnº 90 February 2001.

e.
As shown in the graph, Western Europe provides about 36% of total production
followed by Japan and the United States. If we also note the contribution made
by the main competitors on the international scene, we can see that this sector
shows a high, and increasing, degree of concentration. The main reasons for
this process of concentration are the growing need to improve productivity as
well as the obligation to have international sales networks that are able to place
large amounts of product in an increasingly globalised market. The process of
concentration that is taking place amongst the main customers for stainless
steel also leads producers to merge with a view to strengthening their positions
in negotiations with clients.
CONSOLIDATING INDUSTRY STRUCTURE
100%
80%
60%
40%
20%
0%
Aluminium
Platinum
Thermal coal
Diamonds
Stainless
Zinc
Nickel
Iron rre
Gold
Carbon steel
Cooper
Paper
Steel
Market share of top 5 producers - 1997 Market share of top 5 producers - 2000
31/10/2003
Market share of top 5 producers – 2003E 14
SOURCE: Deutsche Bank
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The following graphs show that, after the merger initiated in early 2000 between
Usinor, Arbed and Aceralia (which appear in the graphs as ARCELOR), there
are only four competitors on a European level representing 36% of worldwide
production, and only nine competitors worldwide.
Main producers of stainless in Europe Main producers of stainless steel worldwide
ARCELOR Acerinox Acerinox

KTS
25 14 Otro
6%
13%
28%
AvestaPolarit
11%
KTS
33
AvestaPolarit
28
Nippon
ARCELOR
5% Yusco
15%
5% Posco
Allegheny Ludium 8%
4%
AK Steel
5%
Fuente.- CRU Monitor Marzo 2001.
Of all these competitors, only a few of them (ACERINOX and AVESTA in

Europe) focus exclusively on the stainless steel market. The others obtain most
of their income from selling common steel. This means that the production
conditions are not the same for all the participants because in many cases
operations for the sale of stainless steel form part of other much larger
operations for common steel and also because the negotiating power of such
producers is greater as they tend to have very large volumes of trade with their
customers.
From the market point of view, it must be remembered that at the beginning of
the 21st century the industry is focusing on the possible recovery of the South-
East Asian markets and is especially considering entry into the Chinese market
by investing in new production plants.
ACERINOX
The origins of ACERINOX
“The purpose of ACERINOX is to supply the national stainless steel sheet and
wire processing industry, ensuring normal and regular supply and allowing it to
achieve spectacular development in coming years. As from 1976, ACERINOX
will not only be able to supply the whole of the Spanish market but will be able
to increasingly devote its attention to exports so that our country, hitherto mainly
an importer country, can focus on exports resulting in great benefits for the
balance of trade”.1
The origin of ACERINOX goes back to the end of 1969. It was the result of a
tender for the industrial development of the ‘Campo de Gibraltar’ (the area of
1
This was the objective proclaimed by ACERINOX in its first leaflet published in 1970.
Página 8 de 40
Spain around the border with Gibraltar). While this fitted in with Spain’s
economic policy at the time of replacing imports, the company’s spirit was
clearly an innovative one.
ACERINOX arose out of a joint venture agreement between two Japanese

companies, the Nisshin Steel Co. Ltd. (the top Japanese producer of stainless
steel flat products and the leader in technological development of the sector)
and the Nissho Iwai Co. Ltd. (one of the main Japanese trading companies at
the time), and a Spanish investment group led by the Banesto group that was
chaired by Aguirre Gonzalo and involved Banesto, Bandesco and the Banco
Guipuzcoano.
The project was clearly orientated towards the international market. From the
very start of the company, the export objective was always present. An
obsession with competitiveness on international markets led the company to
consider the need for building an integrated plant to produce stainless steel
sheet products on its property in the Campo de Gibraltar.
Also from the start, ACERINOX showed enthusiasm for technological innovation
which it has maintained ever since. The need to achieve high standards of both
efficiency and quality allowing the company to be competitive and reach levels
of sales that would enable it to achieve economies of scale forced the
management to focus on excellence in all production processes.
ACERINOX began its commercial activities in the Spanish market during the
first phases of investment in the Campo de Gibraltar plant. The formula chosen
was to sell Nisshin Steel products imported by Nissho Iwai Co. Ltd, thus
facilitating the creation of a national sales network through which its own
products could be sold once ready.
The structure of ACERINOX at the beginning of the XXI Century
ACERINOX was a business group comprising a total of 28 companies all over

the world. Of these, 24 focus on the sale of stainless steel products, 8 in Spain
and 16 in other countries. The main companies in the group were:
• ACERINOX, S.A. Production of stainless steel flat products. Based in

Spain.
• North American Stainless, Inc. Production of stainless steel flat
products. Based in the United States.
• Roldan, S.A. Production of stainless steel long products. Based in
Spain.
• Inoxfil, S.A. Production of stainless steel wire. Based in Spain.
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Sales by the ACERINOX Group in 1999

(in thousands of Euros)
1,000,000
1.000.000
900.000
900,000
800.000
800,000
700.000
700,000
600.000
600,000
500,000
500.000
400.000
400,000
300.000
300,000
200.000
200,000
100.000
100,000
-
Acerinox North American Stainless

Roldán Inoxfil
Total commercial companies in Spain Total comercial companies abroad
Source - Memoria anual deACERINOXdel año 1999.
The main events and changes in the composition of the group over the years,
until 2002, were the following:
• 1970 - Creation of ACERINOX, S.A.

• 1975 - Creation of the first branch office outside Spain (France)
• 1980 - Investment in Grupinox
• 1982 – Investment in Roldan S.A.
• 1990 - Creation of the NAS plant in Kentucky
• 1995 - Takeover of Roldán, S.A. (owner of Inoxfil,S.A.)
Company strategy and philosophy
With regard to strategy, ACERINOX can be considered to have maintained the

same principles ever since its foundation. The guidelines of its strategic
approach are the following:
Efficiency in production processes
Since its foundation in 1970, ACERINOX always sought to achieve efficient

production processes. The types of product in which the company specialises
require high degrees of standardisation which means that efficiency in
production processes through economies of scale or cost minimisation
becomes one of the main factors in making its products competitive.
In order to maximise efficiency levels, from the start ACERINOX decided to

build an integrated plant for the production of stainless steel flat products in the
Campo de Gibraltar based on an ambitious plan of investment involving the
following stages:
Página 10 de 40
Year of start-up Million

pesetas
(every year)
Stage 1 Cold rolling mill (SZ no.1 and no. 2, AP no.1 and 1973-1975 2,330
no.2, SKP no.1 and Cutting Lines)
Stage 2 Melting shop (HE no.1, AOD no.1, CC no.1), Dock 1976-1977 2,980
and extension of cold rolling mill (BA no.1)
Stage 3 Extension of cold rolling mill (SZ no.3) and melting 1982-1983 3,821
shop (HE no.2)
Stage 4 Hot rolling mill, Thick plate shop and Cold rolling 1984-1985 21,781
mill (AP no.3)
Stage 5 Extensions of cold rolling mill (SZ no.4, P no.4), 1989 10,821
Several modernisation plans, Acid regeneration 1990-1992 8,133
plant
Stage 6 Extension of cold rolling mill (BA no.2), and others 1995 7,350
Stage 7 Extension of cold rolling mill (SZ no.5) and melting 1995 6,320
shop (AOD no.2)
Stage 8 Extension of hot rolling mill and Improvements to 1996 5,007

melting shop
Stage 9 Extension of cold rolling mill (SZ no.6, BA no.3 and 1999 20,362
Cutting Lines
Source.- "ACERINOX 25 Años de Historia (1970-1995)" and Annual Reportsfrom 1995 to 1999.
An integrated plant for stainless steel flat products carries out the three main
processes required to convert raw materials into stainless steel flat products:
1. Melting shop. For melting down the scrap together with the main raw
materials required to produce stainless steel (nickel, chrome, copper and
molybdenum).
2. Hot rolling. The melted materials from the melting shop are transformed into
flat products, generally with a thickness between 2 and 8 mm.
3. Cold rolling. This converts the hot-rolled products into more refined products,
adapting them to market requirements as regards thickness, width and
finish. This phase involves the largest technological component and
therefore is the one that generates the highest added value. The thickness
range of the cold rolled product is between 0,25 and 5,8 mm.
At the time when ACERINOX took the decision to build a plant covering all the
processes, most producers in this sector specialised in just one or two of the
stages and sub-contracted the rest because a large volume of investment was
required to set up each one of these production processes. But, as ACERINOX
saw for itself until its hot rolling mill came into operation (in 1985), this formula
created serious inefficiency in both costs and quality as it did not allow the
necessary standards to be reached.
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ACERINOX therefore opted for an integrated plant, with a view to obtaining all
the advantages of controlling the whole production process and achieving the
saving in costs that was essential for international competitiveness. However,
the construction of the Palmones plant began with the last stage of the
production process, so it was the cold rolling plant that was the first to start
functioning, followed by the melting shop and finally by the hot rolling plant.
By implementing the investment plan mentioned above, the capacity of each of

the stages of production gradually increased over the years up to 1999 when
the Palmones factory can be considered to have reached its maximum capacity.
Página 12 de 40
Producción Fábrica de Campo de Gibraltar
1.000.000
950.000
900.000
850.000
800.000
750.000
700.000
650.000
600.000
550.000
500.000
450.000
400.000
350.000
300.000
250.000
200.000
150.000
100.000
50.000
0
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Acería Laminación en Caliente Laminación en Frío
Fuente .- "ACERINOX 25 Años de Historia (1970-1995)" y Memorias anuales de los años 1995 a 1999.
Following this same criterion, when the decision was taken to invest in
production in the United States (see below), again the project was for an
integrated plant with an investment plan covering several stages as with the
Palmones plant which by then was giving excellent results. In this case too the
project started with the cold rolling plant, moving on to hot rolling and finally the
melting shop.
Its obsession with constant improvement of production processes, together with

a constant policy for containing expenditure, has made ACERINOX one of the
market’s most efficient companies to the extent that, even in the worst years of
the stainless steel economic cycle, it has been one of the few companies in the
sector that has remained in profit.
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Trends in production costs in the Palmones plant
110
100
90
80
70
60
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Fuente. - Presentaci ón de Resultados de ACERINOX Tercer Trimestre A ño 2000.
International Orientation
The characteristics of stainless steel flat products make economies of scale one
of the main factors for competitiveness.
However, the size of the Spanish market does not allow it to absorb the
minimum production necessary for obtaining economies of scale. From the
start, the ACERINOX management committee was aware of this and
immediately considered expansion on international markets.
ACERINOX currently sells its products in all five continents although its main
foreign market is Europe, and especially the European Union.
Página 14 de 40
Sales in foreign markets (millions of pesetas)
11548
10860
10580
10259
9820
8056
6117
5016
4738
4297
4001 3950
2644
1932 2206
1897
1467
912
340 533 639
145 137 305
36 45
4
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Ventas en Mercados
Sales in Exteriores
foreign markets
Source. - " ACERINOX 25 A ñ os de Historia (1970 - 1995)" y Memorias anuales de los a ños 1995 a 1999.
Distribution of Foreign Sales 1999
Africa Australasia
Asia 1%
0%
14%
America
19%
Europe
66%
Source:.- a ñ
Annual Report 1999
Página 15 de 40
The company has adopted a very pro-active policy in foreign markets having
been through all the stages of internationalisation and having consolidated its
position on most markets.
The following can be described as the main stages of internationalisation for

ACERINOX:
1. Exports to foreign markets. During the early years, the method chosen to
enter international markets was through agents as this did not require further
investment at a time when a large investment effort was being made in the
Palmones plant. In addition, the stake in the capital of the Japanese “trader”,
Nissho Iwai, provided sufficient information and support for sales in foreign
countries. However, conflicting interests between the Japanese and Spanish
companies put an early end to their business relations.
2. The use of commercial agents. The figure of sales agents has been very
important in the international development of ACERINOX throughout its
history. The Spanish company still today continues to use agents in some
countries, generally in those in which it is not physically present but to which
it is interested in gaining access. But the use of agents is based on mutual
trust so that, if ACERINOX opens a subsidiary in a country in which it
already has an agent, it maintains the conditions originally agreed with the
latter.
3. Creation of subsidiaries and branch offices in foreign countries. The need to

consolidate the company’s presence in international markets and to work as
closely as possible with its clients made it necessary to open up branch
offices in foreign countries. This process led ACERINOX to set up 16
subsidiaries in different countries.
It should be stressed that the company’s aim was to apply the same sales
policy it used on the domestic market to international markets, except for the
fact that it does not sell products for third parties through its warehouses in
other countries. This, however, may change in the future.
In addition to the branch offices, it created service centres in a number of

countries, thus making it possible to adapt stainless steel flat products to the
needs of its main clients. The policy of dealing closely with small clients was
also imitated by creating warehouses in a number of countries in Europe
and America to sell the products demanded by this segment of the market.
4. Investments in foreign countries. Ten years ago, after many of the initial
objectives of ACERINOX had been achieved and its financial situation was
very solvent, the management decided to set up a process of investment in
production in foreign countries. This involved:
Página 16 de 40
• Participation in MEXINOX. In 1990, the decision was taken to take a

stake in this Mexican company that produced stainless steel flat
products together with the German group, Thyssen. However, this
investment was a short-lived one as in 1997 it was reduced from one
third to one tenth of the company’s share capital and in 1998 to 5%
which is the level maintained today.
• Creation of North American Stainless (NAS). In 1990, after the
detection of a market niche in the United States, ACERINOX began to
build its second integrated stainless steel plant in Kentucky. All the
production technology used in the American factory was developed
by ACERINOX, giving rise to the most modern production plant in
America from the technological point of view. The investment process
concluded during 2000 and the integrated factory became operative
during 2001 when the melting shop was started up. (Throughout the
process, parts of the production process were in operation, namely
the cold rolling plant first and then the hot rolling plant). By setting up
this new factory, ACERINOX gained an unbeatable position for
competition on the American market, although the structure of the
latter led the management to take a number of decisions for the
future. These are discussed below.
Melting shop capacity 800,000 tonnes/year

Hot rolling capacity 1,000,000
tonnes/year
Cold rolling capacity 300,000 tonnes/year
Vertical integration and Horizontal diversification
Another of the main characteristics of ACERINOX is its product focus. This sets
it apart from most of its competitors which receive the majority of their income
from steel production. ACERINOX deals only in the production, processing and
sale of stainless steel flat products.
This objective of concentrating on stainless steel is one of the company’s

constant features, having been maintained since it was first set up. It was
implemented along two main guidelines – vertical integration and horizontal
diversification.
From the point of view of vertical integration, the objective of ACERINOX has
been to obtain the greatest possible degree of “downstream” integration, trying
to reach the final client (even small clients). The results have been clear.
ACERINOX covers the whole of the production process, from the melting of the
raw materials in the melting shop to the production of polished, finished,
stainless steel flat products through the processes carried out in the cold rolling
mill. In addition, the commercial structure allows it to cover all the processes up
to the final client.
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The Spanish company has never decided to carry out “upstream” integration
although on many occasions it has considered the possibility of purchasing a
nickel mine in order to reduce the volatility of raw material costs.
With regard to horizontal diversification, the company’s commercial strategy has

led to the creation of service centres in which products are processed to meet
the needs of large clients and of warehouses for selling all the stainless steel
products that are designed for small clients. A very important landmark was the
investment in and subsequent takeover of GRUPINOX which had a commercial
network of 25 warehouses and a service centre in Spain which made it possible
to cover a large range of stainless steel products for sale to small consumers.
So today ACERINOX uses service centres to sell products to its large clients
and warehouses (within the GRUPINOX structure) to sell its own and third-party
products to small clients.
In order to carry out the necessary processes for selling not only stainless steel
flat products but also long products and wire, ACERINOX bought a majority
stake in Roldán S.A., a company that specialises in the production of long
stainless steel products. This led to the creation of Inoxfil S.A., controlled by
ACERINOX, which specialises in the production of stainless steel wire. From
the start, both companies have produced and sold these products together in
both the domestic and international markets, and have been able to meet most
of their customers’ requirements for stainless steel products.
Innovation
Another of the main objectives of ACERINOX has been to search for constant
improvement and innovation. Since it was first set up, the Spanish company has
tried to obtain maximum efficiency in its production processes and to adapt its
products to market requirements.
With a view to improving “everything that can be improved to raise

productivity”2, in 1988 ACERINOX set up the José Mª Aguirre Gonzalo
Research and Testing Centre to improve production processes and search for
new materials to meet market requirements, in close collaboration at all times
with the production area. This enabled the company to use in-house know-how
when setting up one of the world’s most competitive plants in Kentucky whose
staff received training in the Campo de Gibraltar on the techniques and
processes that have enabled the Spanish company to reach the position it holds
today. Moreover, even the staff of some of the company’s competitors receive
training in the Campo de Gibraltar plant. ACERINOX also offers technical
assistance to all the group companies, improving production quality and
process efficiency. Not only do companies within the group benefit from this
know-how but some direct competitors request technical assistance from the
Spanish company although this has given rise to certain controversies
concerning the transfer of know-how.
2
ACERINOX: 25 años de historia (1975 – 1995)
Página 18 de 40
In 1985, together with the main producers of stainless steel in Spain and the
main international suppliers of raw materials, ACERINOX set up CEDINOX, a
centre for promotion, the development of new products and technical services
relating to stainless steel.
Financial Policy
Undoubtedly, one of the main strategies of ACERINOX since its foundation has
been to contain expenditure and to maintain a healthy financial situation. This is
a key factor taking into account the investment processes in which the company
has been involved.
On many occasions, the policy of growth has involved use of the company’s
equity and re-investment and in this respect the founding partners’ support was
decisive. No dividends were paid during the first nine years of the company’s
life even though profits had been obtained.
Another of the company’s main characteristics has been its policy to control
expenditure. The need to maintain high levels of efficiency in order to be
competitive on international markets has made ACERINOX constantly
concerned to control expenditure wherever possible thus taking full advantage
of increased productivity.
This objective of controlling expenditure determined that the company’s

structure should be as light as possible so that any expenditure generated by
“non-productive” parts of the company would be reduced to a minimum. This
can be seen in the fact that, on 31 December 1999, the staff of the Madrid office
numbered just 158, in comparison with the total of 1903 staff throughout the
company.
Página 19 de 40
Net worth of ACERINOX (millions of euros)
1400
140
1200
120
100
1000
80 Share capital
Reserv
Reserves
60
Depreciatio
40
20
0
1991 1992 1993 1994 1995 1996 1997
1997 1998
1998 1999
1999
Fuente. - Memoria Anual de ACERINOX S.A. ño 1999
Commitment to the company
The company’s human resources management is another of the factors that

has been decisive over the years and has not changed. Commitment to the
company is a constant feature that is exemplified in the management team
which has seen practically no changes over the thirty years of its history.
The human resources policy is based on loyalty and the commitment of staff to
the company and viceversa. This means that the emphasis lies on internal
promotions, constant training and open communication amongst all the levels
and all the different areas. The best example is the ACERINOX management
team itself which has extensive experience in the sector having been linked to
the company since the start and being an essential pillar in the company’s
outstanding progress. It could even be claimed that, in some aspects, the
company’s main asset is its management team.
The human resources policy can be seen in a number of measures that have
proved their effectiveness:
• Variable Remuneration Policy for all company staff. As a result of the link
between remuneration and the actual hours worked and productivity,
absenteeism is much lower in the Campo de Gibraltar plant than the
average for the steel industry although reduction of this average is a
constant objective for all members of the company and achievements in
productivity have been very noteworthy3.
3
Production in the Campo de Gibraltar factory more than doubled (in both melting and cold and hot
rolling) between 1990 and 1999 while the number of employees remained approximately the same.
Source: ACERINOX results for the third quarter of 2000.
Página 20 de 40
• The hierarchical structure of the organisation is limited in order to facilitate

decision-making and improve the distribution of responsibilities.
• Internal promotion in order to keep staff turnover at low levels.
The leader of this team, Victoriano Muñoz Cava, Chairman and Chief Executive
of the company, has undoubtedly been one of the key elements in the results
obtained by the company. His influence has been very great not only inside
ACERINOX in which he has achieved great cohesion but also outside it in that
he is one of the main figures on the international scene of the stainless steel
market. With his leadership of the management team, he has brought the
company to what it is today, ensuring that staff at all levels are committed to the
company’s strategic principles.
However, and as is usual in companies with such a highly-experienced

management team, when the time comes for the new generation to take over,
unless this change is carefully prepared it might be of almost strategic
importance for the future of the company. Will ACERINOX be prepared to carry
out this transition successfully?
TOWARDS THE XXI CENTURY
The company’s current situation
As stated in the introduction to this case study, after thirty years of existence,
ACERINOX today forms part of the world-class elite within its sector with regard
to production capacity, market presence, technological innovation and
competitiveness.
Throughout this period, it has been able to cope relatively successfully with the
various recessions in its sector, although these seem to be becoming shorter. In
addition, the company has suffered the effects of volatile prices for both raw
materials and finished products and has been able to skilfully adapt to changing
market conditions. Finally, it is at the centre of the turmoil that is affecting trade
amongst companies with the arrival of e-business.
Ten years ago, all the objectives the company had set at the start had been
achieved, and the new, long-term objectives that were set then have now also
been achieved. The company has two integrated plants for the production of
stainless steel flat products – in Spain and in the United States – and its
financial situation is very healthy with provisions for meeting new challenges.
From the commercial point of view, the company’s presence in Europe is well
consolidated. In Latin America, the company is growing, and there are many
factors indicating that its presence in the United States will soon be
consolidated. The latter is a very interesting market because of its size and
because of the company’s position now that the investment process in Kentucky
is complete.
Página 21 de 40
Some of the main challenges for the future lie within the company, namely in
preparation of the organisation for transition to a new management team which,
sooner or later, will have to take place. But the focus cannot be placed
exclusively on internal changes at a time when large processes of concentration
are taking place in the steel industry (especially in recent months). Adaptations
must constantly be made to international markets and new foreign policies
adopted.
The Spanish company has shown it is perfectly capable of finding new areas of
activity and now is the time to take decisions. The members of the management
team are aware that the effects of any decisions taken now will probably only
been seen once they are no longer in their positions, but their commitment to
the company requires that they seek to guarantee its future, irrespective of their
own personal ambitions.
Facing up to the future
For a number of months, in their regular weekly meetings the management

team has been working on the strategic alternatives for continuing to grow.
They all share the idea that a company must move with the times or it will risk
disappearing. So, new formulae must be found to face the challenges of the
market.
Globalisation and International coordination
The concept of market globalisation is not a new one in sectors such as

stainless steel. It represents a step further in the processes of international
commercial exchange that began several decades ago. What is new in the
process of globalisation is the potential offered by technology in the field of
telecommunications, and this can lead to great competitive advantages for
companies competing in highly internationalised markets.
As in other areas, ACERINOX was a pioneer in the international coordination of

its sales network. This allowed it, on the one hand, to offer better service to its
end clients and, on the other, to achieve a high degree of stock control. But now
that it has higher levels of production that need to be sold and greater presence
in a larger number of countries, a more extensive and perfectly well-coordinated
commercial network could in itself give it a marked competitive advantage.
Is this the right time to go a step further along the commercial chain? Perhaps
the time is ripe for ACERINOX to enter the next stage of internationalisation and
to create a structure that will function globally, in an integrated fashion and
based on a common technological platform, achieving improvements in the
integration of the supply chain processes. Is this perhaps the time to develop an
integrated platform for the whole group using the new advances in
telecommunications? Has the time come to convert ACERINOX into a global
company, not only through physical presence but through the integration of the
Página 22 de 40
supply chain processes amongst the different companies of the group and with
the end customer?
E-Commerce
One of the favourite topics of the Board of Managers in their meetings was e-
commerce which was having a great impact on all sectors of inter-company
trade. The stainless steel sector was no exception.
With a view to remaining at the forefront of its sector, ACERINOX considered

opening up to electronic business but not all the board members were in
agreement concerning this new channel for distribution.
One group of company managers was in favour of this new project because
they wanted the company to be amongst the leaders in this change on
international markets. From the point of view of competition, opening up to
electronic commerce could offer ACERINOX the opportunity to take greater
advantage of its productivity differential with regard to its main competitors,
competing in a more demanding environment from the point of view of
efficiency. Bearing in mind that the Spanish company has been seen to be one
of the most efficient on the market, its competitive position in this new
distribution channel was unbeatable.
However, other managers were not so keen on this new channel for distribution,
stating that ACERINOX had an important advantage over its competitors
because it was able to control the whole of its supply chain. Entry into e-
business would force the company to increase the transparency of the whole of
its supply chain and it would therefore have to relinquish some of its control.
They also considered that e-commerce would open up the way to certain
competitors who, while not efficient as producers, might be able to obtain a
competitive advantage in the management of the supply chain and that this
would go against the interests of ACERINOX. They considered that it was not a
matter of rejecting the electronic “revolution” but of showing caution and waiting
until it became a must on international markets.
Although a firm decision on the company’s final strategy has not yet been taken,
it did decide to participate from the start on both the Metal Spectrum Platform
and the European 24:7 Platform, thus gaining important experience in this area.
Organic Growth versus Integrated Growth
One of the main features in the history of ACERINOX with regard to expansion
has been its refusal to grow through mergers or alliances with other companies,
that is, it always favoured organic growth. Only in the case of the investment in
MEXINOX did it try to collaborate with its competitors in the development of a
producer company but this project did not succeed, and most of the investment
was withdrawn soon afterwards.
Página 23 de 40
However, this policy came under review for two reasons: the process of
concentration in the industry which has been speeding up in recent months, and
the need to split the risk in the possible entry into new markets.
The process of concentration in the stainless steel industry has been taking
place for a number of years although it has speeded up recently. Is it necessary
to respond to this process through a merger on a global level? If so, who would
be the best candidate?
What really convinced the board of managers to consider the possibility of

changing its growth policy by accepting joint investment projects was the
possibility of entering new markets. One of the clearest examples of the need to
find alliances to enter new markets was south-east Asia (in which ACERINOX
does not have a very significant presence from the point of view of production
although it is one of the main exporters to this area).
However, it was the North American market that really led the company to
review its growth policy. Once it had completed its process of investment in the
integrated plant in Kentucky, ACERINOX had the opportunity to successfully
enter the North American market. But the structure of the US market in which it
is the distributors rather than the producers that exert control gave rise to
serious doubts amongst the board of directors about the ideal approach. It was
perhaps necessary to consider a vertical alliance, taking advantage of the
know-how of some of the main distribution chains in the American market in
order to gain a position.
Another alternative was horizontal integration, that is, the possibility of setting
up an alliance with another producer making thus sharing the risk of entering
this market. Or perhaps it would be best to maintain the policy of organic
growth, trying to replicate in the American market the formula used in other
international markets. Since the company’s financial situation was sound,
perhaps the time was ripe to undertake another investment project in the United
States, focusing on distribution and trying to replicate what had already been
done in Spain with the acquisition of GRUPINOX.
Other questions raised during the meetings of the board of directors related to
the ideal formula to be adopted for the option of integrated growth. What would
be most interesting for ACERINOX – to gain control of a company through
purchase or to begin a takeover process starting with an exchange of shares?
Should it take over a company specialising in sales and distribution or should it
merge with one of the market’s large companies with a view to attaining
synergies?
The pros and cons of each of these alternatives mostly related to total control of
the policy for penetrating the market, taking up the opportunity of the new plant
in Kentucky, distributing risk and the loss or gain of know-how. But a decision in
favour of setting up new alliances meant that one of the company’s main
strategies had to be changed. Was it worth it? Was ACERINOX ready for joint
projects?
Página 24 de 40
WHAT NEXT?
In light of the situation of ACERINOX at the start of the 21st century and the
external factors influencing it, the following matters deserve consideration:
• Is this the right time to consider beginning a merger with one of the large
industrial groups that compete with ACERINOX or would it be more
interesting from the point of view of competition to remain independent,
maintaining a light structure that will allow new challenges to be faced with
flexibility?
• Should ACERINOX apply the same commercial strategy in international

markets as in the domestic market? Under what conditions?
• Should the company’s production capacity be increased? If so, where

should this increase in production take place? Would it be in the interests of
ACERINOX to buy up a company to boost production?
• Should penetration into the North American market be one of the company’s
strategic goals? Is the opportunity in this market really so great for
ACERINOX? Would it not be more reasonable to use the production
capacity in NAS to export to more dynamic markets?
• What attitude should ACERINOX adopt towards electronic commerce?

Should investments be made in this field now or would it be better to wait for
the change to become consolidated?
• Finally, are there likely to be problems with the entry of “new blood” into the
company? Is the company becoming dangerously set in its ways?
Página 25 de 40
ANNEX I (Nickel consumption and stainless steel production)
From the point of view of the production costs of stainless steel, it must be
remembered that raw material prices cannot be controlled by producers and
that they account for a large proportion of the final product cost.
Of all the raw materials used in the production of stainless steel, the highest
cost is for nickel, for which prices are quoted on the world’s main commodities
market and tend to be very volatile. The amount of nickel content in stainless
steel varies, determining the type of stainless steel produced (austenitic or
ferritic), but average consumption of nickel with regard to total production of
stainless steel can be estimated at about 9%.
Stainless Steel Production and Nickel Consumption (in thousands of tonnes)
20000 1400
Level of stainless steel 1360

production
18000 1320
Level of Nickel Consumption
1280
Inoxidable
16000 1240
1200
14000 1160
1120
12000 1080
1040
10000 1000
Year 1999 Year 2000 Year 2001 (estimate) Year 2002 (estimate)
Production of Stainless Steel

Source.- ACERINOX, S.A.
Consumption of Nickel
Página 26 de 40
ANNEX II (Demand for stainless steel products)
World Apparent Consumption of Stainless Steel

by Product Group
000 Tonnes
Bars
Year 1999 Hot Rolled Cold Rolled Hot Rolled & Wire
Plate & Sheet Sheet & Strip Cold Finished Products Semis Total
France 81 275 58 64 27 505

Germany 251 800 71 47 114 1.283
Italy 256 750 101 126 134 1.367
Spain 87 232 36 43 23 421
United 76 196 17 11 13 313
Ki
Otherd Europe 187 543 29 89 20 868
Total Western Europe 938 2.796 312 380 331 4.757
Canada 38 149 25 10 18 240

U.S.A. 377 1.559 212 33 116 2.297
Total North America 415 1.708 237 43 134 2.537
Brazil 55 125 10 4 - 194

Mexico 26 86 10 9 - 131
Other Latin America 15 49 8 1 2 75
Total Latin America 96 260 28 14 2 400
India 80 460 25 25 20 610

Indonesia 3 48 2 3 1 57
Japan 398 918 96 185 70 1.667
Malaysia 11 46 3 11 2 73
Philippines 2 25 3 2 8 40
Singapore 5 81 16 5 - 107
South Korea 204 487 23 111 19 844
Taiwan 203 493 13 136 6 851
Thailand 19 88 6 18 1 132
Total Asia 925 2.645 186 497 126 4.379
Total Australasia 20 69 10 5 - 104
South Africa 39 60 7 6 - 112

Other Africa 7 23 4 2 - 36
Total Africa 46 83 11 8 - 148
Turkey 4 102 4 1 - 111

Other Middle 4 54 3 1 - 62
East Total Middle East 8 156 7 2 - 173
Total Western World 2.448 7.717 791 949 593 12.498
CIS 56 46 23 32 23 180
Eastern Europe 18 90 30 11 15 164
P.R. of China (including Hong Kong) 187 1.306 87 54 29 1.663
TOTAL WORLD 2.710 9.159 930 1.046 660 14.505

Source.- ACERINOX,
SA
Página 27 de 40
EVOLUTION OF THE STAINLESS STEEL DEMAND
´000 Mt
18,000
18.000
World compound annual growth : 5.
5.8%
16,000
16.000
14,000
14.000 China & Honk Kong compound
annual growth:
growth: 17.
17.8%
12,000
12.000
Rest of the world compound
10,000
10.000 annual growth:
growth: 4.
4.4%
8,000
8.000
6,000
6.000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: Heinz H. Pariser
CONTRIBUTION TO GLOBAL GROWTH IN COLD

ROLLED FLAT PRODUCT DEMAND
100%
80%
60%
Rest of the
World
40%
China
20%
0%
75-80 80-85 85-90 90-95 95-00 00-05
Source: CRU 6th World Stainless Steel

Conference
Página 28 de 40
Evolución
Trends in apparent
del Consumo
stainless
Aparente
steel de
product
los Productos
consumption
de Acero
(in troussands
Inoxidableof
(en
tonnes)
miles de
toneladas)
6000
5000
4000
3000
2000
1000
0
Año 1995 Año 1996 Año 1997 Año 1998 Año 1999 Año 2000 Año 2001 Año 2002
(estimado) (estimado)
Europa EE.UU. Japón

Sudeste Asiático Otros China & Hong Kong
Fuent .- ACERINOX, S.A.
Imports in 1999 (in trousands of tones)
1701
1800
1600
1400
1057
1023
1200
1000 757
800
374
600
220
400 110
200
0
Europa
Europ EE.UU. Japón Sudeste Otros China & Europa
Asiático Hong del Este
Fuente.- ACERINOX, S.A. Kong
Página 29 de 40
Evolución del "margen de conversión" teórico en moneda local

(Base 100 Enero 1996)
150
140
130
120
110
100
90
80
70
60
50
40
30 en ab jul oc en ab jul oc en ab jul oc en ab jul oc en ab jul oc en ab jul
e- r- -96 t- e- r- -97 t- e- r- -98 t- e- r- -99 t- e- r- -00 t- e- r- -01
96 96 96 97 97 97 98 98 98 99 99 99 00 00 00 01 01
Europa EEUU Japón Asia

Fuente.- ACERINOX,
SA
The theoretical conversion margin is a ratio calculated by the difference

between the price per kg of finished stainless steel product and the cost of the
nickel and ferrochrome used to produce 1 kg of stainless steel.
This graph shows that price trends in raw material and end product markets
make product profitability highly volatile, and behaviour differs greatly amongst
the different geographical areas.
Página 30 de 40
ANNEX III (The North American market for stainless steel)
The following production companies are competitors for ACERINOX on the

United States market for stainless steel flat products:
Allegheny Technologies:
This company’s capacity for cold rolled stainless steel is 580,000

tonnes. It also produces special alloys with titanium, zirconium, etc.
For the last 10 years it has led the stainless steel market although it
seems to be concentrating less on commodity stainless and more on
special products such as ultra fines, etc. although today it is the
largest supplier of stainless steel in the USA.
AK Steel:
Its capacity for the production of cold rolled stainless steel is 700,000
tonnes. It mostly supplies ferritic steel for the automobile industry
(providing 80% of its needs, that is 400,000 tonnes). Outside this
market niche, it is trying to position itself in “commodity grade steel”.
J&L:
Its capacity for cold rolled steel is 250,000 tonnes.

A member of the French Ugine group, in 1998 it invested in a bright
anneal line that did not turn out as well as expected, affecting the
company’s possibilities in the market.
NAS:
Its capacity for cold stainless steel is 300,000 tonnes.

It has the most modern plant, the only integrated one for flat stainless
steel, and is therefore considered a low-cost producer.
For cold steel there is another small producer, Jindal Stainless, with
a capacity of 80,000 tonnes although it is producing no more than
25,000 tonnes and is not therefore a significant competitor on the
market.
Two other non-US companies that are, however, located in NAFTA

countries are Atlas Steel in Canada with a capacity of 125,000
tonnes and Mexinox in Mexico with a capacity of 200,000 tonnes.
Página 31 de 40
Stainless Steel Plate Products in USA

Internal Apparent Growth Import Production by Penetration by
(tonnes) Producti Imports Consumpti Apparent consumption Penetration NAS NAS
on on
1993 186.869 35.241 222.110 14,52% 15,87% 7.869 3,54%
1994 189.921 41.844 231.765 4,35% 18,05% 21.956 9,47%
1995 231.545 40.640 272.185 17,44% 14,93% 27.062 9,94%
1996 194.832 49.516 244.348 -10,23% 20,26% 30.462 12,47%
1997 221.622 60.887 282.509 15,62% 21,55% 40.871 14,47%
1998 209.897 56.572 266.469 -5,68% 21,23% 46.818 17,57%
1999 189.651 60.304 249.955 -6,20% 24,13% 70.258 28,11%
2000 186.454 65.622 252.076 0,85% 26,03% 56.712 22,50%
Source ACERINOX, S.A.
Stainless Steel Cold Rolled products in USA
2,000,000
1,800,000 NAS production
1,600,000
1,400,000 Imports
Tonnes
1,200,000
1,000,000
800,000 Internal production

600,000 (exc.NAS NAS)
400,000
200,000
Fuente: ACERINOX, S.A.
0
The main characteristic of the North American stainless steel market, however,
is the lack of negotiating power amongst producers, this being almost totally in
the hands of product distributors. This means that market conditions tend to be
established by the main groups that distribute stainless steel flat products, with
producers having little or no say on the market.
To date, none of the above-mentioned production companies has shown

interest in participating more actively in the distribution of stainless steel flat
products in the US market.
Página 32 de 40
ANNEX IV (Group Balance Sheets and Income Statements)
CONSOLIDATED BALANCE SHEET FOR ACERINOX S.A. AND AFFILIATES

(in thousands of euros)
1997 1998 1999 2000

ASSETS
Fixed Assets 559,613 688,896 766,705 823,987
Tangible fixed assets 527,453 644,537 737,794 786,225
Other fixed assets 32,161 44,359 28,911 37,762
Long Term Receivables 230 194 174 182
Current Assets 779,111 718,662 855,430 1,905,973

Inventory 454,288 442,010 512,794 716,286
Accounts receivable 312,922 259,282 323,312 336,390
Cash and banks 10,765 12,723 11,053 37,654
Other current assets 1,135 4,647 8,271 815,643
Other assets 610 278 24 -809,735
TOTAL ASSETS 1,339,565 1,408,030 1,622,333 1,920,407
LIABILITIES
Shareholders’ equity 890,090 892,456 979,049 1,217,984
Subscribed capital 56,235 56,235 58,479 59,240
Issue premium 120,215 102,641 102,641 114,428
Reserves 610,782 698,599 728,537 797,451
Other equity 102,858 34,981 89,392 246,865
Long-term payables 94,333 111,116 132,658 169,496

Bank debts 76,653 96,823 95,570 105,433
Other long-term debts 17,680 14,293 37,088 64,063
Short-term payables 320,829 366,077 467,824 482,596

Bank debts 87,101 133,503 140,646 191,111
Trade accounts payable 155,160 164,303 212,632 189,106
Other short-term payables 78,568 68,271 114,546 102,379
Other liabilities 34,312 38,381 42,802 50,331
TOTAL LIABILITIES 1,339,565 1,408,030 1,622,333 1,920,407
Página 33 de 40
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR ACERINOX S.A. AND

AFFILIATES
(in thousands of euros)
1997 1998 1999 2000

RECEIPTS 230,941,434 1,319,480 1,447,738 2,196,532
EXPENSES 205,530,687 1,236,364 1,285,724 1,790,519
OPERATING PROFIT 25,410,747 83,116 162,014 406,013

FINANCIAL RESULTS 762,918 -6,582 -306 -9,368
INVESTMENTS IN COMPANIES 457,597 0 0 0
ORDINARY PROFIT 26,631,262 76,534 161,708 396,645

EXTRAORDINARY RECEIPTS 1,801,327 1,369 16,154 1,307
EXTRAORDINARY EXPENSES 68,752 10,651 892 346
CONSOLIDATED RESULTS 28,363,837 67,252 176,970 397,606

BEFORE TAX
CAPITAL GAINS TAX 6,780,491 11,742 49,492 106,478
CONSOLIDATED PROFIT 21,583,346 55,510 127,478 291,128

PROFIT ATTRIBUTED TO -184,003 142 -2,283 -3,607
EXTERNAL PARTNERS
PROFITS FOR THE YEAR 21,399,343 55,652 125,195 287,521

ATTRIBUTED TO THE
PARENT COMPANY
Página 34 de 40
ANNEX V (Simplified Process for Making Stainless Steel)
Melting, Slab Casting and Grinding

To make ferritic stainless steels, one needs iron and chromium, and to make
austenitic stainless steels, nickel is added to the mixture. This raw material
mixture is melted in an electric arc furnace. The molten metal is refined and
decarburised in a converter vessel by blowing oxygen, argon gas and
superheated steam through it. The refined molten metal is processed through a
continuous casting machine to produce stainless steel slabs. The slabs go
through a surface grinding process to remove scale and surface defects. This is
our first saleable product.
The slabs are typically between 900 mm and 1 600 mm wide, 200mm thick, and
can be cut to lengths of between 4 (four) and 12 (twelve) metres.
Hot Rolling
The hot rolling process begins at the reheat furnace where the slabs are heated
to about 1 250 degrees Celsius before being rolled to the desired thickness
through a twin stand reversing hot mill. Once the predetermined gauge is
reached, the material can either be coiled (black coil, also known as hot band)
or cut into plate (black plate). This is our second range of saleable products.
Coil mass is between 20 and 30 tons and the thickness is generally between
3,0 mm and 8,0 mm.
Plate thickness can range between 3,0 mm and 65,0 mm.
Annealing and Pickling

The hot rolled products are softened (annealed) and descaled (pickled with
acids) to produce a number one (No. 1) finish product. This product has a
shotblast surface with an opaque shine to it. No. 1 finish coil and plate are also
saleable products. We prefer to cold roll as many of the No. 1 coils as possible,
in order to add value to our stainless steel products.
Cold Rolling and Finishing

Cold rolling of the No. 1 coils takes place on our 1 600 mm wide, heavy gauge,
four-high cold mill or on one of our two 1 300 mm wide Sendzimir mills which
produce smooth, shiny finished, cold rolled stainless steel.
The thickness range of the cold rolled product is between 0,25 mm and 5,8 mm.
The material is then annealed (softened) and pickled (passivated) again, before
it is processed through the skinpass mill, to ensure a planished flat surface,
known as a 2B finish.
Alternatively, the cold rolled material can be processed to a bright-annealed

(BA) finish. This is achieved by annealing in a vertical furnace with a reducing
atmosphere, to retain the bright surface imparted by the cold rolling process.
These cold rolled stainless steel coils can then be cut into smaller coils or
Página 35 de 40
sheets, or slit to narrower widths before being packed and shipped to customers
in South Africa and countries around the world.
Polishing
Following the cold rolling, annealing and skin passing processes, a limited
quantity of material can be given a uniform scratch finish by polishing with
abrasive belts. This aesthetically pleasing finish can be used for decorative
applications.
Página 36 de 40
THE COLUMBUS OPPORTUNITY
Página 37 de 40
In view of the company’s success since its creation, the ACERINOX, S.A.
management committee was used to receiving offers for collaboration and bids
from companies in almost all areas of the stainless steel sector, from mining to
the sale of products. But all offers were rejected. An interesting opportunity was
offered by Columbus in 2001, while the Board and the managing team of
Acerinox were debating what to do. They needed to increase their capacity to
compete internationally, yet they had to be careful not to give away the
competitive advantage they had attained through years of rigorous and
financially healthy management.
COLUMBUS
Columbus is a South African joint venture for the production of stainless steel
flat products. The company is based in Middelburg (north-east of
Johannesburg) and was founded in 1991 by Samacor Ltd. (part-owned by
Anglo-American PLC Group), one of the world’s largest producers of
ferrochrome, and Highveld Steel and Vanadium Corporation Ltd., a subsidiary
of Anglo-American, that produces common steel and vanadium-related
products. In addition, the South African government has a small stake in the
company through a body similar to the Spanish SEPI.
At the start, the goals of Columbus were very similar to those of ACERINOX.
They aimed to set up an integrated plant for the production of stainless steel flat
products that would cover both the local market and foreign markets
competitively. At the same time they hoped to galvanise the stainless steel
industry in South Africa.
After an investment of 1 billion dollars from 1993 to 1996, Nelson Mandela

finally opened up the Columbus plant in 1996, with a production capacity of
700,000 tonnes a year.
Columbus today has a technologically very advanced, and practically new,

integrated plant for stainless steel flat products. It is located close to one of the
world’s largest ferrochrome producers, Samancor Ltd.
In the Columbus factory location the price of electric power (measured in Kw/h),
a basic input for the production process, is relatively very cheap (approximately
half the Spanish price), which is an important factor for competitiveness.
However, the main drawback is the geographical situation. The coast is 600 km
away and although the factory has railway access, to have to use railway
transport would increase overheads.
When it came to selling its products, the company found that they had more
production capacity than they could sell because their sales structure was not
sufficiently efficient to reach the necessary economies of scale to make them
competitive.
The company’s partners were not specialists in the production of stainless steel
and none of them seemed interested in taking on the job of stepping up
Página 38 de 40
efficiency in every area of the company to make it internationally competitive. It

had also accumulated a high level of debt, and this was complicating the
company’s viability in the short and long term.
LOOKING FOR A PARTNER
The owners of the South African plant decided they needed a partner
specialising in the stainless steel sector in order to turn round the company’s
situation.
ACERINOX seemed to be an adequate candidate, thought not the only one. It

had a number of characteristics that seemed very promising as a partner for the
South African manufacturer:
• Extensive experience in the stainless steel sector

• A large international sales structure
• One of the most efficient production companies on the international stage
• Extensive know-how in production technology management.
The ACERINOX board also saw a valuable opportunity in the bid from
Columbus. The South African plant seemed very attractive provided
ACERINOX was able to negotiate an economically viable agreement, coherent
with its management philosophy.
From ACERINOX point of view, the positive characteristics of a joint-venture

were:
• Colombus was a modern factory incorporating the latest advances.

• The factory was very competitive from the point of view of costs, for two
main reasons:
- Its closeness to the ferrochrome plant, which kept raw material costs low.
- The low cost of electricity, allowing a marked reduction in costs because
of the intensive use of electricity in the production process.
• Its geographical location was ideal for exports to markets in South East Asia.
• The new joint-venture would climb to the third position worldwide in the
production of stainless steel.
Of course, Acerinox management were perfectly conscious of the risks involved

in such a joint-venture.
The Spanish managers began talks with the owners of Columbus and in early
2002, the South Africans presented the basis for an agreement. The main
points of the potential agreement were as follows:
• The Columbus partners would create a new company to take over three
quarters of the company’s debts so that ACERINOX would only have to take
on a small proportion of it.
• ACERINOX would take a 64% share in the South African factory and would
take over the management as from January 2002.
Página 39 de 40
• The operation was valued at about 40 billion pesetas and would take the
form of a stake in the ACERINOX capital on the part of the Columbus
owners.
• The Spanish company would enlarge its capital for the total value of the
operation, that is, about 8% of its current share capital.
• The former partners in Columbus would therefore gain a minority share of
8% in the Spanish company’s capital.
The question is whether such a proposal is reasonable and acceptable for a

very successful company such as ACERINOX, and, over all, compatible with its
strategy.
Página 40 de 40
Spain Acerinox
1/Selected List Steel
18 January 2006 – Company update
Price EUR11.75
History says: this is the time to buy
Target price +26% EUR14.85
Market cap EUR3.0bn A very tough 2005, with an extreme combination of negative
Ibex 35 10,695.0 factors: sharp fall in demand, increases in supply, high and
volatile nickel prices, base prices in Europe at historical lows.
To 31/12 (EUR) 2004 2005E 2006E 2007E
We are cutting our 2005 EPS estimate by 20% (small provision-
Sales (m) 4,055 4,219 4,705 5,197 driven net loss in Q405), but leave 2006-07 roughly unchanged.
EBIT (m) 501.7 321.8 530.0 645.6
Net attrib. profit (m) 302.9 185.3 310.8 382.1 2006 looks much better: We expect EPS growth of 70% (06)
EBITDA margin (%) 15.7 10.3 13.7 14.7 and 20% (07) thanks to strong growth in demand (improved
EPS 1.15 0.71 1.20 1.47
macro, re-stocking), production discipline (except in China),
EPS adj. 1.15 0.71 1.20 1.47
more stable nickel prices, greater pricing power, and higher
P/E (x) 10.3 17.3 9.8 8.0
Attrib. FCF yield (%) (0.9) (9.8) 5.0 10.0 production at NAS/Columbus.
EV/EBITDA (x) 6.3 9.9 6.3 5.0
Very attractive valuation: The shares trade at only 0.9X the
EV/EBIT (x) 8.1 13.4 7.6 5.9
replacement value of the assets, and 20% below historical
ROCE (%) 17.7 10.0 16.0 19.3
ROE (%) 17.1 9.6 14.4 15.7
averages despite our forecasts pointing to record profits in
P/BV (x) 1.76 1.67 1.42 1.25 2006. Our EUR14.85 target price offers 26% upside potential.
Net debt/EBITDA (x) 1.0 2.3 1.4 0.8
Strong buy: We think that we are seeing the trough of the
Gross dividend 0.35 0.35 0.36 0.44
Yield (%) 2.8 2.8 2.9 3.6
cycle and historically, this has always been the best time to buy
the shares. We do not see why this time the story should be
Next event: Q4 results out on Feb 23 different given that: 1) the extreme combination of negative
factors of 2005 is unlikely to be repeated in 2006-07;
15.3
2) Acerinox is a better & more profitable animal than at any
point in its history; 3) the shares look cheap. 1/Selected List.
13.3
11.3
9.3
7.3
5.3
01/01 08/01 04/02 11/02 07/03 02/04 09/04 05/05 01/06
mêáÅÉ mêáÅÉLf_buPR
52-week range EUR10.53-EUR13.85

Free Float 62.4% EUR1.9bn
No. of shares, adjusted 259.5m
Daily volume EUR19.7m
Reuters/Bloomberg ACX.MC/ACX SM
1 month 3 months 12 months

Absolute perf. 1.9% 6.2% 2.8% Francisco RIQUEL
Relative perf. -0.5% 4.5% -13.4%
friquel@cheuvreux.com
Shareholders: C.F. Alba 11.2%, Omega Capital 11.1%, Nisshin (34) 91 432 75 50
Steel 10.9%, IDC 2.9%, Samancor 1.5%
Please see important disclosures at the end of this document

www.cheuvreux.com
CHEUVREUX SPAIN
CONTENTS
Investment recommendation
I— Valuation .......................................................................................................................... Page 07
II— At the trough .................................................................................................................. Page 11
III— Our supply–demand scenario for 2006-08 ................................................. Page 13
IV— Nickel is becoming less of a negative ........................................................... Page 16
V— Our stainless steel price estimates .................................................................. Page 18
VI— Strategic alternatives and uses of cash-flow ............................................ Page 20
VII— Divisional estimates: diversification is the key ......................................... Page 22
VIII— Strong earnings turnaround in 2006 .............................................................. Page 24
CHEUVREUX'S METAL AND MINING TEAM

Francisco Riquel (author) Spain +34 91 432 75 50 friquel@cheuvreux.com
Mikael Jafs Nordic +46 8 723 51 71 mjafs@cheuvreux.com
Paul Mylchreest UK +44.207.621.52.57 pmylchreest@cheuvreux.com
Alfred Glaser France +33 1 41 89 74 42 aglaser@cheuvreux.com
Acerinox 2
CHEUVREUX SPAIN
Acerinox
Company profile Valuation
Acerinox is a pure stainless steel producer which We have valued Acerinox as the average of four
ranks among the top three players worldwide in methods (EV/EBITDA, P/BV, EV/CE, and EV/tonne), and
terms of installed melting capacity, with nearly 3m obtain EUR14.85 per share, offering 26% upside
tonnes and a 12-13% market share, in a sector where potential from current levels.
the top five players control nearly 60% of the market,
and where demand has posted a 6% 30-year CAGR. From an EV/EBITDA perspective, the stock is trading at
6.3X06, 15% below the 15-year average of 7.5X. We
It has three fully-integrated plants (melting, HR and CR think Acerinox is now in a position to produce stronger
on the same site): Algeciras in southern Spain, NAS in and more stable cash flows (diversification/efficiency of
Kentucky-USA and Columbus in South Africa. The first its three plants) than at any other point in its history, and
two are wholly-owned, whereas in Columbus the group thus it should trade slightly above its historical average.
has a 76% stake, and an option to buy out minorities.
Management plans to reach 3m tonnes of melting In terms of EV/CE, the stock is trading at 1.2X06 (RoCE
production by 2007 (around 1m in each plant). of 16% in 2006), vs. an historical average of 1.4X and
15.3% average RoCE. The CE accounting figure is
Unlike its main peers, Acerinox’s strategy is only distorted by aggressive depreciation rates (Algeciras is
focused on stainless steel: it is the most efficient fully amortised). Restating by this, Acerinox would trade
producer in the world, and has never lost money in its at only 0.9X the replacement value of its assets (adj.
30-year history. The group is also very strong RoCE of 13%), which we think is ridiculous.
financially, and debt, at 2.3X EBITDA, is expected to fall
rapidly. A strategy of counter-cyclical investments has Based on average share prices, the P/BV of the past 10
allowed Acerinox to gain market share when competitors years ranges from 1.1X to 1.8X (1.5X average). The RoE
were having problems and cutting production, over the last 12 years has averaged 13.4%, and we now
something Acerinox has usually managed to avoid. anticipate 15-16% during 2006-07. In this context, the
shares are trading at only 1.4X06.
Main shareholders: C.F. Alba (11.2%), Omega Capital
Lastly, the average of EV/tonne of the last 12 years is
(11.1%), Nisshin Steel (10.9%), IDC (2.9%), and
EUR1,842; however, Acerinox trades on EUR1,516 for
Samancor (1.5% locked up until Jan-07).
2006, which should be a record year for the company.
Investment case SWOT analysis
We think that we are seeing the trough of the cycle; Strengths

historically, this has always been the best time to buy 1) Most efficient producer in the world. Market leader.
the shares. We do not see why this time the story should 2) Best & most experienced management in the industry.
3) Full integration of its three plants.
be different given that:
4) Very strong financial situation.
1) The extreme combination of negative factors in 5) Geographical diversification of production plants.
2005 (sharp fall in demand, increases in supply,
Weaknesses
high/volatile nickel prices, base prices in Europe at
1) Financial structure is too conservative.
historical lows) is unlikely to be repeated in 2006- 2) Below group average returns at Columbus.
07. We cut our 2005 EPS estimate by 20% (small net 3) Nickel price volatility (around 40% of total costs).
loss in Q405), but leave 2006-07 roughly unchanged. 4) Lack of production flexibility dampens working capital.
5) Information disclosure could be improved.
2) Acerinox is a better & more profitable animal
than at any point in its history, and 2006 looks Opportunities
much better: We expect EPS growth of 70% (06) 1) Increase capacity at NAS.
and 20% (07) thanks to strong growth in demand 2) Improve returns at Columbus.
(improved macro, re-stocking), production 3) To buy out minorities in Columbus.
discipline (except in China), more stable nickel 4) Balance sheet releverage.
prices, greater pricing power, and higher 5) Expansion into Asia in the long-term.
production at NAS/Columbus.
Threats
3) The shares look cheap: The shares trade at only 1) Economic slowdown and impact on demand.
0.9X the replacement value of the assets, and 20% 2) New supply coming on stream (China).
3) Rising nickel prices raising replacement issues.
below historical averages despite our forecasts
4) South African risk (forex and regulatory risk).
pointing to record profits in 2006. Our EUR14.85
5) A stronger $ limits upside for base prices in Europe.
target price offers 26% upside potential.
Acerinox 3
CHEUVREUX SPAIN
Sales by region Sales by subsidiary
Africa Oceania
Asia 4.9% NAS
16.1% 0.4% 34.5%
Europe
43.2%
Algeciras
America 44.4%
35.4%
Columbus
21.1%
Melting production Net profit by subsidiary
NAS Columbus
34% 10.2%
NAS
49.7%
Columbus
27%
Algeciras Algeciras
39% 34.3%
Long products
5.9%
Sales & RoCE Operating margins
30
6,000 25.0
25
5,000 20.0
20
4,000
15.0
15
3,000
10.0 10
2,000
5.0 5
1,000
0
0 0.0
98 99 00 01 02 03 04 05 06 07
98 99 00 01 02 03 04 05 06 07
Sales (m) ROCE aft. tax, (rhs) EB ITDA margin EB ITA margin Net margin
Gearing SRI Issues
60 30
Environment: During 2004, environmental investments
totalled EUR59m (vs. EUR180m group capex), mainly
50 25
reducing energy consumption, reduction of gas
40 20
transmissions poured out, and water consumption.
30 15
Kyoto Protocol: Acerinox is improving installations &
20 10
processes, especially in Algeciras, in order to adjust to
10 5 the Right of Gas Emission of Greenhouse effect which
0 0 has been assigned for the years 2006-08.
98 99 00 01 02 03 04 05 06 07
Corporate Governance: Acerinox complies with the
Gearing Ro E, (rhs) Aldama Code. However, voting rights are limited to 10%.
Acerinox 4
CHEUVREUX SPAIN
INVESTMENT RECOMMENDATION
Although Acerinox has once again proven that its business model is superior, 2005 has been a very difficult year for
the company with an extreme combination of negative factors, which have rarely coincided in its history: 1) demand
falling 8-10% in Europe (-5% in USA) due to a sluggish economic environment and massive de-stocking (worst since
Asian crisis in 1998); 2) China (and to a lesser extent Outokumpu) significantly increasing new supply; 3) high and
volatile nickel prices (limiting pricing power, putting pressure on margins, dampening working capital); 4) base prices
falling sharply (Europe down 30% in the last 18 months, USA –15%); and 5) most industry players posting losses. As a
result, the shares have been one of the worst performers in the Spanish market in 2005 (+4%), having underperformed
both the Ibex-35 and other steel peers such as Arcelor by 14-15% over the period.
However, things are starting to look different and it is our view that Q405 will have been the trough of the current
stainless steel cycle. Historically, this has always been the best time to buy the shares. We do not see why this time the
story should be different given that:
1) The extreme combination of negative factors of 2005 is unlikely to be repeated in 2006-07, for the following
reasons: 1) Prices in Europe are at all-time lows (even below previous troughs in Q396-Q498), but bottoming out
(+EUR30/t in Jan so far); 2) Rising prices or cutting production would be the alternatives for industry peers to avoid
losses; 3) Inventories are low; 4) global economic indicators are encouraging. In this context, we have cut our 2005
EPS estimate by 20% (small provision-driven net loss in Q405), but leave 2006-07 roughly unchanged.
2) 2006 looks much better: We expect EPS growth of around 70% in 2006 (a new record year for Acerinox) and
+20% in 2007. This is based on a strong turnaround (+9% in Europe for 2006, +6% in USA) in demand (improving
macro outlook, re-stocking), production discipline (except in China), and more stable nickel prices. We expect base
prices in Europe to reverse the trend seen in 2005 (+EUR300/t), and more modest growth in the US (+$150/t),
although higher added-value production at NAS.
3) Acerinox is a better & more profitable animal than at any point in its history: Acerinox has been the only player
in the stainless steel industry in Europe to report profits during H205, and we think it is highly leveraged to a
recovery in 2006. The main competitive advantages are: 1) full integration of its three plants (most efficient ones
worldwide); 2) focused business on stainless; 3) geographical diversification of its three plants to markets and
currencies; 4) sound financials; 5) management quality. We think this will allow Acerinox to widen the gap versus its
main peers in the coming years. On the other hand, we expect capex to peak in 2005, whilst the business degears
very quickly (debt/EBITDA from 2.3X05 to 0.2X08). Thus, there is substantial room to improve shareholder
remuneration. In our view, industrial growth and balance sheet releverage are compatible (i.e. buying back 20% of its
market cap would be equivalent to only 1X EBITDA).
4) The shares look cheap: Acerinox trades at only 0.9X the replacement value of the assets, which we think is
ridiculous, as Acerinox has consistently delivered returns above its cost of capital over the cycle, and 20% below
historical averages in terms of EV/EBITDA, P/BV-RoE, EV/CE-RoCE and EV/tonne, despite our forecasts pointing to
record profits in 2006. Our EUR14.85 target price offers 26% upside potential at current prices.
Historical valuation 1994-2006E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 94-05 2006E
EV/EBITDA 5.7 2.8 6.9 7.5 9.7 7.9 4.6 10.6 7.0 11.0 6.3 9.9 7.5 6.3
EV/tonne 1,689 1,623 1,576 2,208 1,791 1,956 2,371 2,149 1,614 1,516 1,736 1,879 1,842 1,516
P/BV 1.4 1.2 1.2 1.8 1.5 1.7 1.7 1.6 1.6 1.4 1.6 1.6 1.53 1.42
RoE 11.8% 27.6% 10.7% 15.3% 6.2% 12.8% 23.6% 6.9% 11.0% 7.6% 17.1% 9.6% 13.4% 14.4%
EV/CE 1.3 1.2 1.2 1.7 1.4 1.5 1.5 1.4 1.3 1.3 1.4 1.3 1.40 1.22
RoCE 17.7% 37.9% 12.0% 14.5% 7.4% 12.9% 26.1% 7.1% 13.6% 7.0% 17.7% 10.0% 15.3% 16.0%
Source: Cheuvreux
In light of all the above, we reiterate our 1/Selected List recommendation on Acerinox.
Acerinox 5
CHEUVREUX SPAIN
I— VALUATION
EUR14.85 target We have valued Acerinox using the average of four methods (EV/CE, EV/EBITDA,
price, 26% upside P/BV, EV/tonne), as the DCF is not too accurate for cyclical companies, and there is
no other pure player in the stainless steel industry which would make the peer
comparison significant. As shown in the table below, our estimated value of
Acerinox is EUR14.85 per share, offering 26% upside potential on a 12-month
view.
On the other hand, we estimate that Acerinox is trading at only 0.9X the
replacement value of assets, which is ridiculous in our view, as the company has
delivered consistent returns above its cost of capital over the cycle.
Valuation summary
EV/CE 15.35
EV/EBITDA 14.75
EV/tonne 14.90
P/BV 14.35
Average 14.85
Current price 11.75
Upside (%) 26%
Source: Cheuvreux
EUR17.25 assuming Lastly, we have made an exercise to estimate the impact on our EUR14.85 target
20% buy-back price for Acerinox of a share buy-back of around 20% of its capital (5-7% per year
during 2006-08). In this context, we would have to raise our target price to EUR17.25
per share (offering upside potential of 40% from current share price levels). We also
think this type of share buy-back programme would be perfectly compatible with
management plants to continue developing its successful industrial strategy.
1) EV/CE – RoCE historical valuation

1.2X EV/CE vs. 1.4X As shown in the table below, the stock has traded at an average of 1.4X EV/CE over
avge, RoCE above the last 12 years. During this period, Acerinox has delivered an average pre-tax RoCE
avge of 15.4%. The shares are currently trading at 1.22X06 its capital employed; however,
we estimate that Acerinox will deliver pre-tax RoCE in 2006 of 16% and 19.3% in
2007. In this context, we think a reasonable valuation for Acerinox would be 1.5-1.6X
EV/CE, equivalent to EUR15.35 per share (30% above current market prices).
EV/CE – RoCE valuation
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 94-05 2006E
Avge price (EUR) 4.04 4.21 4.26 7.03 5.88 7.14 8.83 8.27 9.54 8.96 10.82 11.90 - 11.75
Nº shares ('000) 196,5 221,5 233,9 233,9 233,9 233,9 234,3 240,0 263,2 263,2 263,2 261.4 - 259.5
Mkt. cap (EUR m) 794 933 997 1,645 1,375 1,671 2,069 1,984 2,512 2,361 2,816 3,110 - 3,049
CE (EUR m) 693 814 897 1,054 1,121 1,256 1,557 1,545 2,158 2,515 2,838 3,202 - 3,320
Net debt (EUR m) 135 81 112 153 201 218 255 224 353 652 668 1,014 - 894
EV (EUR m) 929 1,014 1,109 1,798 1,576 1,889 2,324 2,207 2,842 3,328 4,043 4,313 - 4,055
EV/CE 1.3 1.2 1.2 1.7 1.4 1.5 1.5 1.4 1.3 1.3 1.4 1.3 1.40 1.22
Pre-tax RoCE 17.7% 37.9% 12.0% 14.5% 7.4% 12.9% 26.1% 7.1% 13.6% 7.0% 17.7% 10.0% 15.4% 16.0%
Source: Cheuvreux
Acerinox 6
CHEUVREUX SPAIN
2) EV/EBITDA historical valuation analysis

This is our preferred method to value Acerinox, as it is not affected by the distortion of
the above-mentioned aggressive depreciation rates in both capital employed (and/or
book value) and EBIT/net profit. On the contrary, through the EV/EBITDA multiple we
mainly focus on the actual cash-flow generated by the company.
EV/EBITDA historical valuation 1994-2006E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 91-05 06E
EBITDA (EUR m) 162 361 162 240 163 240 509 208 406 303 637 449 - 647
EV/EBITDA 5.7 2.8 6.9 7.5 9.7 7.9 4.6 10.6 7.0 11.0 6.3 9.6 7.5 6.3
EBITDA margin (%) 19.2 31.1 14.5 18.2 12.7 16.6 25.9 11.4 16.2 10.4 15.7 10.6 15.3 13.7
Source: Cheuvreux
EV/EBITDA of 6.3X The previous table shows that Acerinox has traded at an average EV/EBITDA multiple
vs. 7.5X avge in the last 15 years of 7.5X. In our estimates, Acerinox is trading at around 6.3X06 at
current market prices, and we think the stock should be trading above mid-cycle levels
given that the company is set to deliver stronger and more stable cash-flows over the
cycle (diversification through Algeciras, NAS and Columbus). In this context, we think
Acerinox should trade at 8X06 EBITDA, equivalent to EUR14.75 per share (26% above
current prices).
3) EV/tonne historical valuation analysis

EV/tonne 20% below We use melting production as the proxy for the analysis, as this is the sector typical
historical avge metric in terms of market share and installed capacity. The average of EV/tonne of the
last 12 years is EUR1,842; however, Acerinox trades on EUR1,516 for 2006, which
should be a record year for the company. Using EUR1,935 (5% above the average),
we would obtain a valuation for Acerinox of EUR14.90 per share (27% upside).
EV/tonne historical valuation 1994-2006E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 94-05E 2006E
Melting K tonnes 550 625 704 814 880 966 980 1,027 1,761 2,195 2,330 2,290 2,675
EV/tonne 1,689 1,623 1,576 2,208 1,791 1,956 2,371 2,149 1,614 1,516 1,736 1,876 1,842 1,516
Source: Cheuvreux
4) P/BV historical valuation

The P/BV range of the past 12 years (measured on average share price) ranges from a
low of 1.1X to a high of 1.8X, with an average in the 1.5X region. The shares are
currently trading at 1.4X06 BV, which would be slightly below the average. On the
other hand, and as shown below, in the past few years the stock has regularly traded
in the 2.2-2.5X current year P/BV range, in anticipation of improving earnings
momentum. This happened in 1997, 1998, 1999 and 2000, whilst in 2001-03 given the
more complicated environment and lower earnings visibility (purchase of Columbus,
problems at NAS, lack of pricing momentum), the range narrowed to 1.5-1.8X.
1.4XBV, marginally In addition, the RoE over the last 12 years has averaged 13.4%, and we now
below historical anticipate 15-16% during 2006-07. We think Acerinox should deliver RoE above
avge, higher RoE historical averages as it is now better diversified (to markets and currencies) and
efficient than ever before (NAS margins above Algeciras), its balance sheet is stronger,
and so is cash-flow generation.
Acerinox 7
CHEUVREUX SPAIN
Thus, we think Acerinox should trade at a premium to its historical P/B (1.5X). We have
applied 1.6-1.7X06, and obtain an estimated value of EUR14.35 (22% upside).
P/BV performance 1994-2006E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 94-05 2006E
High price 4.67 5.41 5.86 9.01 8.25 10.35 11.27 9.35 10.99 9.17 11.95 13.85 - -
Low price 3.19 3.23 3.42 4.96 3.49 4.97 7.26 5.82 7.55 8.36 8.70 10.53 - -
Last price 4.13 3.69 5.64 6.78 4.97 9.90 7.97 9.30 8.75 9.35 11.81 12.29 - 11.75
Average price 4.04 4.21 4.26 7.03 5.88 7.14 8.83 8.27 9.54 8.96 10.70 11.90 - -
BVPS 2.97 3.38 3.56 3.81 3.82 4.19 5.20 5.23 6.08 6.30 6.71 7.41 - 8.30
RoE (%) 11.8 27.6 10.7 15.3 6.2 12.8 23.6 6.9 11.0 7.6 17.1 10.1 13.4 14.4
Peak P/BV current year 1.6 1.6 1.6 2.4 2.2 2.5 2.2 1.8 1.8 1.5 1.8 1.9 1.9 -
Trough P/BV current year 1.1 1.0 1.0 1.3 0.9 1.2 1.4 1.1 1.2 1.3 1.3 1.4 1.2 -
Avg P/BV current year 1.4 1.2 1.2 1.8 1.5 1.7 1.7 1.6 1.6 1.4 1.6 1.6 1.5 1.4
Avg P/BV prospective year 1.2 1.2 1.1 1.8 1.4 1.4 1.7 1.4 1.5 1.3 1.5 1.4 1.4 1.4
Source: Cheuvreux
5) Trading at only 0.9X the replacement value of assets

Algeciras plant is We think the EV/CE and RoCE ratios are distorted because of Acerinox's aggressive
fully depreciated depreciation rates. As we see in the following table, the plant in Algeciras (25 years
old) is almost fully depreciated (EUR100m accounting value only after depreciations or
around EUR900-950m gross investments), but it is quite up to date from a
technological point of view. In addition, we estimate that this plant will represent
around 35-40% of group profits in 2006-07, while its actual value should be higher
than the gross investments accumulated over time given its strategic location in the
Gibraltar Gulf. In this context, we have recalculated the replacement value of
Acerinox's plants by adjusting back the excess amortisation over time (which is
conservative as it does not take into account inflation since the construction of the
plant 25-30 years ago).
Enterprise value/Capital employed 2006E
(in EUR million) Replacement Value Accounting value

Algeciras 957 73
NAS 1,125 925
Columbus 573 473
Working Capital 1,825 1,825
Capital employed 4,479 3,295
Market cap 3,049 3,049
Net debt 894 894
Minorities (Columbus) 139 139
Enterprise value 4,082 4,082
EV/CE 0.9X 1.2X
EBIT 588 530
Post-tax RoCE 8.6% 10.5%
Source: Cheuvreux/Acerinox
Only 0.9X the The outcome would be that Acerinox would be trading at only 0.9X its capital
replacement value employed (replacement value) instead of 1.3X using accounting values. This would
of assets, but RoCE imply that Acerinox would not be able to earn its cost of capital (8.5-9%) in the next
consistently above few years. However, we are forecasting an average post-tax RoCE of 9-11% in 2006-
cost of capital 07 (11-13% if we use accounting values), proving that the stock is significantly
undervalued. Just as a double check, our EUR14.85 target price would suggest that
the company should trade at around 1.1X the replacement value of the assets, which
we think is reasonable.
Acerinox 8
CHEUVREUX SPAIN
6) The releverage scenario

We have tried to make an assessment of the impact on our EPS estimates, gearing
ratios and stockmarket multiples of a share buy-back programme (5-7% per year
during 2006-08). We have based our calculations on the following: 1) buy-back
premium to current share price of 10% per annum (i.e. EUR13 per share); 2) cost of
debt (post-tax) of 3.25%.
Every 5% buy-back We conclude the following: 1) the buy-back programme would be EPS enhancing by
would be 4% EPS around 4% p.a. (+12% in 2008); 2) debt to EBITDA only deteriorates by 0.25X for each
enhancing, low 5% share buy-back (from 1.4X06 to 0.9X08 as the business degears very quickly);
gearing ratios 3) the accumulated cash return over the period would be of nearly 30% (14% through
dividends). In light of the above, we think this type of share buy-back programme
would be compatible with management plants to continue developing its successful
industrial strategy.
EUR17.25 per share As we see in the table below, we think the impact on our EUR14.85 target price for
with 20% buy-back Acerinox (based on fundamentals) of a share buy-back of around 20% of its capital (5-
7% per year during 2006-08) would be more than EUR2 per share. In this context, we
would have to raise our target price to EUR17.25 per share (offering upside potential of
40-45% from current share price levels). This outcome is consistent with our view that
any decision seeking to improve the financial structure of the company, would be very
good news for shareholders.
Target price sensitivity to a share buy-back programme
% of Nº shares Investment Debt 06E Debt/EBITDA EPS 06E P/E Target Upside
Capital (m) (EUR m) (EUR m) 06E (EUR) 06E price
0% 259,500 0 894 1.4 1.20 9.8 14.85 26%
5% 246,525 151 1,045 1.6 1.24 9.4 15.37 31%
10% 233,550 301 1,195 1.8 1.29 9.0 16.00 36%
15% 220,575 452 1,346 2.1 1.34 8.7 16.58 41%
20% 207,600 602 1,496 2.3 1.39 8.4 17.23 47%
Source: Cheuvreux
Acerinox 9
CHEUVREUX SPAIN
II— AT THE TROUGH
Buy ahead of the 2005 saw a combination of negative factors in all fronts, which have rarely coincided in
expected Acerinox's history: 1) demand falling 8-10% in Europe (-5% in USA) due to both a
turnaround sluggish economic environment and massive de-stocking (worst since Asian crisis in
1998); 2) China (and to a lesser extent Outokumpu) have significantly increased new
supply, and have been little disciplined (market share gains in exchange of lower
prices); 3) high and volatile nickel prices (limiting pricing power, putting pressure on
margins, dampening working capital); 4) base prices falling sharply (Europe -30% in
the last 18 months, USA –15%); and last but not least, 5) most industry players
posting losses.
Having said this, we think Q405 should represent the trough: 1) prices are at historical
lows, but bottoming out; 2) main industry peers already posting losses; 3) the massive
de-stocking process during H205 is coming to an end. Briefly, our view is the
following:
1) European prices at historical lows but bottoming-out

+EUR30/t from Current European prices (EUR1,060/t in Germany) are all-time lows, even below previous
January is already troughs in Q396 (EUR1,120/t) and Q498 (EUR1,100/t). +EUR20-40/t for January is
confirmed already confirmed.
CR 304 base prices in Germany over the last 10 years
2,200
2,000
1,800
1,600
1,400
1,200
1,000
Ja 5
Ja 6
Ja 7
Ja 8
Ja 9
Ja 0
Ja 1
Ja 2
Ja 3
Ja 4
Ja 5
95
96
97
98
99
00
01
02
03
04
05
06
l-9
l-9
l-9
l-9
l-9
l-0
l-0
l-0
l-0
l-0
l-0
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ja
Source: Metal Bulletin
2) Main peers posting losses

Sector situation is Below EUR1,100/t, main US and European peers start to post losses as we have
hardly sustainable already seen in the release of Q3 results (see table below where we split the stainless
steel contribution for main players). The situation is thus hardly sustainable (rising
prices or cutting production being the only alternatives). Acerinox is the most efficient
and better diversified player in the industry (we estimate its break-even at levels
around EUR1K/t), and thus it has been able to weather the storm on a better shape
(and with sound financial ratios as well).
Acerinox 10
CHEUVREUX SPAIN
Peer group operating performance (stainless steel only) in Q305
(in EUR million) Acerinox Outokumpu Arcelor ThyssenKrupp Allegheny AK Steel

Group sales 924 1,191 7,481 10,276 705 1,139
o/w Stainless steel 924 989 854 1,274 359 -
EBIT 61 (21) 800 357 110 (21)
o/w Stainless steel 61 (35) (9) - 27 -
EBIT margin 6.5% -1.8% 10.7% 3.5% 15.6% -1.8%
o/w Stainless steel 6.5% -3.5% -1.1% - 7.6% -
Pre-tax profit 59 (39) 828 379 71 (37)
o/w Stainless steel 59 - - (11) - -
Debt to Equity 42% 78% 9% 0% 27% -
Source: Companies/Cheuvreux
3) De-stocking process coming to an end

Inventories are now Following a major stockpile, inventories are now reportedly low for both distributors/
reportedly low end-users (7-8 weeks vs. 12 avge), and producers, thanks mainly to production
discipline across the board (-14% in Q3 Europe), except in China, as we see in the
table below. Q405 has not seen stockpiling due to end of the financial year and falling
alloy surcharges. Thus, any upturn in demand should immediately feed through to an
increase in shipments, increased lead times and an improved environment for prices.
Worldwide stainless steel production 2004-05 (QoQ)
(in '000 tonnes) Q104 Q204 Q304 Q404 Q105 YoY Q205 YoY Q305 YoY
Europe 2,443 2,598 2,204 2,489 2,503 2.5% 2,480 (4.5%) 1,886 (14.4%)
America 738 754 686 755 731 (0.9%) 730 (3.2%) 600 (12.5%)
Asia 2,887 2,849 3,007 3,154 3,287 13.9% 3,216 12.9% 2,927 (2.7%)
World 6,068 6,201 5,897 6,398 6,521 7.5% 6,426 3.6% 5,413 (8.2%)
Source: ISSF
Putting aside the sector, we also find other (more global) indicators that support our
view that we are the trough, normally coinciding with very poor sentiment, little
visibility in the near term and thus depressed earnings forecasts, and below-average
valuation levels, as we explained in the previous section.
4) Improving economic indicators

Global economic History shows us that leading economic indicators such as the IFO (Germany) and ISM
indicators point to a (USA) tend to anticipate a sector demand recovery 2-3 months ahead. In this context,
recovery, China latest surveys are encouraging on both sides of the Atlantic, whilst China continues to
holding up well perform on a very strong path (industrial production growing above 16% over the last
few quarters).
Leading economic indicators during 2005
USA Europe Japan

Ind. Prod. ISM Ind. Prod. IFO Ind. Prod. Tankan
Jan-05 106.7 57.3 101.4 96.2 100.0 22
Jun-05 107.3 53.8 101.6 93.3 100.6 18
Sep-05 106.9 59.4 102.0 96.0 101.5 19
Dec-05 108.6 59.8 102.8 99.6 102.5 21
Source: Datastream
Acerinox 11
CHEUVREUX SPAIN
5) Depressed earnings forecasts

Consensus As in many cyclical companies, analysts tend to exaggerate earnings downgrades in
estimates are too times of sector downturns. In fact, looking at consensus forecasts in the table below,
low, as in previous poor sentiment is extrapolated into a 2006 EPS which is even below 2005 levels.
trough periods However, our estimates are 20-25% above consensus for 2006 (29% below for 2005).
Acerinox's shares have also suffered a de-rating (-15% relative to the Ibex-35 in 2005).
In this context, it is important to highlight that history shows that after reaching trough
levels, prices and margins have always rebounded very rapidly and strongly. We think
history will repeat itself this time.
Cheuvreux vs. consensus net profit forecasts 2005-2006E
(in EUR million) 2005E 2006E YoY

Cheuvreux 185 311 68%
Consensus 260 255 (2%)
% Dif (29%) 22%
Source: Cheuvreux, IBES
Acerinox 12
CHEUVREUX SPAIN
III— OUR SUPPLY–DEMAND SCENARIO FOR 2006-08
Main issues in 2005: Our scenario for the stainless steel industry for 2005 was wrong as it finally saw a big
China and imbalance in the supply-demand equation. We basically misread in two issues: 1) The
Outokumpu on the ramp-up of Chinese projects, which was ahead of schedule; 2) Outokumpu has not
supply side, plus de- been as disciplined in prices as expected, as it has been forced to focus on Europe in
stocking view of the saturated situation in Asia. On the other hand, the sharp fall in nickel prices
during H205 led to massive de-stocking, which we now expect to reverse in Q106.
We have now updated our scenario and expect a strong turnaround for 2006 (world
demand +6.5-7% vs. flat in 2005, comfortably exceeding new capacity coming on
stream). Mid term, we think the outlook for 2007 remains challenging (some
overcapacity expected) but it should be better balanced from 2008.
1) Demand: strong turnaround expected in 2006

We expect higher Apparent demand has fallen sharply in 2005 (Europe -9%, USA –5%) due to a sluggish
re-stocking activity economic outlook in Europe, and massive de-stocking, the latter motivated also by the
from early 2006 … sharp fall in nickel prices during H205 which led to lower surcharges and thus final
prices until Jan 2006. In addition, high nickel prices have also led to some substitution
(plastic) or trade down to lower quality/cheaper series, only traded in China/India.
Worldwide stainless steel production by series 2001-2005
2001 2002 2003 2004 2005

Austenitic 300 series CrNi 71.5% 72.2% 70.8% 65.1% 64.1%
Ferritic 400 series Cr 23.2% 22.1% 21.8% 25.7% 25.8%
- 200 series CrMn 5.3% 5.7% 7.4% 9.2% 10.1%
Source: ISSF
… whilst a better As we previously explained, the economic background is now improving. USA and
economic China are showing high resiliency, but industrial production in Europe is picking up
background should and forward-looking economic indicators suggest that the outlook should improve
also help demand further (2-3 months lagging indicator with stainless steel demand). In addition, stocks
in Europe at 8-9 weeks remain below average of 10-12 weeks, and thus some re-
stocking is expected, particularly as final prices are expected to go up from February
in line with the recent upturn in nickel prices.
Our estimates point to flat demand in 2005, +6.5-7% in 2006, and then +5% in 2007-
08 p.a. (vs. 50-yr CAGR of around 6%). The breakdown by region is shown below:
Stainless steel demand (apparent consumption) 1998-2008E
(in million tonnes) 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E
Europe 4,733 4,767 5,125 4,883 5,152 5,164 5,358 4,910 RIPRO= RIRPV RITMM
YoY growth 11.5% 0.7% 7.5% -4.7% 5.5% 0.2% 3.8% -8.4% VKMB= PKRB OKVB
China 1,773 2,077 2,303 2,820 3,424 4,396 4,499 4,904 RIPQR= RIUMM SIOPR
YoY growth 20.9% 17.1% 10.9% 22.4% 21.4% 28.4% 2.3% 9.0% VKMB= UKRB TKRB
Asia 3,411 3,687 4,166 4,275 4,315 4,527 5,132 5,265 RIQPP= RISRN RIUSM
YoY growth -22.1% 8.1% 13.0% 2.6% 0.9% 4.9% 13.4% 2.6% PKOB= QKMB PKTB
USA 2,405 2,459 2,426 2,001 2,065 2,016 2,307 2,192 OIPNO= OIQNS OIRMN
YoY growth 2.7% 2.2% -1.3% -17.5% 3.2% -2.4% 14.4% -5.0% RKRB= QKRB PKRB
Other 1,066 1,047 1,212 1,442 1,341 1,390 1,598 1,646 NITOU= NIUOP NIVOQ
World total 13,388 14,037 15,232 15,421 16,297 17,493 18,894 18,917 20,171 21,229 22,219
YoY growth -1.3% 4.8% 8.5% 1.2% 5.7% 7.3% 8.0% 0.1% 6.6% 5.2% 4.7%
Source: CRU, Metal Bulletin, Eramet, Cheuvreux estimates
Acerinox 13
CHEUVREUX SPAIN
2) Supply: production discipline finally bearing fruit

Productions World production finally rose by around 1% in 2005, thanks to production discipline
cutbacks in H205 across the board, except in China (where large players race for market share gains
across the board, despite putting pressure on prices, local authorities would like to see consolidation
except in China among the small inefficient players). Even Acerinox, for the first time ever, cut HR
production at Columbus for some 150K tonnes (though mainly Asian related exports).
Production cutbacks by European players in H205 ('000 tonnes)
Arcelor 120
ThyssenKrupp 120
Outokumpu 150
Acerinox (mainly Columbus HR exports to Asia) 150
Total 540
% European production 6-7%
Source: Companies
Outokumpu: higher Regarding Europe, we are looking for an increase of around 200-250K tonnes in 2006,
production in Tornio even though production cutbacks in 2005 (which will be restored in 2006) amounted to
offset with 250-300K tonnes, as we have incorporated the recent announcement by Outokumpu
permanent regarding the permanent shutdown of the CR mill in Sheffield, which should eliminate
shutdown in around 300K tonnes (cold-rolled), or some 6% of the installed capacity in Europe. This
Sheffield was a relatively inefficient plant of the group, which will be replaced by the modern
equipment at Tornio in Finland. In our view, other large inefficient players in Europe
such as Arcelor and ThyssenKrupp may announce similar initiatives in the mid-term, as
competition from Chinese players is getting tougher, and this may displace imports
from Europe (which is already a net exporter market).
Many Chinese We have summarised in the table below the most reliable projects planned in China
projects still in the for the next few years (representing 15% of installed capacity worldwide). These are
pipeline mainly the most reliable projects, as the list is even more extensive. We would
highlight Taiyuan, which has a project aiming at expanding its melting capacity up to
2.5m tonnes in a single plant (vs. 1.65m for Outokumpu-Tornio, 1.5m ThyssenKrupp-
Terni, 1m Acerinox-Algeciras-NAS, 1m Arcelor-Carlam), followed by Baosteel (1.2m).
These are two public corporations (national champions), promoted by the Chinese
government in spite of short-term pressure on prices/margins.
Major Chinese projects in the pipeline
Plant China Tonnes ('000) Date

Melting and HR Baotou 300 2005
Baosteel 750 2005-06
Jiuquan 500 2005-06
Taiyuan 2,000 2006-07
Posco Zhangjiagang 600 2006
Shanghai Krupp 450 2006
HR Nanjing 600 2005
Shanxi Huanhai 200 2005
Changshu Yicheng 200 2006
Guangzhou Lianzhong 250 2006
CR Jisco 400 2005
Baotou 250 2006
Taiyuan 400 2005
Nanjing 480 2006
Shanghai Krupp 220 2006
Guangzhou Lianzhong 600 2005-06
Ningbo Baoxin 360 2006
Source: Metal Bulletin, Posco, Cheuvreux
Acerinox 14
CHEUVREUX SPAIN
China may become We estimate China will account for around 30% of the stainless steel market by 2008
a net exporter in CR (15% in 2000), both in terms of production and consumption. According to the data
products from end- we have collected, we think China may become a net exporter in CR products from
2007 and in HR from end-2007 and in HR from end-2008 if all these projects finally materialise. Overall,
end-2008 China is currently producing some 3m tonnes of stainless, which compares with
internal consumption of nearly 5m. According to our estimates, production in China
may double by 2008 to 6.3m tonnes, whereas demand may reach a similar figure
assuming growth of 8-10% p.a. (vs. 20% CAGR over the last 10 years).
Chinese SS market 2000-2008E Chinese SS market (CR only) 2000-2008
6, 500 4, 800
4, 300
5, 500
3, 800
4, 500 3, 300
2, 800
3, 500
2, 300
2, 500
1, 800
1, 300
1, 500
800
500
300
2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E -200
-500 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E
Cons umpt i on P r oduct i on I mpor t s/ E x por t s Cons umpt i on P r oduct i on I mpor t s/ E x por t s
Source: Metal Bulletin, Cheuvreux
Consolidation All in all, we think consolidation will be inevitable in Asia, as this region is highly
seems inevitably in crowded (30-35 players vs. 4-5 in Europe, 3-4 in USA), both ex-China (Taiwan, Japan,
Asia Korea, India, Thailand, etc.) and in-China (small mills merging with national champions
promoted by the Government). Some Japanese mills have extended production
cutbacks from Q405 to Q106.
The US market is Lastly, we think the US market will remain better balanced (2.5m tonnes overall, or
better balanced 10% of the world market), even absorbing the upcoming capacity increases at
Acerinox-NAS (new SZ operating from March 06 will add some 150K tonnes), which
will reach a market share of around 50% in terms of CR installed capacity. There are
two other key players in the US, Allegheny and AK Steel, the latter announced a
permanent shutdown of 50K tonnes in 2005.
To sum up, we are looking for world production to increase by 1% in 2005, and by
6% in 2006 (vs. +7% in demand), +6% again in 2007 (+5% in demand), and +3-4%
in 2008 (demand +4.5-5%). The breakdown by region is shown below:
Stainless steel production 1998-2008E
(in million tonnes) 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E
Europe 7,183 7,427 7,973 7,691 8,102 8,485 8,688 8,380 8,620 8,695 8,695
YoY growth - 3.4% 7.4% -3.5% 5.3% 4.7% 2.4% -3.5% 2.9% 0.9% 0.0%
China 414 492 751 820 888 1,302 2,084 3,070 4,020 5,370 6,345
YoY growth - 18.8% 52.6% 9.2% 8.3% 46.6% 60.1% 47.3% 30.9% 33.6% 18.2%
Asia 6,100 6,573 7,224 7,166 7,493 8,513 9,209 9,050 9,076 9,090 9,090
YoY growth - 7.8% 9.9% -0.8% 4.6% 13.6% 8.2% -1.7% 0.3% 0.2% 0.0%
USA 1,985 2,187 2,178 1,834 2,185 2,200 2,397 2,300 2,450 2,550 2,550
YoY growth - 10.2% -0.4% -15.8% 19.1% 0.7% 9.0% -4.0% 6.5% 4.1% 0.0%
Other 805 874 1,036 1,020 1,034 1,377 1,331 1,150 1,220 1,260 1,260
World total 16,487 17,553 19,163 18,531 19,702 21,878 23,710 23,950 25,386 26,965 27,940
YoY growth 3.1% 6.5% 9.2% -3.3% 6.3% 11.0% 8.4% 1.0% 6.0% 6.2% 3.6%
Source: Source: CRU, Metal Bulletin, Eramet, Cheuvreux
Acerinox 15
CHEUVREUX SPAIN
IV— NICKEL IS BECOMING LESS OF A NEGATIVE
Nickel volatility did Nickel prices have remained volatile during 2005, starting the year at around $14K/t
not help stockpiling levels, then reaching a peak at $17K/t before summer, then falling sharply to around
in 2005 $12K/t in November, and currently back to $14K/t. In our view, these price movements
have not been correlated with the fundamentals of the nickel market (relatively
balanced in 2005), and incorporates significant speculation in the LME market.
Nickel price in the LME market (US$/t) 1986-2006
000'S
22
20
18
16
14
12
10
2
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Source: Datastream
Alloy surchage Putting aside this volatility, the stainless steel market has already got used to
represents 45-50% structurally high levels of nickel prices. As shown in the table below, the alloy
of final prices vs. surcharge in Europe has risen from levels of around EUR300/t to nearly EUR1,000/t,
30% two years ago representing 45-50% of final stainless steel prices vs. 30% two years ago.
Alloy surcharge in Europe and % over final SS price 2003-2005
1,100 50%
1,000 46%
900
42%
800
38%
700
34%
600
30%
500
26%
400
300 22%
200 18%
J-03 A-03 J-03 O-03 J-04 A-04 J-04 O-04 J-05 A-05 J-05 O-05 J-06
Alloy surchage (EUR/t) % over final SS price
In our view, the main impacts of high and volatile nickel prices have been the
following:
Acerinox 16
CHEUVREUX SPAIN
1) Stainless producers had less pricing power and pressure on base prices. Impact
on demand from high final prices on stainless steel due to rising alloy surchages.
Potential substitution risk to alternative metals (i.e. plastic, aluminium, etc.),
although there is no clear evidence as most commodity prices have also gone up.
Downtrading to cheaper (ferritic) and lower quality 200 series.
2) Volatility in final prices, leading to de-stocking. More difficult management of
nickel stocks and purchases (some mark to market losses from inventories). High
working capital and related financing costs,
3) Impact on margins for the industry, and cost structure.
Coincidentally, base prices in Europe have fallen by around 20% over the last two
Base prices have
years, and final stainless are now back to the same levels than two years ago
fallen by 20% over
(EUR1,900/t vs. EUR2,300-2,400/t peak levels). It seems that above these peak levels
this period
end-users simply stop buying or look for substitution. Having said this, current levels
of nickel prices and thus stainless steel prices (similar for two years now) have already
been accepted by the market, and major producers have adapted their cost structure.
Raw materials As we see in the table below, raw materials account for 70-80% of total costs for
account for 70-80% Acerinox (including energy supplies). For austenic products (80% of Acerinox's sales),
of total costs nickel would represent some 45% of total costs. In this context, the group's operating
leverage is significant, bearing in mind that the remaining 20-30% of other costs
(personnel, overheads, amortization) can be reduced as a % of sales as the group
achieves greater economies of scale and efficiency.
Cost structure for Acerinox
Austenitic Ferritic
Raw Materials 70% 70%
o/w Nickel 65% -
o/w Chrome 22% 40%
o/w Ferro-alloys, lead, other 18% 60%
Operating costs 30% 30%
o/w Personnel 7% 7%
o/w Energy costs 7% 7%
o/w Gas supplies 3% 3%
o/w Transport 2% 2%
o/w Overheads 8% 8%
o/w Depreciation 3% 3%
Source: Cheuvreux
Nickel market Lastly, when it comes to forecasting nickel prices, our scenario is based on $14,500/t
seems relatively average for both 2006 and 2007 (vs. $14,650/t in 2005 and $13,787/t in 2004), even if
balanced the nickel market is expected to remain on a slight positive balance throughout 2006,
and some new capacity is expected to come on stream from 2007. According to
Eramet data shown below, the market was in deficit in 2003, when nickel prices
started to soar. Since then, the market has been relatively balanced (except a bit tight
during H105), even with high demand from China. However, nickel prices have already
consolidated current high levels.
The nickel market balance 2000-2006E
(in million tonnes) 2000 2001 2002 2003 2004 2005E 2006E
Supply 1,095 1,143 1,177 1,196 1,262 1,287 1,332
Demand 1,118 1,096 1,153 1,248 1,257 1,270 1,316
Balance -23 47 24 -52 5 17 16
Source: Eramet
Acerinox 17
CHEUVREUX SPAIN
V— OUR STAINLESS STEEL PRICE ESTIMATES
Final prices peaked Stainless steel prices have come off from the peaks reached by the end of 2004 (and
again at $3K/t levels similar to 1995 and 2000 highs), which as we previously explained, act as a threshold
for either substitution or simply de-stocking. The trend remains consistent by region:
prices are cheaper in Asia (in fact there is no alloy surcharge), where customers tend
to be more price-sensitive and less conscious about quality; US prices remain the
highest worldwide as it is a better protected market (the government has even
implemented safeguard actions in the past).
Final prices in Europe-USA-Asia (US$/t) 1995-2005
3,500
3,000
2,500
2,000
1,500
1,000
M 5
M 6
M 7
M 8
M 9
M 0
M 1
M 2
M 3
M 4
M 5
06
95
96
97
98
99
00
01
02
03
04
05
Se 5
Se 6
Se 7
Se 8
Se 9
Se 0
Se 1
Se 2
Se 3
Se 4
Se 5
9
0
-9
-9
-9
-9
-9
-0
-0
-0
-0
-0
-0
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
ay
ay
ay
ay
ay
ay
ay
ay
ay
ay
ay
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Europe USA Asia
Gap between base However, it is interesting to note the charts below, which show the gap between the
price and alloy base price and the alloy surcharge in Europe and USA, as we previously explained
surcharge has when discussing the surge in nickel prices. Interestingly, prices in USA have held up
expanded better vs. Europe (better balanced and protected market, higher economic growth).
Prices in Europe (EUR/t) 1995-2005 Prices in USA ($/t) 1995-2005
3,000 3,500
3,000
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
Ja 5
Ja 6
Ja 7
Ja 8
Ja 9
Ja 0
Ja 1
Ja 2
Ja 3
Ja 4
Ja 5
95
96
Ju 7
98
99
00
01
Ju 2
03
04
Ju 5
06
l- 9
l- 9
l- 9
l- 9
l- 9
l- 0
l- 0
l- 0
l- 0
l- 0
l- 0
9
5
95
96
97
98
99
00
01
02
03
04
05
06
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
l-9
l-9
l-9
l-9
l-9
l-0
l-0
l-0
l-0
l-0
l-0
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ja
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Acerinox 18
CHEUVREUX SPAIN
Base prices to trend Our price estimates are based on the above mentioned assumptions regarding supply,
up in 2006 both in demand, and raw materials. The highlights and quarterly estimates by market are
Europe and USA shown in the table below.
(CR 304) Stainless steel price estimates 2004-2007E
2004 % 05/04 2005 % 06/05 2006E % 07/06 2007E

European market (EUR/t)
Final Prices 2,231 (4.6%) 2,128 2.3% 2,177 1.8% 2,216
Alloy premium 803 16.8% 938 (0.9%) 929 0.0% 929
Base Prices 1,429 (16.7%) 1,190 4.9% 1,248 3.2% 1,287
Q1 1,373 (3.1%) 1,330 (15.1%) 1,129 19.6% 1,350
Q2 1,472 (16.3%) 1,232 (2.4%) 1,202 8.1% 1,300
Q3 1,372 (23.0%) 1,133 15.6% 1,310 (4.6%) 1,250
Q4 1,397 (23.8%) 1,065 26.7% 1,350 (7.4%) 1,250
US market (US$/t)
Final Prices 2,792 4.9% 2,929 (0.8%) 2,906 0.6% 2,925
Alloy premium 1,143 12.7% 1,288 (2.9%) 1,250 0.0% 1,250
Base Prices 1,649 (0.5%) 1,642 0.9% 1,656 1.1% 1,675
Q1 1,503 15.0% 1,729 (7.4%) 1,600 6.3% 1,700
Q2 1,617 4.1% 1,683 (3.5%) 1,625 4.6% 1,700
Q3 1,690 (5.4%) 1,599 6.3% 1,700 (2.9%) 1,650
Q4 1,786 (12.9%) 1,555 9.3% 1,700 (2.9%) 1,650
Asian market (US$/t) 2,283 6.8% 2,437 (0.7%) 2,421 (5.0%) 2,340
Source: Cheuvreux
Briefly, our main assumptions by region are the following:
We expect base • Europe: We think 2006 will reverse the quarterly trend seen in 2005, ending the
prices in Europe to year at EUR1,350/t levels (+EUR300/t), which is slightly below the average in
rise by 25-30% in 2001-04 (EUR1,400/t) and certainly below the EUR1,500/t peak over the period.
2006 This is based on demand reversing from –8% to +8% (re-stocking, improved
economic outlook), a more disciplined production outlook (permanent shutdown at
Sheffield-Outokumpu), and nickel prices stable at around $14-14.5K/t (in our view
this element will be key in determining the speed of base price increases during
the year). For 2007, prices may tighten slightly (a more stretched supply-demand
balance overall) but still above 2006 levels on average.
US prices may go up • USA: With a 40% market share, Acerinox has higher pricing power in USA, which
by around 10%, or is also a more protected and balanced market. We are looking for $150/t increase
$150/t in base prices over 2006 (half the increase in Europe) as the US market has been
more resilient in 2005, and Acerinox is more interested in consolidating market
share gains rather than putting upward pressure on prices as competitors in this
market are relatively inefficient. Overall, we think base prices are also sustainable
for 2007 on average.
Market in Asia is • Asia: Inventories are still at higher levels compared to Europe, but some ex-China
tougher players have extended productions cutbacks during Q106, and thus the market
should be better balanced as the year progresses, probably after the Chinese New
Year in February. Most relevant players in the region are posting losses, and thus
prices have already started to pick up (even in China), as the situation is hardly
sustainable. We expect final prices in 2006 at similar levels compared to 2005 (in
line with our nickel estimates). For 2007, China will continue to expand capacity,
and this may cause some imbalances again: we forecast a decline in prices of
$100-150/t in order to remain on the side of caution.
Acerinox 19
CHEUVREUX SPAIN
VI— STRATEGIC ALTERNATIVES AND USES OF CASH-FLOW
Apart from the improved scenario for the industry, we think the uses of cash-flow
should gain importance in the investment case of Acerinox as the year progresses,
taking into account that the business degears very quickly (debt/EBITDA falling from
2.3X05 to 0.2X08), and that the investment cycle is coming to an end (i.e. close to 3
million tonnes in each of the three plants by 2007).
FCF of EUR400m in As we see below, we expect Acerinox to generate excess FCF after dividends from
2006-07 vs. 2006, whilst it has consistently piled debt over the last 10 years. In fact, we estimate
consistent net debt Acerinox will generate excess cash of around EUR400m in 2006-07, which compares
increase of EUR1bn to an aggregated net debt increase of EUR1bn during 1994-2005. This is based on:
in 94-05 1) sector scenario described in the previous sections; 2) growth capex falling to
EUR50-80m p.a. (vs. EUR175m average in the last five years); 3) working capital
financing needs reduced to EUR50-100m p.a. (vs. EUR250-300m average in the last
five years).
Free cash-flow generation 1994-2007E
(in EUR million) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 94-05 2006E 2007E
Net profit before minorities 209 90 137 56 127 291 86 184 121 323 192 1,885 322 402
Depreciation 52 54 88 80 78 103 98 112 128 135 112 1,078 117 119
Change in working capital (93) 40 (137) 65 (42) (251) 190 (258) (275) (297) (319) (1,405) (102) (50)
CF from operating activities 169 184 88 200 163 143 374 38 (27) 162 (16) 1,559 336 471
Capex (109) (125) (96) (193) (90) (143) (270) (191) (290) (180) (160) (2,088) (130) (100)
o/w Maintenance capex (35) (35) (35) (35) (35) (40) (40) (40) (40) (45) (50) (465) (50) (50)
o/w Growth capex (74) (90) (61) (158) (55) (103) (230) (151) (250) (135) (110) (1,623) (80) (50)
CF from investing activities 60 59 (8) 7 73 (0) 104 (153) (317) (18) (176) (530) 206 371
Capital increase/decrease 0 0 0 0 0 12 13 232 0 0 (44) 286 0 0
Financial investments 0 0 0 0 0 0 0 (232) 0 0 (48) (280) 0 0
CF from financing activities 60 59 (8) 7 73 12 117 (153) (317) (18) (267) (530) 206 371
Other 23 (66) (41) (11) (50) 15 (23) 93 84 83 0 140 0 0
FCF before dividends 82 (7) (48) (4) 23 27 94 (60) (233) 65 (267) (384) 206 371
Dividends (28) (35) (42) (46) (46) (63) (63) (67) (67) (81) (81) (639) (84) (103)
Change in net debt 54 (42) (90) (49) (23) (37) 31 (126) (299) (16) (348) (1,023) 122 268
Net debt 81 112 153 201 218 255 224 353 652 668 1,017 894 627
Debt/EBITDA 0.2 0.7 0.6 1.2 0.9 0.5 1.1 0.9 2.2 1.0 2.3 1.4 0.8
Source: Cheuvreux
Industrial growth As we said in our report dated March 7, 2005, we think industrial growth and balance
and balance sheet sheet releverage are compatible. Assuming a gearing ratio of 2-2.5X07 EBITDA (vs.
releverage are 0.8X on our estimates), we estimate Acerinox has investment capacity of up to
compatible EUR900-1.3bn (equivalent to 30-40% of its market cap) to fulfill both its industrial
capex wish list (new capacity, acquisitions) while leaving also enough room to improve
shareholder remuneration without taking excessive risks, and maintaining reasonable
leverage levels (i.e. buying back 20% of its market cap would be equivalent to only 1X
EBITDA).
Capex wish list is In this context, we have tried to summarise below the main industrial investment
not extensive alternatives, which remain an absolute priority for management, and which in our view
is the correct stance. The list is not long however, and the required capex would be
limited:
Acerinox 20
CHEUVREUX SPAIN
Closing the HR/CR • New SZ in Columbus/buying a small re-roller in Asia: Among the three plants,
gap in Columbus the main gap between HR-CR production remains on Columbus. We think this
could be closed through either a new Sendzimir mill in Columbus (for up to 150K
tonnes), which will also need an annealing & pickling line, or through buying a
small re-roller in Asia to which redirecting HR exports to the region. We think the
first alternative would be easier to implement, and would imply capex of up to
EUR150m spread over two years.
New capacity in NAS • Capacity expansion in NAS: NAS has recently increased its melting capacity to 1
with limited million tonnes thanks mainly to the continuous casting, and a new furnace
investments only (operating from Q106). However, with this furnace (and adapting the existing
melting shop), we think capacity could reach a total of 1.5m tonnes. In this
context, we think related investments would be small (i.e. EUR100-150m phased
out in two years), to which we should have to add additional investments in SZ
mills (EUR40m each). Management may also decide to invest in other lines (bright
& annealing products with higher margins, etc.).
A greenfield plant in • A greenfield plant in Asia? Acerinox has always left the door open to develop the
Asia is unlikely in strategic option of expanding into Asia (which is the fastest growing market in the
our view world), although it does not necessarily have to be in China. Having a physical
plant there could be achieved either by acquiring a local re-roller or building a
greenfield integrated plant in the region, and this could be made either in
conjunction with its partner Nisshin Steel (which owns 11% of Acerinox) or by its
own. Assuming the latter option (the construction of a fully integrated plant on a
standalone basis), we take as a reference the accumulated investments in NAS,
which amount to around EUR1-1.2bn, although it has taken Acerinox ten years to
end up building its plant in the US. Our view is that the greenfield option in Asia is
highly unlikely at this stage in view of both the current pipeline of local projects in
China and Acerinox's internal potential to expand capacity at NAS/Columbus.
Regarding acquisitions (some of the players in Asia may be for sale), we think it
would have to be at a very reasonable price (as was the case of Columbus).
Purchase of • Buy-out Columbus' minorities: Acerinox has an option to buy the 24% minority
Columbus minorities stake it does not own in Columbus until January 2007. We think Acerinox will only
and own shares buy the 12% stake owned by Samancor, whilst the 12% in the hands of the South
should enhance EPS African Government (IDC) is likely to remain as a core shareholder. We think 12%
by 4% in 2007 of Columbus could be worth some EUR50m, and this could be EPS enhancing by
2.3% in 2007. At the same time, we think Acerinox could also buy back the 1.5%
stake of its own shares in the hands of Samancor (a similar deal to that announced
with Angloamerican in May 2005). All in all, we estimate this could be EPS
enhancing as well by around 1-1.5% (3-4% in total with the higher contribution
from Columbus), with an investment of some EUR47m at current prices (EUR100m
including the minority stake at Columbus).
Purchase of 12% of Columbus and own shares
(in EUR million) 2006E 2007E

Net debt today 894 627
+ Purchase of 1.5% own shares 47
+ Purchase of 12% of Columbus 50
= Net debt post-purchase 991 724
Net debt/EBITDA 1.5 0.9
Net income today 311 382
+ 12% of Columbus earnings 5 9
= Net income post-purchase 315 391
% net profit enhancing 1.5% 2.3%
% EPS enhancing 2.5% 3.8%
Source: Cheuvreux
Acerinox 21
CHEUVREUX SPAIN
VII— DIVISIONAL ESTIMATES: DIVERSIFICATION IS THE KEY
Following a weak H205, we expect group EBITDA to grow by 45% in 2006, which
should represent a new record year for Acerinox, marginally above 2004 levels. For
2007, we forecast EBITDA to grow by nearly 20%. We have allocated most of the
extraordinary losses expected for Q405 explained in the following section (mark to
market of inventories) in Algeciras.
NAS representing Overall, we think NAS should contribute to 45-50% of group EBITDA, Columbus rising
45-50% of group to around 20%, and Algeciras representing one third of the total. As it has been proven
EBITDA, Algeciras in a tough context for the industry such as in 2005, we think it is worth highlighting the
35%, Columbus 20% group diversification to different regions and currencies, as well as the full integration
of its three plants, which give it an edge in terms of competitiveness.
EBITDA by subsidiary 2004-07E
(in EUR million) 2004 % Total %05/04 2005E % Total %06/05 2006E % Total %07/06 2007E % Total
Algeciras & other 277.3 43.5% (54.8%) 125.3 28.9% 90.5% 238.8 36.9% 9.7% 262.0 34.3%
NAS 260.8 40.9% (0.6%) 259.3 59.7% 19.7% 310.4 48.0% 13.5% 352.4 46.1%
Columbus 98.7 15.5% (49.9%) 49.4 11.4% 97.2% 97.5 15.1% 53.9% 150.1 19.6%
Total group 636.8 100% (31.9%) 434.0 100% 49.0% 646.7 100% 18.2% 764.6 100%
Source: Cheuvreux
1) NAS: A benchmark in the sector

New SZ from March We think NAS is on track to meet the group's target of 1m tonnes production in
06 (+150K CR melting by 2007, and this would place this subsidiary close to 100% of utilisation rate.
tonnes) … Interestingly, this ratio already exceeds 100% in CR, and NAS will add a new SZ from
March 2006. We forecast CR production to increase by 13% in 2006 and 7% in 2007.
NAS: Capacity and production 2002-07E
(in K tonnes) 2002 %Ch. 2003 %Ch. 2004 %Ch. 2005E %Ch. 2006E %Ch. 2007E
Capacity
Melting 800 0% 800 0% 800 25% 1,000 0% 1,000 0% 1,000
Hot rolling 1,000 0% 1,000 0% 1,000 0% 1,000 0% 1,000 0% 1,000
Cold rolling 325 0% 325 47% 480 0% 480 30% 625 0% 625
Production
Melting 270 99% 541 28% 691 12% 770 17% 900 6% 950
Hot rolling 646 3% 663 4% 686 12% 770 10% 850 6% 900
Cold rolling 325 5% 341 40% 476 11% 530 13% 600 7% 640
Source: Acerinox, Cheuvreux estimates
… should improve As we previously said, base prices should remain relatively stable in 2006 (+1%), but
the sales mix and the sales mix will contain higher added-value products (CR). In this context, we expect
thus margins the EBITDA margin to trend up slightly from 17.8% in 2005 to 18.5% in 2006 and then
19.7% in 2007. This is by far the most profitable plant within the group (similar size to
Algeciras but only 40% of workforce and more modern technological equipment).
NAS: Sales and EBITDA 2002-2007E
(in EUR million) 2002 %03/02 2003 %04/03 2004 %05/04 2005E %06/05 2006E %07/06 2007E
Sales 657.0 13.8% 747.7 82.7% 1,366.3 6.7% 1,457.6 14.8% 1,673.8 6.9% 1,789.3
EBITDA 108.5 (17.0%) 90.1 189.5% 260.8 (0.6%) 259.3 19.7% 310.4 13.5% 352.4
EBITDA margin 16.5% 12.0% 19.1% 17.8% 18.5% 19.7%
Source: Cheuvreux
Acerinox 22
CHEUVREUX SPAIN
2) Algeciras: The group's cash cow

Algeciras back to Algeciras has been affected in 2005 by historical low prices in Europe, nickel volatility,
cruising speed in and extraordinary provisions related to the mark-to-market of inventories (EUR60m on
2006 our estimates). For 2006, we expect it to return to normalised production levels above
1m tonnes, which should remain stable into 2007.
Algeciras: Capacity and production 2002-2007E
Capacity 2002 %Ch. 2003 %Ch. 2004 %Ch. 2005E %Ch. 2006E %Ch. 2007E
Melting 1,067,000 0% 1,067,000 0% 1,067,000 0% 1,067,000 0% 1,067,000 0% 1,067,000
Hot rolling 850,000 0% 850,000 0% 850,000 0% 850,000 0% 850,000 0% 850,000
Cold rolling 600,000 4% 625,000 0% 625,000 0% 625,000 0% 625,000 0% 625,000
Production
Melting 940,413 8% 1,011,599 (9%) 920,736 9% 1,000,000 5% 1,050,000 2% 1,067,000
Hot rolling 734,555 14% 838,297 (15%) 715,900 17% 840,000 0% 840,000 1% 850,000
Cold rolling 614,416 1% 618,243 (8%) 571,046 7% 615,000 2% 625,000 0% 625,000
For 2006, we expect EBITDA 20-25% below 2004 levels (pre-strike), assuming base
prices will be 10% lower on average, with a margin close to 13% (17% in 2004).
Algeciras: Sales and EBITDA 2002-2007E
Sales 1,281.7 11.7% 1,431.9 13.7% 1,627.5 15.0% 1,871.9 2.0% 1,909.8 3.4% 1,974.3
EBITDA 239.5 (10.8%) 213.6 29.8% 277.3 (54.8%) 125.3 90.5% 238.8 9.7% 262.0
EBITDA margin 18.7% 14.9% 17.0% 6.7% 12.5% 13.3%
Source: Cheuvreux
3) Columbus: A low cost producer focused on Asia

Columbus We think it will be difficult for Acerinox to meet its 1m production target in 2007, as the
recovering slowly Asian market is getting tougher (see previous section). We forecast 880K tonnes.
Columbus: Capacity and production 2002-2007E
Capacity 2002 %Ch. 2003 %Ch. 2004 %Ch. 2005E %Ch. 2006E %Ch. 2007E
Melting 600,000 13% 675,000 11% 750,000 20% 900,000 11% 1,000,000 0% 1,000,000
Hot rolling 550,000 14% 625,000 20% 750,000 20% 900,000 11% 1,000,000 0% 1,000,000
Cold rolling 200,000 35% 270,000 57% 425,000 0% 425,000 0% 425,000 0% 425,000
Production
Melting 550,008 17% 643,015 12% 718,094 (28%) 520,000 39% 725,000 21% 880,000
Hot rolling 540,949 15% 621,656 8% 669,563 (22%) 520,000 30% 675,000 30% 880,000
Cold rolling 234,860 15% 268,925 19% 319,107 3% 330,000 2% 335,000 19% 400,000
We are looking for a similar EBITDA contribution in 2006 to 2004 close to EUR100m,
based on: 1) similar output, 2) prices 5-6% higher, 3) nickel also 5-6% higher.
Columbus: Sales and EBITDA 2002-2007E
Sales 569.0 31.1% 746.2 42.2% 1,061.2 (16.2%) 889.4 26.0% 1,121.0 27.9% 1,433.5
EBITDA 58.0 - (0.5) 98.7 (49.9%) 49.4 97.2% 97.5 53.9% 150.1
EBITDA margin 10.2% -0.1% 9.3% 5.6% 8.7% 10.5%
Source: Cheuvreux
Acerinox 23
CHEUVREUX SPAIN
VIII— STRONG EARNINGS TURNAROUND IN 2006
EBITDA cut by 15% We have cut our 2005 forecasts by 15% at the EBITDA level (EPS -20%) to account
in 2005, 3-5% in for the extraordinary provision (our guess is some EUR50m in Q405) related to the
2006-07 mark-to-market of inventories (final products). According to our estimates, this would
imply a small net loss in Q405 (first quarterly loss since Q498). Excluding this one-off
charge, the cut would be only 3%.
The last cut in the Having said this, our estimates for 2006-07 remain roughly unchanged despite the
cycle? tough context for the industry at the end of 2005. We have only cut our EBITDA
forecasts by 3-5% p.a. (5% in EPS), mainly to account for a slower-than-expected
recovery of the Asian market affecting Columbus.
Estimates revision 2005-2007E
2005E 2006E 2007E

(in EUR million) Previous Current change Previous Current change Previous Current change
Sales 4,325.2 4,218.9 (2.5%) 4,618.1 4,704.6 1.9% 5,044.7 5,197.0 3.0%
EBITDA 511.9 434.0 (15.2%) 670.6 646.7 (3.6%) 807.6 764.6 (5.3%)
EBIT 397.0 321.8 (18.9%) 553.5 530.0 (4.2%) 688.0 645.6 (6.2%)
Net profit 231.4 185.3 (19.9%) 326.3 310.8 (4.8%) 405.5 382.1 (5.8%)
EPS (EUR) 0.89 0.71 (19.9%) 1.26 1.20 (4.8%) 1.56 1.47 (5.8%)
Source: Cheuvreux
Net profit +70% in As we show in the table below, we expect a strong turnaround in 2006 (EBITDA +50%,
06, +20% in 07 net profit +70%), which should be a new record year, marginally above 2004 levels.
For 2007, we are looking for both headlines growing in the 20% region.
P&L estimates 2003-2007E
(in EUR million) 2003 %04/03 2004 %05/04 2005E %06/05 2006E %07/06 2007E
Sales 2,925.8 38.6% 4,055.1 4.0% 4,218.9 11.5% 4,704.6 10.5% 5,197.0
Gross margin 1,010.4 37.2% 1,386.4 (5.5%) 1,310.1 17.9% 1,544.6 11.2% 1,717.6
EBITDA 303.2 110.0% 636.8 (31.9%) 434.0 49.0% 646.7 18.2% 764.6
EBIT 175.5 185.9% 501.7 (35.9%) 321.8 64.7% 530.0 21.8% 645.6
Pre-tax profit 176.2 178.2% 490.2 (39.8%) 295.0 67.9% 495.2 24.9% 618.5
Net profit 125.6 141.2% 302.9 (38.8%) 185.3 67.7% 310.8 23.0% 382.1
Source: Cheuvreux
Before explaining our earnings forecasts in detail, we show below our quarterly
estimates for Q405, where we expect a small net loss.
P&L quarterly estimates 2004-05
(in EUR million) Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05E

Sales 913.9 970.7 1,113.8 1,056.5 1,146.5 1,187.0 924.4 961.4
EBITDA 128.7 180.2 177.5 150.5 161.0 169.2 90.2 17.3
EBIT 96.9 148.0 143.2 113.5 130.6 137.5 60.5 (7.7)
Pre-tax profit 93.9 139.5 137.2 119.7 125.6 128.5 59.1 (18.7)
Net profit 55.7 81.9 85.4 79.9 76.8 81.5 38.0 (11.2)
EBITDA margin 14.1% 18.6% 15.9% 14.2% 14.0% 14.3% 9.8% 1.8%
EBIT margin 10.6% 15.3% 12.9% 10.7% 11.4% 11.6% 6.5% -0.8%
Pre-tax profit margin 10.3% 14.4% 12.3% 11.3% 11.0% 10.8% 6.4% -1.9%
Source: Cheuvreux
Acerinox 24
CHEUVREUX SPAIN
1) Higher production and prices driving sales growth

Higher We are looking for sales growth of 11% in 2006, broken down as follows: +8-9% in
shipments/demand production/shipments (helped with stronger demand), +1% in final prices (Europe
from 2006 +2%, US/Asia marginally down), and a marginal positive impact from currencies.
Sales estimates 2003-2007E
Parent & other 1,431.9 13.7% 1,627.5 15.0% 1,871.9 2.0% 1,909.8 3.4% 1,974.3
NAS 747.7 82.7% 1,366.3 6.7% 1,457.6 14.8% 1,673.8 6.9% 1,789.3
Columbus 746.2 42.2% 1,061.2 (16.2%) 889.4 26.0% 1,121.0 27.9% 1,433.5
Total group 2,925.8 38.6% 4,055.1 4.0% 4,218.9 11.5% 4,704.6 10.5% 5,197.0
Source: Cheuvreux
CR output +6%, HR In terms of production, we are looking for an increase in CR output of 6% in 2006,
+11% mainly related to the new SZ at NAS, and HR growing by 11% (Columbus gradually
restoring exports to Asia, NAS also increasing production).
Production estimates 2003-2007E
(in tonnes) 2003 % 04/03 2004 % 05/04 2005E % 06/05 2006E % 07/06 2007E
Meltshop 2,195,252 6.1% 2,329,712 (1.7%) 2,290,000 16.8% 2,675,000 8.3% 2,897,000
Hot rolled 2,123,118 (2.4%) 2,071,583 2.8% 2,130,000 11.0% 2,365,000 11.2% 2,630,000
Cold Rolled 1,228,082 11.2% 1,365,765 8.0% 1,475,000 5.8% 1,560,000 6.7% 1,665,000
Source: Cheuvreux
2006 base prices Briefly, in terms of prices for 2006, we expect final prices to rise by 2% in Europe and
+5% in Europe on then down 0.5-1% in USA and Asia. However, as we explained in previous sections,
average base prices should go up by 5% in Europe (year average), marginally higher in USA,
and marginally lower in Asia.
2003 % 04/03 2004 % 05/04 2005E % 06/05 2006E % 07/06 2007E

Europe (EUR/t)
Final Prices 1,789 24.7% 2,231 (4.6%) 2,128 2.3% 2,177 1.8% 2,216
Alloy premium 400 100.7% 803 16.8% 938 (0.9%) 929 0.0% 929
Base Prices 1,389 2.8% 1,429 (16.7%) 1,190 4.9% 1,248 3.2% 1,287
USA (US$/t)
Final Prices 1,821 53.3% 2,792 4.9% 2,929 (0.8%) 2,906 0.6% 2,925
Alloy premium 435 162.7% 1,143 12.7% 1,288 (2.9%) 1,250 0.0% 1,250
Base Prices 1,386 19.0% 1,649 (0.5%) 1,642 0.9% 1,656 1.1% 1,675
Asia (US$/t) 1,513 50.9% 2,283 6.7% 2,437 (0.7%) 2,421 (5.0%) 2,340
Source: Cheuvreux
Lastly, we forecast average EUR/$ at 1.20 in 2006 (1.24 in 2005). Acerinox has a
relatively neutral exposure to the $ (60% of sales –USA and Asia–, but 70% of costs –
raw material purchases–). Regarding the South African rand, we think it will remain
strong at similar levels to 2005, any weakness would be good news for Columbus.
Currency estimates 2003-2007E
2003 % 04/03 2004 % 05/04 2005E % 06/05 2006E % 07/06 2007E

EUR/$ 1.14 9.1% 1.24 0.0% 1.24 (3.6%) 1.20 0.0% 1.20
EUR/RAND 8.40 (4.8%) 8.00 (1.0%) 7.92 (1.6%) 7.80 0.0% 7.80
Source: Cheuvreux
Acerinox 25
CHEUVREUX SPAIN
2) Margins trending up again

Margins back to In terms of EBITDA margin, we are looking for nearly 14% in 2006, then rising to 15%
historical avge in in 2007. This would be roughly in line with the 10-year average (15.3%).
2007
Operating margins 1994-2007E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E
Gross margin 41.2% 51.6% 36.7% 39.5% 37.0% 40.6% 46.6% 34.5% 41.5% 34.5% 34.2% 31.1% 32.8% 33.0%
EBITDA margin 19.2% 31.1% 14.5% 18.2% 12.7% 16.6% 25.9% 11.4% 16.2% 10.4% 15.7% 10.3% 13.7% 14.7%
EBIT margin 14.6% 26.6% 9.7% 11.5% 6.5% 11.2% 20.7% 6.0% 11.7% 6.0% 12.4% 7.6% 11.3% 12.4%
Source: Cheuvreux
EBITDA +45% in As we explained in the previous section, we expect group EBITDA to grow by nearly
2006, +20% in 2007 45% in 2006, which should represent a new record year for Acerinox, marginally above
2004 levels. For 2007, we forecast EBITDA to grow by nearly 20%. We have allocated
most of the extraordinary losses expected for Q405 previously explained (mark to
market of inventories) in Algeciras.
The table below shows the EBITDA breakdown by subsidiary. For 2006 we think
Algeciras will be slightly below 2004 levels pre-strike due to lower average prices, NAS
above 2005 levels due to higher added-value production, Columbus back to 2004
levels on similar prices and output.
EBITDA by subsidiary 2004-07E
(in EUR million) 2004 % Total %05/04 2005E % Total %06/05 2006E % Total %07/06 2007E % Total
Algeciras & other 277.3 43.5% (54.8%) 125.3 28.9% 90.5% 238.8 36.9% 9.7% 262.0 34.3%
NAS 260.8 40.9% (0.6%) 259.3 59.7% 19.7% 310.4 48.0% 13.5% 352.4 46.1%
Columbus 98.7 15.5% (49.9%) 49.4 11.4% 97.2% 97.5 15.1% 53.9% 150.1 19.6%
Total group 636.8 100% (31.9%) 434.0 100% 49.0% 646.7 100% 18.2% 764.6 100%
Source: Cheuvreux
3) Significant cash-flow generation

Capex is peaking, We are forecasting capex of EUR130m in 2006, of which EUR50m would be
and working capital maintenance capex, EUR60m would be for NAS (new SZ, second electric furnace),
needs should fall and EUR20m for Columbus (de-bottlenecking). For 2007, we estimate capex will fall to
substantially EUR100m. We also expect the deterioration in working capital needs to diminish from
EUR250-300m average in 2002-05 to EUR100m in 2006 and EUR50m in 2007. This is
in a context in which shipments should accelerate as base prices trend up, and nickel
is more stable. Taking the level of cash-flow generation into account, we think the
group will be able to start retiring debt from 2006, as indicated in the following table.
Cash-flow estimates 2001-2007E
(in EUR million) 2001 2002 2003 2004 2005E 2006E 2007E
Cash-flow 184.5 296.1 248.2 458.3 303.9 438.5 521.0
Chges in Wkg capital 189.9 (257.9) (275.4) (296.6) (319.4) (102.2) (49.9)
Capital increase/decrease 12.5 232.0 0.0 0.0 (44.0) 0.0 0.0
Other (22.5) 93.0 84.3 83.2 0.0 0.0 0.0
Financial investments 0.0 (232.0) 0.0 0.0 (47.5) 0.0 0.0
Capex (270.0) (190.9) (290.0) (180.0) (160.0) (130.0) (100.0)
FCF before dividends 94.4 (59.8) (232.8) 64.9 (267.0) 206.3 371.1
Dividends (63.3) (66.7) (66.7) (81.2) (81.2) (84.0) (103.3)
Changes in debt (50.3) 126.5 299.5 16.2 348.2 (122.3) (267.8)
Source: Cheuvreux
Acerinox 26
CHEUVREUX SPAIN
Debt/EBITDA down Gearing is expected to peak in 2005 at 52% of equity and 2.3X EBITDA, then falling
from 2.3X05 to rapidly to 25% and 0.8X by 2007.
0.8X07
Gearing 2001-2007E
(in EUR million) 2001 2002 2003 2004 2005E 2006E 2007E
Equity (1) 1,255.2 1,601.2 1,658.1 1,766.5 1,927.3 2,154.0 2,432.8
Minorities (2) 7.8 107.7 106.8 151.6 100.0 111.1 131.0
Equity (1)+(2)=(3) 1,263.0 1,708.9 1,764.9 1,918.1 2,027.3 2,265.1 2,563.8
Net Debt/(Cash) 223.7 352.7 652.2 668.4 1,016.6 894.4 626.6
(3)/(1) 17.8% 22.0% 39.3% 37.8% 52.7% 41.5% 25.8%
Debt to EBITDA 1.1 0.9 2.2 1.0 2.3 1.4 0.8
Source: Cheuvreux
4) EPS, DPS, pay-out

DPS flat in 2005, Our net profit estimates are calculated using a tax rate of 35% (statutory tax rate in
30% pay-out in Spain), which is relatively stable over 2004-07. Despite the 40% fall in EPS in 2005, we
2006-07 expect Acerinox to maintain DPS flat. As we see in the table below, Acerinox has
never cut the dividend, even in tough times. For 2006-07, we have assumed Acerinox
will be back to a normalised pay-out ratio in the 30% region. Given the absence of
alternative investments, we think this pay-out ratio would be conservative.
EPS, DPS, Pay-out 1994-2007E
(in EUR) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E
EPS 0.35 0.93 0.38 0.58 0.24 0.54 1.23 0.36 0.67 0.48 1.15 0.71 1.20 1.47
DPS 0.09 0.12 0.15 0.18 0.20 0.20 0.27 0.27 0.29 0.29 0.35 0.35 0.36 0.44
Pay-out 29.2% 13.6% 39.3% 31.0% 82.1% 36.5% 22.0% 75.2% 42.7% 59.7% 30.2% 48.9% 30.0% 30.0%
Source: Cheuvreux
5) Above average RoCE in 2006-07

RoCE above The outcome of all the above would be a return on capital employed (pre-tax) of 16%
historical age in 06- in 2006 and close to 20% in 2007, which compares with 15% average for the last 12
07 years.
RoE, RoCE 1994-2007E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 94-05E 2006E 2007E
RoE 11.8% 27.6% 10.7% 15.3% 6.2% 12.8% 23.6% 6.9% 11.0% 7.6% 17.1% 9.8% 13.4% 14.4% 15.7%
RoCE 17.7% 37.9% 12.0% 14.5% 7.4% 12.9% 26.1% 7.1% 13.6% 7.0% 17.7% 10.0% 15.3% 16.0% 19.3%
Source: Cheuvreux
Acerinox 27
CHEUVREUX SPAIN
Acerinox
FY to 31/12 (EUR m) 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E
Profit & Loss Account
Sales 1,440.8 1,963.8 1,831.5 2,507.7 2,925.8 4,055.1 4,218.9 4,704.6 5,197.0
% Change 12.4% 36.3% -6.7% 36.9% 16.7% 38.6% 4.0% 11.5% 10.5%
Staff costs (138.3) (162.5) (163.9) (220.2) (238.6) (271.0) (292.2) (310.0) (325.6)
EBITDA 239.6 508.9 208.3 406.0 303.2 636.8 434.0 646.7 764.6
% Change 47.4% 112.4% -59.1% 94.9% -25.3% 110.0% -31.8% 49.0% 18.2%
Depreciation (77.6) (102.9) (98.0) (111.6) (127.7) (135.1) (112.2) (116.7) (119.0)
EBITA 162.0 406.0 110.3 294.4 175.5 501.7 321.8 530.0 645.6
% Change 94.9% 150.6% -72.8% 166.9% -40.4% 185.9% -35.9% 64.7% 21.8%
Goodwill amortisation before OP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill amortisation [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Non recurring operational items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EBIT 162.0 406.0 110.3 294.4 175.5 501.7 321.8 530.0 645.6
Net financial items (0.3) (9.4) (10.2) (30.7) 1.5 (20.8) (26.8) (34.9) (27.1)
Non recurring financial items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other exceptional items 15.3 1.0 3.0 (1.2) (1.0) 8.5 0.0 0.0 0.0
Tax (49.5) (106.5) (16.6) (77.9) (55.7) (167.1) (103.2) (173.3) (216.5)
Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Discontinuing activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net profit [loss] before minorities 127.5 291.1 86.5 184.5 120.5 323.2 191.8 321.9 402.0
Dividend to preferred shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minorities (2.3) (3.6) (0.1) (9.0) 5.1 (20.3) (6.5) (11.1) (19.9)
Net attributable profit [loss] 125.2 287.5 86.4 175.5 125.6 302.9 185.3 310.8 382.1
Restatement [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Adj. for exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net attrib. profit [loss], restated (*) 125.2 287.5 86.4 175.5 125.6 302.9 185.3 310.8 382.1
% Change 124.8% 129.6% -69.9% 103.1% -28.4% 141.2% -38.8% 67.7% 22.9%
Cash Flow Statement
Cash flow 205.1 394.0 184.5 296.1 248.2 458.3 303.9 438.5 521.0
% Change 51.9% 92.1% -53.2% 60.5% -16.2% 84.6% -33.7% 44.3% 18.8%
Change in WCR (41.9) (251.3) 189.9 (257.9) (275.4) (296.6) (319.4) (102.2) (49.9)
Capex (90.2) (143.1) (270.0) (190.9) (290.0) (180.0) (160.0) (130.0) (100.0)
o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net cash flow 73.0 (0.4) 104.4 (152.7) (317.2) (18.3) (175.5) 206.3 371.1
Financial investments 0.0 0.0 0.0 (232.0) 0.0 0.0 (47.5) 0.0 0.0
Net buyback of treasury shares 0.0 0.0 0.0 0.0 0.0 0.0 (44.0) 0.0 0.0
Disposals 6.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dividend paid (45.7) (63.3) (63.3) (66.7) (66.7) (81.2) (81.2) (84.0) (103.3)
Capital increase 0.0 12.0 12.5 232.0 0.0 0.0 0.0 0.0 0.0
Other cash flow (50.1) 15.1 (22.5) 93.0 84.3 83.2 0.0 0.0 0.0
Dec. [inc.] in net debt (16.8) (36.6) 31.1 (126.4) (299.6) (16.3) (348.2) 122.3 267.8
Balance Sheet
Shareholders' equity [group share] 979.1 1,218.0 1,255.2 1,601.2 1,658.1 1,766.5 1,927.3 2,154.0 2,432.8
Minority interests 19.3 21.5 7.8 107.7 106.8 151.6 100.0 111.1 131.0
Pension provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other provisions 60.6 92.8 99.8 118.0 117.6 272.3 228.1 228.1 228.1
Net debt [cash] 218.3 254.8 223.7 352.7 652.2 668.4 1,016.6 894.4 626.6
Gearing [%] 21.9 20.6 17.7 20.6 37.0 34.8 50.1 39.5 24.4
Capital invested 1,277.3 1,587.1 1,586.5 2,179.6 2,534.7 2,858.8 3,272.0 3,387.6 3,418.5
Goodwill 0.0 0.3 0.0 0.0 0.0 63.6 63.6 63.6 63.6
Intangible assets 7.8 7.8 8.3 73.1 15.1 14.5 14.5 14.5 14.5
Tangible assets 736.5 786.0 963.6 1,254.3 1,393.7 1,356.5 1,404.4 1,417.7 1,398.7
Financial assets 2.7 8.9 22.7 21.2 19.5 21.1 67.1 67.1 67.1
Associates 18.6 21.3 18.8 0.0 0.0 0.0 0.0 0.0 0.0
Working capital requirement 511.6 762.9 573.1 831.0 1,106.4 1,403.0 1,722.4 1,824.6 1,874.5
WCR as a % of sales 35.5 38.8 31.3 33.1 37.8 34.6 40.8 38.8 36.1
Capital employed 1,277.2 1,587.2 1,586.5 2,179.6 2,534.7 2,858.7 3,272.0 3,387.5 3,418.4
* before goodwill for historical data
Acerinox 28
CHEUVREUX SPAIN
Acerinox
FY to 31/12 (EUR) 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E
Per Share Data
EPS before goodwill 0.54 1.23 0.36 0.67 0.48 1.15 0.71 1.20 1.47
% Change 124.8% 129.3% -70.7% 85.3% -28.5% 141.3% -38.4% 69.0% 22.9%
EPS, reported 0.54 1.23 0.36 0.67 0.48 1.15 0.71 1.20 1.47
% Change 124.8% 129.3% -70.7% 85.3% -28.5% 141.3% -38.4% 69.0% 22.9%
Goodwill per share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Dividend per share 0.20 0.27 0.27 0.29 0.29 0.35 0.35 0.36 0.44
Cash flow per share 0.88 1.68 0.77 1.13 0.94 1.74 1.16 1.69 2.01
% Change 52.0% 91.8% -54.3% 46.3% -16.2% 84.6% -33.2% 45.3% 18.8%
Book value per share 4.0 4.9 5.0 5.8 6.0 6.4 7.1 7.9 8.9
No. of shares, adjusted 233.916 236.958 240.000 263.200 263.200 263.200 259.500 259.500 259.500
Av. number of shares, adjusted 233.916 234.281 240.000 263.200 263.200 263.200 261.350 259.500 259.500
Treasury stock, adjusted 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Share Price [Adjusted]
Latest price 9.90 8.13 9.39 8.75 9.35 11.81 12.29 11.75 11.75
High 10.35 11.75 9.59 11.23 10.04 11.95 13.85 12.46 -
Low 4.97 7.28 5.43 7.51 7.72 8.70 10.53 11.73 -
Average price 7.14 9.03 8.42 9.62 8.95 10.68 11.82 12.23 -
Market capitalisation 2,315.8 1,903.5 2,253.0 2,302.3 2,459.6 3,108.4 3,212.0 3,049.0 3,049.0
Enterprise value 2,576.5 2,183.4 2,479.0 2,778.8 3,014.9 4,000.0 4,345.1 4,055.0 3,807.0
Valuation
P/E 18.5 6.6 26.1 13.1 19.6 10.3 17.3 9.8 8.0
P/E before goodwill 18.5 6.6 26.1 13.1 19.6 10.3 17.3 9.8 8.0
P/CF 11.3 4.8 12.2 7.8 9.9 6.8 10.6 7.3 6.1
Attrib. FCF yield [%] 3.1 NS 4.6 NS NS NS NS 5.0 10.0
P/BV 2.5 1.7 1.9 1.5 1.6 1.9 1.7 1.4 1.3
Enterprise value / Op CE 2.1 1.4 1.6 1.3 1.2 1.4 1.4 1.2 1.1
Yield [%] 2.0 3.3 2.9 3.3 3.1 3.0 2.8 2.9 3.6
EV/EBITDA, restated 10.8 4.3 11.9 6.8 9.9 6.3 9.9 6.3 5.0
EV/EBITA, restated 15.9 5.4 22.5 9.4 17.2 8.0 13.4 7.6 5.9
EV/Sales 1.79 1.11 1.35 1.11 1.03 0.99 1.03 0.86 0.73
EV/Debt-adjusted cash flow 12.3 5.4 12.9 8.3 12.6 7.9 12.8 8.5 6.9
Financial Ratios
Interest cover NS NS 10.8 9.6 NS NS 12.0 15.2 NS
Net debt/Cash flow 1.1 0.6 1.2 1.2 2.6 1.5 3.3 2.0 1.2
EBITDA margin [%] 16.6 25.9 11.4 16.2 10.4 15.7 10.3 13.7 14.7
EBITA margin [%] 11.2 20.7 6.0 11.7 6.0 12.4 7.6 11.3 12.4
Net margin [%] 8.8 14.8 4.7 7.4 4.1 8.0 4.5 6.8 7.7
Capital turn [Sales/ Op. CE] 1.1 1.3 1.2 1.2 1.2 1.4 1.3 1.4 1.6
Gearing [%] 21.9 20.6 17.7 20.6 37.0 34.8 50.1 39.5 24.4
Payout ratio [%] 36.4 22.0 75.0 43.5 60.8 30.4 48.9 30.0 30.0
Return [%]
Pre-tax RoCE 12.9 26.1 7.1 13.6 7.0 17.7 10.0 16.0 19.3
ROE [%] 13.7 26.8 7.1 11.6 7.9 17.1 9.6 14.4 15.7
Return on equity, restated 13.7 26.8 7.1 11.6 7.9 17.1 9.6 14.4 15.7
Acerinox 29
CHEUVREUX SPAIN
Important Disclosures
Applicable disclosure clauses
Company Closing Price Rating Disclosures

Acerinox EUR11.75 1/Selected List E
A - One or more companies in the Crédit Agricole S.A. group owned more than 1% of the total issued share capital of the Company as of the
end of the second most recent month preceding the publication date of this report.
B - One or more companies in the Crédit Agricole S.A. group owned more than 5% of the total issued share capital of the Company as of the
C - The Company owned more than 5% of the total issued share capital of Crédit Agricole SA as of the end of the second most recent month
preceding the publication date of this report.
D - One or more companies in the Crédit Agricole S.A. group held, as of the end of the second most recent trading day, a net sales position
higher than 1% of the total issued share capital of the Company.
E - The trading portfolio of one or more companies in the Crédit Agricole S.A. group contained shares of the Company as of the end of the
second most recent trading day.
F - Crédit Agricole Cheuvreux and/or a company in the Crédit Agricole S.A. group is a market maker or a liquidity provider for the financial
instruments of the Company.
G - Calyon and/or a company in the Crédit Agricole S.A. group has been involved within the last three years in a publicly disclosed offer of or
on financial instruments of the Company.
H - Calyon and/or a company in the Crédit Agricole S.A. group has concluded or is party to a non confidential agreement relating to the
provision of investment banking services (except publicly disclosed offers mentioned under G) to the Company during the past 12 months
or that has given rise during the same period to the payment of compensation or to the promise to get a compensation paid.
I- This research has been communicated to the Company and following this communication, its conclusions have been amended before its
dissemination.
J - A director or a board member of the Crédit Agricole S.A. group is an officer, director, or board member of the Company.
Specific disclosure clauses
None.
Cheuvreux's rating and target price system
Ratings are built for a 6 to 12 month time horizon.

1/ Selected List Expected to outperform the market and is in our country selected list
2/ Outperform Expected to outperform the market
3/ Underperform Expected to perform at best in line with the market
4/ Sell Expected to underperform the market substantially
No Rating or Suspended The investment rating and target price have been suspended . Such suspension is pursuant to
Cheuvreux's policy in circumstances when Cheuvreux's parent company, Calyon, is acting in an
advisory capacity in a merger or strategic transaction involving this company or when Calyon or
Crédit Agricole has a beneficial interest in this company and in certain other circumstances.
Target price methodology Cheuvreux's target prices are derived from one or more of the following methodologies : DCF,
SOP, peer comparison and EVA.
Acerinox 30
CHEUVREUX SPAIN
Breakdown by rating category (as at 30/09/2005)
350
300
Number of companies
250 in each category
200
150
Number of companies
in each rating having
100
received Calyon
investment banking
50 services within the last
12 months
0
1/Selected List 2/Outperform 3/Underperform 4/Sell
Share price trend and dates of changes in rating Dates of changes in target price and/or rating
and/or target price
N° Date Rating Target

13.66 price
1 03/02/2005 EUR15.50
13.16 2 04/03/2005 EUR16.50
3 25/05/2005 EUR14.85
12.66
12.16
11.66
11.16
10.66
02/200 05/200 08/200 11/2005
Share price Rating change Target price change
Local regulatory authorities
Country Cheuvreux legal entity Regulatory authority

France Crédit Agricole Cheuvreux SA Autorité des Marchés Financiers (AMF)
Germany Crédit Agricole Cheuvreux Niederlassung – Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin)
Frankfurt Branch
Italy Crédit Agricole Cheuvreux Italia SIM SpA Commissione Nazionale per le Societa e la Borsa (Consob)
The Netherlands Crédit Agricole Cheuvreux - Amsterdam Branch Autoriteit Financiële Markten (AFM)
Spain Crédit Agricole Cheuvreux Espana SV SA Comisión Nacional del Mercado de Valores (CNMV)
Sweden Crédit Agricole Cheuvreux Nordic AB Finansinspektionen
Switzerland Crédit Agricole Cheuvreux - Zurich Branch Swiss Federal Banking Commission (SFBC)
United Kingdom Crédit Agricole Cheuvreux International Ltd Financial Services Authority (FSA)
Acerinox 31
R ESEARCH & D ISTRIBUTION C ENTRES
B ENELUX
C REDIT A GRICOLE C HEUVREUX – A MSTERDAM B RANCH
H O NTH OR STST RAA T 9
1071 DC A M ST E R D A M
T E L : +31 20 573 06 66
F AX : +31 20 672 40 41
F RANCE
C REDIT A GRICOLE C HEUVREUX S.A.
9, Q U A I P A UL D O U M E R
92400 C OU RB EVO IE
T E L : +33 1 41 89 70 00
F AX : +33 1 41 89 70 05 D ISTRIBUTION C ENTRES
G ERMANY
C REDIT A GRICOLE C HEUVREUX – F RA NKFURT B RANCH J APAN
M ESS E T UR M - F R IE D RI CH -E B E RT -A N LA G E 49 C HEUVREUX
D-60308 F RA N KFU R T A M M A I N C A LY ON C A P IT A L M A R KE T S A S I A B.V., T O KY O B R AN CH
T E L : +49 69 47 897 100 S H IO D O ME S U M IT O M O B U I L D IN G , 15 T H F LO OR
F AX : +49 69 47 897 530 1-9-2 H IG AS HI -S H I MB ASH I
I TALY M INAT O - K U
T O K YO 105-0021
C REDIT A GRICOLE C HEUVREUX I TALIA SIM S. P .A. T E L : +81 3 4580 8522
V I A B R E RA 21 F AX : +81 3 4580 5534
20121 M I LA N
T E L : +39 02 80 62 83 00 U NITED S TATES
F AX : +39 02 86 46 15 70 C RÉDIT A GRICOLE C HEUVREUX N ORT H A MERICA , I NC .
S PAIN NEW YORK
C REDIT A GRICOLE C HEUVREUX E SPAÑA S.V. S.A. 1301 A VENU E OF TH E A ME R I CA S
15 T H F LO O R
P ASE O D E L A C A ST E LL ANA 1
N E W Y OR K , NY 10019
28046 M A DR I D
T E L : +1 (212) 492 8800
T E L : +34 91 432 78 21
F AX : +1 (212) 492 8801
F AX : +34 91 432 75 13
S WEDEN SAN FRANCISCO
C REDIT A GRICOLE C HEUVREUX N ORD IC AB O NE M A R KE T
R EGER ING SG ATA N 38 S PEAR T O WE R , S U IT E 1610
10393 S TOC K HO L M S AN F RAN C IS CO , CA 94105
T E L : +468 723 5100 T E L : + 1 (415) 543.3111
F AX : +468 723 5101 F AX : + 1 (415) 618.0821
S WITZERLAND
C REDIT A GRICOLE C HEUVREUX – Z URICH B RA NCH
B AHN HOF STR ASS E 18
8001 Z UR ICH
T E L : +41 44 218 17 17
F AX : +41 44 212 25 50
U NITED K INGDOM
C REDIT A GRICOLE C HEUVREUX I NT ERNATIONAL L IMITED
8 TH F L O OR
122 L E A D E N HA LL S T RE E T
L ON D ON EC3V 4QH
T E L : +44 207 621 5100
F AX : +44 207 621 5101
Copyright © Crédit Agricole Cheuvreux, 2006. All rights reserved

This research report or summary has been prepared by Crédit Agricole Cheuvreux or one of its affiliates or branches (collectively “CA Cheuvreux”) from information believed to be reliable. Such information has not been
independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Any opinions or estimates expressed herein reflect the judgment of CA Cheuvreux
at this date and are subject to change at any time without notice. Unless otherwise stated, the information or opinions presented, or the research or analysis upon which they are based, are updated as necessary and at least
annually. Not all strategies are appropriate at all times. Past performance is not necessarily a guide to future performance. Independent advice should be sought in case of doubt. In any event, investors are invited to make their
own independent decision as to whether an instrument is proper or appropriate based on their own judgment and upon the advice of any relevant advisors they have consulted. CA Cheuvreux, Calyon and their affiliates may
effect transactions in the securities described herein for their own account or for the account of others, may have positions with the issuer thereof, or any of its affiliates, or may perform or seek to perform securities, investment
banking or other services for such issuer or its affiliates. The organisational and administrative arrangements established by CA Cheuvreux for the management of conflicts of interest with respect to investment research are
consistent with rules, regulations or codes applicable to the securities industry. These arrangements can be found in CA Cheuvreux’s policy for managing conflicts of interest, available at www.cheuvreux.com. Current research
disclosures regarding companies mentioned in this report are also available at www.cheuvreux.com.
This report is provided for information purposes only. It is not intended as an offer, invitation or solicitation to buy or sell any of the securities described herein and is intended for use only by those professional investors to whom it is made
available by CA Cheuvreux. To the extent permitted by applicable securities laws and regulations, CA Cheuvreux accepts no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents.
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Spain Acerinox
From 1 to 3 Steel
28 November 2006 – Company update
Closing Price (27/11/06) EUR20.04

History says: this is the time to sell
Target price +8% EUR21.80
Market capitalisation EUR5.2bn 2006, from rags to riches: The stainless steel industry has
Ibex 35 13,786.8 undergone a massive turnaround in 2006, mainly in Europe,
with base prices doubling from a historical trough (EUR1,050/t
To 31/12 (EUR) 2005 2006E 2007E 2008E
in Q405) to all-time highs (EUR2,100/t in Q107) in 15 months.
Sales (m) 4,230 5,742 6,759 6,518
EBIT (m) 258 845 1,108 849 Q107 could be the peak: 1) prices have gone up too much too
Net attrib. Profit (m) 155 505 676 523 fast; 2) supply-demand will be better balanced; 3) inventories
EBITDA margin (%) 9.8 16.4 18.6 15.4 likely to rise into the risky area; 4) price gap between Asia-
EPS 0.59 1.95 2.61 2.02
Europe should lead to some arbitrage; 5) substitution could
EPS adj. 0.59 1.95 2.61 2.02
become a major issue at current nickel levels.
P/E (x) 20.8 10.3 7.7 9.9
P/CF (x) 12.1 7.8 6.1 7.4 The last upgrade in forecasts? Following better-than-
EV/EBITDA (x) 9.9 6.5 4.7 5.5
expected Q306 results and improved prospects for FY07, we
EV/EBIT (x) 16.0 7.2 5.3 6.5
are raising our EPS estimates by 18% (06) and 34% (07).
ROCE (%) 8.3 24.2 29.7 22.7
ROE (%) 7.9 22.6 24.5 17.7
However, we think that this could be the last upgrade.
P/BV (x) 1.7 2.3 1.9 1.7
Valuation close to peak levels: The shares are currently
Net debt/EBITDA (x) 2.0 0.8 0.4 0.1
trading at 2.3X06 BV (2.2-2.5X historical peak), and offer only
Net dividend 0.35 0.50 0.65 0.65
Yield (%) 1.7 2.5 3.2 3.2
8% upside to our EUR21.8 target price (raised from EUR19.6).
Next event: FY06 results by end-February 2007 Turning cautious: In the light of all the above, we downgrade
our rating from 1/Selected List to 3/Underperform.
21.3
19.3
17.3
15.3
13.3
11.3
9.3
7.3
5.3
01/01 09/01 06/02 03/03 12/03 08/04 05/05 02/06 11/06
mêáÅÉ mêáÅÉLf_buPR
52-week range EUR10.70 - EUR20.59

Free Float 51.3% EUR2.7bn
No. of shares, adjusted 259.5m
Daily volume EUR38.3m
Reuters/Bloomberg ACX.MC/ACX SM
1 month 3 months 12 months Francisco RIQUEL

Absolute perf. 11.9% 37.5% 80.3% friquel@cheuvreux.com
Relative perf. 7.9% 17.6% 36.1%
(349) 1 432 75 50
Shareholders: C.F. Alba 20.8%, Omega Capital 11.1%, Nisshin
Steel 10.9%, IDC 2.9%, Samancor 2.9%
Please see important disclosures at the end of this document

www.cheuvreux.com
CHEUVREUX SPAIN
CONTENTS
Investment recommendation
I— Valuation .......................................................................................................................... Page 06
II— 2006: from rags to riches....................................................................................... Page 07
III— Why we think Q107 will be the peak .............................................................. Page 09
IV— Raising estimates sharply, for the last time?............................................. Page 13
CHEUVREUX'S METAL AND MINING TEAM

Francisco Riquel (author) Spain +34 91 432 75 51 friquel@cheuvreux.com
Alfred Glaser France +33 1 41 89 74 42 aglaser@cheuvreux.com
Mikael Jafs Nordic +46 8 723 51 71 mjafs@cheuvreux.com
Acerinox 2
CHEUVREUX SPAIN
Acerinox
Company profile Valuation
Acerinox is a pure stainless steel producer which Following our earnings upgrade, we have raised our
ranks among the top three players worldwide in target price from EUR19.60 to EUR21.80, which
terms of installed melting capacity, with 3m tonnes, implies 8% upside. This is based on the average of four
which it plans to expand to 3.5m by 2010 (market share methods (EV/EBITDA, P/BV, EV/CE, and EV/tonne).
up from 9.2% to 11%), in a sector where the top five
players control nearly 60% of the market, and where From an EV/EBITDA perspective, the stock is trading at
demand has posted a 6% 30-year CAGR. 6.5X06/4.7X07, 15-30% below the 15-year average of
7X. We think Acerinox is now in a position to produce
It has three fully-integrated plants (melting, HR and CR stronger and more stable cash flows
on the same site): Algeciras in southern Spain, NAS in (diversification/efficiency of its three plants) than at any
Kentucky-USA and Columbus in South Africa. The first other point in its history, and thus it should trade at least
two are wholly-owned, whereas in Columbus the group in line with its historical average.
has a 76% stake. Management plans to raise melting
production from 2.6m to 3.5m tonnes by 2010 (1.4m in In terms of EV/CE, the stock is trading at 1.8X06 (RoCE
NAS, and around 1m in both Algeciras and Columbus). above 20% in 06-08), vs. an historical average of 1.4X
and 16% average RoCE.
Unlike its main peers, Acerinox’s strategy is only
focused on stainless steel: it is the most efficient Based on average share prices, the P/BV of the past 10
producer in the world, and has never lost money in its years ranges from 1.1X to 1.8X (1.5X average). The RoE
30-year history. The group is also very strong over the last 12 years has averaged 13.9%, and we now
financially, and debt (only 1X EBITDA) is expected to fall anticipate around 20% during 2007-08. In this context,
rapidly. A strategy of counter-cyclical investments has the shares are trading at 2.3X07. In addition, the shares
allowed Acerinox to gain market share when competitors have traded at 2.2-2.5XBV in anticipation of improving
were having problems and cutting production, earnings momentum, which is now the case.
something Acerinox has usually managed to avoid.
Lastly, the average EV/tonne of the last 12 years is close
Main shareholders: C.F. Alba (20.8%), Omega Capital to EUR1,900; however, Acerinox trades on EUR2,136 for
(11.1%), Nisshin Steel (10.9%), IDC (2.9%), and 2007, which should be a record year for the company
Samancor (2.9% locked up until Jan-07). (EBITDA per tonne also 50% above historical average).
Investment case SWOT analysis
Since our research report in early January ("History says: Strengths

this is the time to buy"), Acerinox's share price has gone 1) Most efficient producer in the world. Market leader.
up by nearly 75%. We are now downgrading our 2) Best & most experienced management in the industry.
recommendation from 1/Selected List to 3) Full integration of its three plants.
3/Underperform, based on the following reasons: 4) Strong balance sheet and CF generation.
5) Geographical diversification of production plants.
• 2006, from rags to riches: The stainless steel
industry has undergone a massive turnaround in Weaknesses
2006, mainly in Europe, with base prices doubling 1) Below group average returns at Columbus.
from a historical trough (EUR1,050/t in Q405) to all- 2) Nickel price volatility (around 70% of total costs).
time highs (EUR2,100/t in Q107) in 15 months. 3) High working capital financial needs.
• Q107 could be the peak: 1) prices have gone up 4) Financial structure is too conservative.
too much too fast; 2) supply-demand will be better 5) Information disclosure could be improved.
balanced; 3) inventories likely to rise into the risky
area; 4) price gap between Asia-Europe should lead Opportunities
to some arbitrage; 5) substitution could become a 1) Increase capacity at NAS.
major issue at current nickel levels. 2) Improve returns at Columbus.
3) To buy out minorities in Columbus.
• The last upgrade in forecasts? Following better- 4) Balance sheet releverage.
than-expected Q306 results and improved 5) Expansion into Asia in the long-term.
prospects for FY07, we are raising our EPS
estimates by 18% (06) and 34% (07). However, we Threats
think that this could be the last upgrade. 1) Increased volatility in the stainless steel industry.
• Valuation close to peak levels: The shares are 2) Rising nickel prices raising replacement issues.
currently trading at 2.3X06 BV (2.2-2.5X historical 3) New supply coming on stream (China).
peak), and offer only 8% upside to our EUR21.80 4) Economic slowdown and impact on demand.
target price (raised from EUR19.60). 5) South African risk (forex and regulatory risk).
Acerinox 3
CHEUVREUX SPAIN
Sales by region Sales by subsidiary
Africa
Asia Oceania NAS
4.0%
14.3% 1.2% 37.3%
Europe
42.0%
America
38.5% Algeciras Columbus
36.4% 26.3%
Melting production Net profit by subsidiary
NAS Columbus
34% 15.7%
NAS
43.3%
Columbus
27% Algeciras
Algeciras
39% Long products 35.1%
5.9%
Sales & RoCE Operating margins
8,000 35.0 30
7,000 30.0 25
6,000 25.0 20
5,000
20.0 15
4,000
15.0
3,000 10
2,000 10.0
5
1,000 5.0
0
0 0.0
99 00 01 02 03 04 05 06 07 08
99 00 01 02 03 04 05 06 07 08
Sales (m) ROCE aft. tax, (rhs) EBITDA margin EBITA margin Net margin
Gearing & RoE SRI Issues
− Environment: Environmental investments of EUR59m

45 30
40 in 2004 (EUR180m group capex): reducing energy
25
35 consumption & gas transmissions poured out, and
30 20 water consumption.
25
15
20 − Kyoto Protocol: ACX had a margin on assigned rights
15 10
of gas emissions in 05 totalling 13,234 Mt of CO2, which
10
5 allows for possible deficit in 06. It is studying energy
5
0 0 saving schemes in its Spanish plant for 07-08 (US and
99 00 01 02 03 04 05 06 07 08 South African plants not affected by Kyoto Protocol).
− Corporate governance: ACX complies with the
Gearing RoE, (rhs)
Aldama Code, but voting rights are limited to 10%.
Acerinox 4
CHEUVREUX SPAIN
INVESTMENT RECOMMENDATION
2006: from rags to riches
Since our research report in early January ("History says: this is the time to buy"), Acerinox's share price has gone up by
nearly 75% (top 3 performer in the Ibex 35 during 2006). In our view, the stainless steel industry has undergone a strong
turnaround in 2006, which has seen a combination of positive factors, noticeably in Europe. This has translated into a
sharp recovery in demand (Europe +19%, the fastest ever in our records), fuelled by both higher economic dynamism
and some new end-user (industrial) sector. All this has taken place in a context of relatively tight supply (Arcelor and
Outokumpu shutting down some plants, Thyssen hit by a fire in Krefeld), leading base prices to rise from a historical
trough (EUR1,050/t in Q405) to all-time highs (EUR2,100/t in Q107) in only 15 months. The EBITDA margin for Acerinox
has recovered from losses in Q405 to 22% in Q306 (in the upper end of the historical range).
Why we think Q107 will be the peak

We now think Q107 will be the peak in both base prices and in earnings for Acerinox. This is based on the following
reasons:
1) Prices have risen by too much too fast: Base prices in Europe have doubled as we previously mentioned, but the
alloy surcharge has also multiplied by 2.7X since the beginning of the year on the back of higher nickel costs. We
are now clearly in peak business conditions in both base and final prices. Prices in the US are already levelling off;
2) Supply-demand should be better balanced in 2007: Demand should remain strong in 2007 (+6.7%), though a bit
softer compared to 2006 (+10.7%), whils supply should catch up (Arcelor ramping up Carinox, Thyssen repairing its
Krefeld plant, new capacity in China, etc.) and look for +7.8% in 2007 (a bit above demand growth);
3) Inventories are likely to rise into the risky area: This is now the case in the US market, whilst stocks for European
distributors would have already reached historical averages (mills would be the only ones with still low inventories);
4) Price gap between Asia and Europe should lead to some arbitrage: final prices for CR 304 products were similar at
the beginning of 2006, but European prices are now $600/t higher on average (vs. $100/t transport costs), thus we
expect some arbitrage to take place; and last but not least;
5) We have some evidence that substitution could become a major issue at current nickel levels (above $34/t), as
some end-users start to move away from stainless into alternative metals (final prices of stainless losing
competitiveness), and clearly from austenitics towards lower-margin ferritic and 200 series products (within
stainless).
The last upgrade in forecasts?

Following better-than-expected Q3 results and improved prospects for FY07, we are raising our EPS forecasts for
Acerinox by 18% in 06 and 34% in 07. Our 2008 estimates remain roughly unchanged, and implies a reverse to the
mean. We expect a strong turnaround in 2006 (EBIT and net profit +227% vs. 2005), which should be a record year (net
profit above EUR500m, 60% above the 2004 peak). For 2007, we expect growth rates of 30-35% in both headlines,
leading to a new record year (a bit more than double the 2004 peak). Since the start of the year, we have raised our
2007 EPS forecast by 77%, similar to the share price appreciation over the period.
Valuation approaching peak levels

Following our earnings upgrade, we have raised our target price by 13% from EUR19.60 to EUR21.80, offering only 8%
upside from current prices, which is no longer attractive enough for such a cyclical stock. Looking at the past, the
shares used to trade at 2.2-2.5XBV in anticipation of peak business conditions: currently trading at 2.3X06, and we are
bound to see historical peaks in Q406 and Q107.
From 1/Selected List to 3/Underperform

We think we are approaching the peak of the cycle, and this is now mostly reflected in the current share price. Contrary
to the title of our report at the beginning of the year, we think it is now time to take profits on the stock, and thus we
downgrade our rating from 1/Selected List to 3/Underperform.
Acerinox 5
CHEUVREUX SPAIN
I— VALUATION
Target price up from Following our earnings upgrade, we have raised our target price by 13% from
EUR19.60 to EUR19.60 to EUR21.80, offering 8% upside from current prices. As shown in the table
EUR21.80, 8% below, we have valued Acerinox using the average of four methods (EV/CE,
upside potential EV/EBITDA, P/BV, EV/tonne), as the DCF is not too accurate for cyclical companies,
and there is no other pure player in the stainless steel industry to compare it with.
Acerinox: Valuation summary
EV/EBITDA 21.70
EV/CE 22.70
P/BV 20.75
EV/tonne 22.10
Average 21.80
Current price (EUR) 20.04
Upside (%) 8%
Source: Cheuvreux
We highlight the following:
• From an EV/EBITDA perspective, the stock is trading at 6.5X06/4.7X07, 15-30%

below the 15-year average of 7X. We think Acerinox is now in a position to
produce stronger and more stable cash flows (diversification/efficiency of its three
plants) than at any other point in its history, and thus it should trade at least in line
with its historical average.
1.8XCE vs. 1.4X • In terms of EV/CE, the stock is trading at 1.8X06 (RoCE above 20% in 2006-08),
historical average vs. a historical average of 1.4X and 16% average RoCE.
2.3XBV vs. 2.2-2.5X • Based on average share prices, the P/BV of the past 10 years ranges from 1.1X to
in peak conditions 1.8X (1.5X average). The RoE has averaged 14%, and we now anticipate 22-24%
during 2006-07. In this context, the shares are trading at 2.3X06. In addition, the
shares have traded at 2.2-2.5XBV in anticipation of improving earnings
momentum, and we are bound to see historical peaks in Q406 and Q107.
• Lastly, the average of EV/tonne of the last 12 years is close to EUR1,900;
however, Acerinox trades on EUR2,136 for 2007, which should be a record year
(EBITDA per tonne also 50% above the historical average).
Historical valuation: Main stock market multiples 1994-2007E
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E Avge. 94-06
Mkt. cap (EUR m) 794 933 997 1,645 1,375 1,671 2,069 1,984 2,512 2,361 2,816 3,110 5,200 - -
High price (EUR) 4.67 5.41 5.86 9.01 8.25 10.35 11.27 9.35 10.99 9.17 11.95 13.85 20.59 - -
Low price (EUR) 3.19 3.23 3.42 4.96 3.49 4.97 7.26 5.82 7.55 8.36 8.70 10.53 10.75 - -
Last price (EUR) 4.13 3.69 5.64 6.78 4.97 9.90 7.97 9.30 8.75 9.35 11.81 12.29 20.04 - -
High P/BV 1.6 1.6 1.6 2.4 2.2 2.5 2.2 1.8 1.8 1.5 1.8 1.9 2.4 - 1.9
Low P/BV 1.1 1.0 1.0 1.3 0.9 1.2 1.4 1.1 1.2 1.3 1.3 1.4 1.3 - 1.2
Avge P/BV 1.4 1.2 1.2 1.8 1.5 1.7 1.7 1.6 1.6 1.4 1.6 1.6 2.0 1.9 1.5
P/E 11.5 4.5 11.2 12.1 24.7 13.4 7.2 23.0 14.3 18.8 9.0 20.1 9.9 7.7 13.8
RoE 11.8% 27.6% 10.7% 15.3% 6.2% 12.8% 23.6% 6.9% 11.0% 7.6% 17.5% 7.9% 22.6% 24.5% 14.0%
Pre-tax RoCE 17.7% 37.9% 12.0% 14.5% 7.4% 12.9% 26.1% 7.1% 13.6% 7.0% 17.9% 8.3% 24.2% 29.7% 15.9%
EV/CE 1.3 1.2 1.2 1.7 1.4 1.5 1.5 1.4 1.3 1.3 1.4 1.3 1.8 1.6 1.4
EV/EBITDA 5.8 2.7 7.0 7.7 9.6 7.9 4.5 10.5 7.0 10.7 6.4 9.9 6.5 4.7 7.0
EV/tonne (EUR) 1,718 1,641 1,595 2,227 1,809 1,976 2,393 2,157 1,687 1,421 1,562 1,805 2,369 2,136 1,895
EBITDA per tonne 294 636 238 307 194 259 526 209 292 157 280 182 390 471 320
Source: Cheuvreux
Acerinox 6
CHEUVREUX SPAIN
II— 2006: FROM RAGS TO RICHES
The stainless steel industry has undergone a strong turnaround during 2006, which
has seen a combination of positive factors, particularly in the European market. This
has translated into a sharp recovery in demand, in a context of relatively tight supply,
leading base prices to rise from historical trough to all-time highs in only 15 months.
1) World demand at record growth rates, mainly in Europe

Industrial As we show in the graph below, industrial production indexes have picked up in most
production growth regions, noticeably in Europe, driven by higher corporate investment, and this has
driving stainless implied strong demand for metals, and stainless steel in particular.
steel demand
Industrial production growth strong globally in 2006
Source: OEF
Demand in Europe As we mentioned in our previous report (October 14th), demand has been particularly
+19% in 2006, the strong in industrial sectors (chemicals/oil, power/ethanol/desalination/solar plants,
fastest ever etc.). Demand in Europe has grown by 19% in 2006, the fastest ever in our records.
World CR apparent consumption by region in the last 10 years
(in '000 tonnes) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E
Europe 2,471 2,501 2,803 2,900 3,144 2,944 3,067 3,176 3,254 2,894 3,444
YoY growth 1.3% 1.2% 12.1% 3.4% 8.4% -6.4% 4.2% 3.6% 2.5% -11.1% 19.0%
China 824 966 1,317 1,572 1,446 1,936 2,443 3,106 3,161 3,903 4,684
YoY growth 48.5% 17.3% 36.2% 19.4% -8.0% 33.8% 26.2% 27.1% 1.8% 23.5% 20.0%
USA 1,300 1,427 1,515 1,548 1,583 1,297 1,324 1,303 1,487 1,356 1,491
YoY growth 0.0% 9.8% 6.1% 2.2% 2.2% -18.0% 2.1% -1.6% 14.1% -8.8% 10.0%
Japan 1,149 1,085 875 820 1,127 1,291 1,086 1,268 1,400 1,283 1,405
YoY growth -5.2% -5.5% -19.3% -6.3% 37.4% 14.6% -15.9% 16.7% 10.5% -8.4% 9.5%
Other Asia 1,539 1,565 1,511 1,873 2,069 1,884 2,053 2,259 2,454 2,473 2,584
YoY growth 1.8% 1.7% -3.5% 24.0% 10.5% -8.9% 8.9% 10.1% 8.6% 0.7% 4.5%
Others 653 745 817 905 989 1,043 1,242 1,348 1,507 1,379 1,448
World CR 7,935 8,290 8,838 9,618 10,358 10,395 11,215 12,460 13,264 13,288 15,056
YoY growth 4.7% 4.5% 6.6% 8.8% 7.7% 0.4% 7.9% 11.1% 6.5% 0.2% 13.3%
Source: CRU
Acerinox 7
CHEUVREUX SPAIN
Inventory levels in The growth rate in 2006 (+19%) has to be seen in the context of the sharp fall in 2005
Europe have (-11%). However, the upturn in demand in 2006 has not been supported by stock
remained relatively building from distributors. On the contrary, as shown in the table below, stock levels in
low Germany have remained low throughout the year: close to 10 weeks today vs. 12
historical average.
Inventory levels in Germany in the last five years
Source: EVH & Outokumpu
2) Supply has remained relatively tight

Supply has World output fell sharply in H205, but 2006 is only marginally above Q404/H105 levels
remained disciplined despite fast growth in demand. Production in Europe has been more disciplined and
and affected by has not even exceeded those levels: 1) Arcelor: Carinox ramp-up not offsetting own
some one-offs closures at L'Ardoise/Isbergues; 2) Outokumpu: shutdown at Sheffield offseting for
Tornio ramp up; 3) Thyssen: Fire at Krefeld (300K tonnes, 5% of European capacity),
partly offset with imports from SKS-China; 4) Small fire at Algeciras-ACX in August.
World stainless steel production in the last few quarters
2004 2005 2006

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Belgium + France 532 392 446 460 445 360 424 523 541 481
Germany + Italy 857 765 833 841 870 679 794 842 894 803
Finland + Sweden + UK 630 480 609 646 602 395 532 590 631 594
Spain 310 310 310 313 307 284 215 315 337 274
W. Europe 2,361 1,979 2,230 2,291 2,254 1,745 1,994 2,304 2,441 2,182
North America 576 584 618 610 617 484 537 636 668 605
Brazil 144 133 138 146 124 129 115 129 135 130
China 564 648 654 826 849 858 795 930 988 1,172
India 345 372 456 473 423 422 434 465 485 443
Japan 1,031 1,028 1,066 1,081 1,074 915 914 977 982 1,051
Korea 575 585 610 615 585 515 576 575 585 571
Taiwan 390 410 409 423 403 341 347 407 442 392
Asia 2,905 3,043 3,195 3,418 3,334 3,051 3,066 3,354 3,482 3,629
South Africa 180 180 191 175 190 95 105 136 179 163
World 6,203 5,946 6,416 6,675 6,556 5,544 5,857 6,608 6,956 6,760
y-o-y % change 6.9 9.9 6.7 9.7 5.7 (6.7) (8.7) (1.1) 6.1 21.9
Source: CRU
Acerinox 8
CHEUVREUX SPAIN
III— WHY WE THINK Q107 WILL BE THE PEAK
We think Q107 will be the peak in both base prices and in earnings for Acerinox. This
is based on the following reasons: 1) prices have gone too much too fast; 2) supply-
demand should be better balanced; 3) inventories are likely to rise into the risky area;
4) price gap between Asia and Europe should lead to some arbitrage; and last but not
least, 5) we have some evidence that substitution is becoming a major issue.
1) Prices have gone up too much too fast

Final stainless We think the two graphs below are self-explanatory of where we stand in the cycle.
prices moving into The first one refers to final stainless steel prices (close to $5K/t in USA and above
uncharted territory EUR4K/t in Europe), which include record levels for both base prices and alloy
surcharges, the latter as a result of record nickel prices (above $34K/t).
Final stainless steel prices in Europe-USA-Asia ($/t) in the last 10 years

5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
Jan- Jul- Jan- Jul- J an- Jul- Jan- Jul- Jan- J ul- Jan- Jul- Jan- Jul- J an- Jul- Jan- J ul- Jan- Jul- Jan- Jul- J an- Jul- Jan-
95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06 06 07
Europe USA Asia
Base prices in Base prices in Germany have doubled from historical troughs in Q405 (EUR1,050/t) to
Germany X2 in 15 peak levels in Q107 (EUR2,100/t), as lead times extend into March 2007. In our
months records, base prices have never gone up that much in such a short period of time.
Base prices in Germany (CR 304) in the last 15 years
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
Dec-90 Jan-92 Feb-93 Mar-94 Apr-95 May-96 Jun-97 Jul-98 Aug-99 Sep-00 Oct-01 Nov-02 Dec-03 Jan-05 Feb-06 Mar-07
Acerinox 9
CHEUVREUX SPAIN
2) Better balanced outlook in terms of suppy-demand

Above-average Leading economic indicators point to sustained growth into 2007, though a bit softer
demand growth in compared to 2006 (already apparent in USA, likely in Germany on the back of higher
07, but a bit softer taxes and the strong Euro, China affected as well). This should translate into a slight
vs. 06 slowdown in stainless steel demand to 6.7% in 2007, below the 10.7% peak in 2006,
though still above the 5-6% historical average (which is our scenario for 2008).
Suppy should On the other hand, we expect world supply to grow by 7.8% in 2007, outpacing
outpace demand in 07 demand by 1pp (the opposite situation in 2006). Thyssen should have its Krefeld plant
repaired by H207, Carinox (Arcelor) should gradually reach full speed, Taiyuan (China)
will continue to ramp up its new 1.5m stainless mill, etc. 2008 should be better
balanced, we think, even if China becomes a net exporter.
Stainless steel demand-supply scenario 1998-2008E
(in '000 tonnes) 1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E
Europe 7,183 7,427 7,973 7,691 8,102 8,485 8,688 8,285 8,500 8,650 8,700
YoY growth 2.6% 3.4% 7.4% -3.5% 5.3% 4.7% 2.4% -4.6% 2.6% 1.8% 0.6%
China 414 492 751 820 888 1,302 2,084 3,290 4,729 6,517 8,067
YoY growth 10.4% 18.8% 52.6% 9.2% 8.3% 46.6% 60.1% 57.9% 43.7% 37.8% 23.8%
Asia 6,100 6,573 7,224 7,166 7,493 8,513 9,209 9,002 9,203 9,221 9,241
YoY growth -4.2% 7.8% 9.9% -0.8% 4.6% 13.6% 8.2% -2.2% 2.2% 0.2% 0.2%
USA 1,985 2,187 2,178 1,834 2,185 2,200 2,397 2,238 2,454 2,525 2,575
YoY growth -7.9% 10.2% -0.4% -15.8% 19.1% 0.7% 9.0% -6.6% 9.7% 2.9% 2.0%
Other 805 874 1,036 1,020 1,034 1,377 1,331 1,110 1,249 1,269 1,269
Production 16,487 17,553 19,163 18,531 19,702 21,878 23,710 23,925 26,136 28,182 29,852
YoY growth -1.7% 6.5% 9.2% -3.3% 6.3% 11.0% 8.4% 0.9% 9.2% 7.8% 5.9%
Europe 4,733 4,767 5,125 4,883 5,152 5,164 5,358 5,332 5,860 6,094 6,247
YoY growth 11.5% 0.7% 7.5% -4.7% 5.5% 0.2% 3.8% -0.5% 9.9% 4.0% 2.5%
China 1,773 2,077 2,303 2,820 3,424 4,396 4,499 4,972 5,830 6,588 7,280
YoY growth 20.9% 17.1% 10.9% 22.4% 21.4% 28.4% 2.3% 10.5% 17.3% 13.0% 10.5%
Asia 3,411 3,687 4,166 4,275 4,315 4,527 5,132 5,057 5,413 5,630 5,843
YoY growth -22.1% 8.1% 13.0% 2.6% 0.9% 4.9% 13.4% -1.5% 7.0% 4.0% 3.8%
USA 2,405 2,459 2,426 2,001 2,065 2,016 2,307 2,092 2,270 2,338 2,432
YoY growth 2.7% 2.2% -1.3% -17.5% 3.2% -2.4% 14.4% -9.3% 8.5% 3.0% 4.0%
Other 1,066 1,047 1,212 1,442 1,341 1,390 1,598 1,614 1,740 1,879 2,011
Apparent consumption 13,388 14,037 15,232 15,421 16,297 17,493 18,894 19,067 21,113 22,529 23,812
YoY growth -1.3% 4.8% 8.5% 1.2% 5.7% 7.3% 8.0% 0.9% 10.7% 6.7% 5.7%
Source: Cheuvreux estimates
3) Inventories likely to rise into the risky area

Inventory levels Latest available data for Q306 point to reasonable stock levels overall. Compared to
remain low … 2005 average levels, Germany would be 15% below in HR products and 20% below in
CR; Japan would be 30% below in ferritic products and 10% below in austenitic; USA
would be already a bit in the risky area (marginally above historical averages).
… but should Lead times in Europe are already extending into March 2007, and we have the
normalise by Q107 impression that inventory levels will have normalised by then. On the other hand, some
industry sources point that stock levels in the hands of distributors would be already at
normal levels, whilst only stocks in the hands of mills would still be below average. The
latter is expected to rise as demand for forward would be now levelling off.
In our view, distributors would be now more willing to sit back and let the market cool:
1) concerns that the surge in nickel prices may be at an end; 2) cheaper exports from
Asia are starting to flow more abundantly in Europe; 3) end users cannot keep paying
higher prices (substitution becomes an issue). Lastly, stock levels cannot rise further
as credit lines for distributors are limited (and prices have doubled in the last year).
Acerinox 10
CHEUVREUX SPAIN
US stocks already in As we previously said, the situtation in the US market has already deteriorated and
the risky area would now be slightly above historical averages (figures in the chart below refer to
July). In fact, in the latest Q3 press release, Acerinox (NAS) is guiding for stable prices
in USA at best (whereas prices are still trending up in Europe), which is also an
indication that the US market is entering a different stage (industrial sectors in the US
remain strong, but weakening in both automotive and residential construction).
Stock levels in US in the last five years
Source: MSCI & Outokumpu
4) Asia-Europe price gap has widened too much

$600/t gap between The widening differential between Asian and European prices will attract exports from
Asia-Europe prices Asia, and thus we expect some arbitrage. As shown below, the gap between prices in
Asia and Europe has widened from flat in Q1 to around $600/t in Q3 (or $800/t if we
use Chinese prices instead of HK). Asian mills are having more difficulties in passing
on through final prices the higher cost of the nickel due to the lack of alloy surchages.
Price gap between Asia-Europe
(in US$/tonne) Nickel Germany Hong Kong Gap (Germany – HK)

Jan-06 14,615 2,307 2,375 -68
Feb-06 15,046 2,399 2,600 -201
Mar-06 14,931 2,630 2,625 5
Apr-06 17,942 2,725 2,755 -30
May-06 20,881 2,981 3,050 -69
Jun-06 20,373 3,264 3,075 189
Jul-06 25,492 3,528 3,200 328
Aug-06 29,087 3,815 3,250 565
Sep-06 29,116 4,098 3,800 298
Oct-06 31,648 4,721 4,100 621
Nov-06 31,200 4,963 4,350 613
Exports from Asia In this context, stainless shipments from Asia entering Europe have risen over the last
should lead to some few weeks. ThyssenKrupp has been importing material from its Chinese plant (SKS) in
arbitrage order to preserve its market share in Europe as a result of the Krefeld fire, but we have
the feeling that other distributors in Europe are now looking more into Asia.
Acerinox 11
CHEUVREUX SPAIN
Even accounting for around $100/t of transport costs, imports from Asia should
become a highly profitable business in Europe. The only drawback in the current
context would be the long lead time (three months) between order and receipt, which
is a concern for any European distributor unable to hedge against a falling nickel.
5) Substitution could become a major issue

Stainless becoming The surge in nickel prices has negative implications for the stainless steel industry:
increasingly less 1) huge price increase for customers; 2) margin risk for mills; 3) important cash-out for
competitive as a producers through WCR; 4) more capital employed, lower profitability; 5) negative
result of high nickel substitution risk. Until Q306, stainless transaction prices in relative terms vs. other
prices alternative metals (galvanised carbon steel, aluminium, plastics, etc.) were reasonable;
however, stainless is becoming increasingly less competitive at current levels.
Negative substitution of stainless vs. other materials may become a reality
Source: CRU
End users moving We recently met the Head of raw materials at IKEA, who claims he is already starting
away from stainless to move away from stainless; some end users are moving production to China due to
(and from lower SS prices, etc. The long-term growth of the industry is under threat. In addtion,
austenitics into the industry is moving towards lower-margin ferritic and 200 series products.
ferritics)
High nickel prices: Long-term risk to austenitic production?
Source: Heinz Pariser
Acerinox 12
CHEUVREUX SPAIN
IV— RAISING ESTIMATES SHARPLY, FOR THE LAST TIME?
EPS raised by 18% Following better-than-expected Q3 results and improved prospects for FY07, we are
(06) and 34% (07) raising our EPS forecasts for Acerinox by 18% in 2006 and 34% in 2007. Our 2008
estimates remain roughly unchanged, and implies a reverse to the mean.
Acerinox: Estimates revision 2006-2008E
2006E 2007E 2008E

(in EUR m) Previous Current Change Previous Current Change Previous Current Change
Sales 5,658 5,742 1.5% 6,089 6,759 11.0% 6,099 6,518 6.9%
EBITDA 806 942 16.8% 962 1,256 30.6% 950 1,003 5.6%
EBIT 713 845 18.5% 816 1,108 35.7% 797 849 6.5%
Net profit 429 505 17.7% 505 676 33.9% 508 523 3.0%
EPS (EUR) 1.65 1.95 17.7% 1.95 2.61 33.9% 1.96 2.02 3.0%
Source: Cheuvreux
EPS +227% in 2006, As we show in the table below, we expect a strong turnaround in 2006 (EBIT and net
+34% in 2007 profit +227% vs. 2005), which should be a record year (net profit above EUR500m,
60% above the previous peak in 2004). For 2007, we expect growth rates of 30-35%,
leading to a new record year (a bit more than double the 2004 peak).
Acerinox: P&L estimates 2004-2008E
(in EUR m) 2004 %05/04 2005 %06/05 2006E %07/06 2007E %08/07 2008E
Sales 4,051.3 4.4% 4,229.7 35.7% 5,741.6 17.7% 6,758.9 (3.6%) 6,517.7
Gross margin 1,382.5 (10.7%) 1,234.1 47.7% 1,822.8 20.3% 2,192.7 (9.0%) 1,995.8
EBITDA 634.5 (34.5%) 415.7 126.5% 941.6 33.4% 1,256.4 (20.1%) 1,003.3
EBIT 503.4 (48.8%) 257.9 227.6% 845.1 31.1% 1,108.1 (23.4%) 848.7
Pre-tax profit 496.5 (54.0%) 228.2 257.4% 815.7 32.0% 1,077.1 (23.0%) 829.8
Net profit 313.4 (50.7%) 154.5 227.1% 505.2 33.9% 676.4 (22.7%) 523.0
Source: Cheuvreux
Improving earnings We show below our quarterly estimates for 2006, where we expect record quarterly
momentum into profits in Q406, which should be slightly exceeded in Q107. Our 2007 net profit
Q107 forecasts implies around 3X Q406, as we assume a gradual return to "pricing
normality" from Q207.
Acerinox: P&L quarterly estimates 2004-2006E
(in EUR m) Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06E

Sales 913.9 970.7 1,113.8 1,056.5 1,146.5 1,187.0 924.4 955.6 1,165.7 1,287.2 1,476.2 1,811.3
EBITDA 128.7 180.2 177.5 150.5 161.0 169.2 90.2 (4.9) 30.0 166.7 322.9 422.0
EBIT 96.9 148.0 143.2 113.5 130.6 137.5 60.5 (70.7) 40.9 128.6 287.7 388.0
Pre-tax profit 93.9 139.5 137.2 119.7 125.6 128.5 59.1 (85.1) 35.2 124.5 275.3 380.0
Net profit 55.7 81.9 85.4 79.9 76.8 81.5 38.0 (41.8) 23.2 78.4 169.8 234.0
EBITDA margin 14.1% 18.6% 15.9% 14.2% 14.0% 14.3% 9.8% (0.5%) 2.6% 13.0% 21.9% 23.3%
EBIT margin 10.6% 15.3% 12.9% 10.7% 11.4% 11.6% 6.5% (7.4%) 3.5% 10.0% 19.5% 21.4%
Pre-tax profit margin 10.3% 14.4% 12.3% 11.3% 11.0% 10.8% 6.4% (8.9%) 3.0% 9.7% 18.6% 21.0%
Source: Cheuvreux
1) Sales: Higher production and prices

Sales +36% in 2006 We are looking for sales growth of around 36% in 2006, broken down as follows: final
prices +30% (+35% Europe/Asia, +25% USA), production/shipments +10% (mainly in
NAS and Columbus), and a slightly negative impact from currencies.
Acerinox 13
CHEUVREUX SPAIN
Acerinox: Sales estimates 2004-2008E
Parent & other 1,624 6.4% 1,727 29.4% 2,235 22.1% 2,728 (10.6%) 2,438
NAS 1,366 16.5% 1,591 25.5% 1,991 21.8% 2,425 (4.7%) 2,312
Columbus 1,061 (14.1%) 911 65.4% 1,516 5.9% 1,605 10.1% 1,768
Total group 4,051 4.4% 4,230 35.7% 5,742 17.7% 6,759 (3.6%) 6,518
Source: Cheuvreux
CR production +9% In terms of production, we are looking for an increase in CR output of around 9% in
in 2006, +3-4% p.a. 2006, mainly related to the new SZ at NAS, Columbus gradually restoring (HR and CR)
in 2007-08 exports to Asia/Europe, and Algeciras reaching almost full speed. For 2007-08, we are
looking for an increase of 3-4% p.a. (again in NAS and Columbus). Lastly, we highlight
that the increase in melting capacity in NAS to 1.4m is expected to come on stream by
2009 and to reach full speed by 2010; thus this is not included in the table below.
Acerinox: Production estimates 2004-2008E
(in tonnes) 2004 %05/04 2005 %06/05 2006E %07/06 2007E %08/07 2008E
Meltshop 2,329,712 (3.8%) 2,241,602 15.4% 2,586,000 6.1% 2,745,000 4.4% 2,860,000
o/w Algeciras 920,736 (1.3%) 909,101 10.1% 1,001,000 2.9% 1,030,000 1.9% 1,050,000
o/w NAS 690,882 11.1% 767,624 12.0% 860,000 9.3% 940,000 5.3% 990,000
o/w Columbus 718,094 (21.3%) 564,877 28.3% 725,000 6.9% 775,000 5.8% 820,000
Hot rolled 2,071,583 (2.9%) 2,012,410 12.6% 2,265,000 6.8% 2,420,000 5.4% 2,550,000
o/w Algeciras 715,900 9.0% 780,070 9.6% 855,000 1.8% 870,000 2.3% 890,000
o/w NAS 686,120 3.3% 708,962 7.2% 760,000 10.5% 840,000 6.0% 890,000
o/w Columbus 669,563 (21.8%) 523,378 24.2% 650,000 9.2% 710,000 8.5% 770,000
Cold Rolled 1,365,765 7.6% 1,469,978 8.8% 1,600,000 4.4% 1,670,000 1.5% 1,695,000
o/w Algeciras 571,046 6.8% 609,999 2.5% 625,000 0.0% 625,000 0.0% 625,000
o/w NAS 475,612 13.0% 537,429 11.6% 600,000 5.0% 630,000 0.0% 630,000
o/w Columbus 319,107 1.1% 322,550 16.3% 375,000 10.7% 415,000 6.0% 440,000
Source: Cheuvreux
Peak prices in Q107 In terms of base prices (quarterly forecasts below), we expect the peak to be reached
in both the US and Europe (EUR2,100/t) in Q107. We assume mid-cycle levels in 2008.
2004 %05/04 2005 %06/05 2006E %07/06 2007E %08/07 2008E

Europe (EUR/t)
Final Prices 2,231 (4.6%) 2,128 33.5% 2,840 23.1% 3,496 (14.4%) 2,993
Alloy premium 803 16.8% 938 43.3% 1,343 21.0% 1,626 (10.9%) 1,449
Base Prices 1,429 (16.7%) 1,190 25.7% 1,496 25.0% 1,870 (17.4%) 1,544
Q1 1,373 1,330 1,192 2,058 1,584
Q2 1,472 1,232 1,355 2,000 1,584
Q3 1,472 1,133 1,572 1,755 1,505
Q4 1,397 1,065 1,867 1,667 1,505
USA (US$/t)
Final Prices 2,792 4.9% 2,929 21.6% 3,584 14.9% 4,118 (9.8%) 3,713
Alloy premium 1,143 12.7% 1,288 35.8% 1,773 21.0% 1,959 (10.9%) 1,913
Base Prices 1,649 (0.5%) 1,642 10.3% 1,811 8.9% 1,971 (8.7%) 1,800
Q1 1,503 1,729 1,542 2,100 1,800
Q2 1,617 1,683 1,705 1,995 1,800
Q3 1,690 1,599 1,934 1,950 1,800
Q4 1,786 1,555 2,063 1,895 1,800
Asia (US$/t) 2,283 6.9% 2,440 35.3% 3,323 1.1% 3,360 1.7% 3,416
Nickel (US$/t) 13,787 6.3% 14,650 61.3% 23,628 16.4% 27,500 (9.1%) 25,000
Source: Cheuvreux
Acerinox 14
CHEUVREUX SPAIN
Slightly negative ccy Lastly, our currency forecasts for 2007-08 are based on spot prices: EUR/$1.30,
impact EUR/rand of 9.75; the latter's depreciation is good news for Columbus.
Acerinox: Currency estimates 2004-2008E
2004 %05/04 2005 %06/05 2006E %07/06 2007E %08/07 2008E

EUR/$ 1.24 0.0% 1.24 0.4% 1.25 4.0% 1.30 0.0% 1.30
EUR/Rand 8.00 (1.0%) 7.92 5.7% 8.38 16.4% 9.75 0.0% 9.75
Source: Cheuvreux
2) Margins trending up
16% EBITDA margin In terms of EBIT margin, we are looking for 16.4% in 07 (from 6.1% in 05, the lowest ever,
in 2006, 19% in 2007 and 14.7% in 06), falling to 13% in 08 (slightly above the historical average at 11%).
Acerinox: Operating margins 1994-2008E
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E
Gross margin 51.6% 36.7% 39.5% 37.0% 40.6% 46.6% 34.5% 41.5% 34.5% 34.1% 29.2% 31.7% 32.4% 30.6%
EBITDA margin 32.2% 14.2% 17.6% 12.8% 16.6% 26.1% 11.4% 16.3% 10.6% 15.7% 9.8% 16.4% 18.6% 15.4%
EBIT margin 26.6% 9.7% 11.5% 6.5% 11.2% 20.7% 6.0% 11.7% 6.0% 12.4% 6.1% 14.7% 16.4% 13.0%
Source: Cheuvreux
By subsidiary, we expect the strongest turnaround in Columbus (EBITDA X4 in 2006),

although margins in 2007 only similar to Algeciras. NAS should post more stable
margins as the US cycle is less pronounced compared to Europe, whilst it continues to
expand capacity in higher added value CR products.
Acerinox: EBITDA estimates by subsidiary 2004-2008E
2004 %05/04 2005 %06/05 2006E %07/06 2007E %08/07 2008E

(in EUR m)
Parent & other 273 (51.5%) 132 218.9% 346 42.3% 492 (32.1%) 334
NAS 262 (5.1%) 248 43.6% 380 28.5% 489 (17.2%) 405
Columbus 100 (64.7%) 35 408.0% 215 27.8% 275 (4.0%) 264
Total group 635 (34.5%) 416 126.5% 942 34.1% 1,256 (20.1%) 1,003
(% margin)
Parent & other 16.8% 6.3% 15.5% 18.0% 13.7%
NAS 19.1% 16.7% 19.1% 20.2% 17.5%
Columbus 9.4% 4.6% 14.2% 17.1% 15.0%
Total group 15.7% 9.8% 16.4% 18.6% 15.4%
Source: Cheuvreux
3) Significant cash-flow generation

Strong FCF We are forecasting capex of around EUR200m p.a. in 2006-07 to account for the new
generation despite expansion projects: EUR35m in Gibraltar, EUR20m in long products (Roldán), EUR21m
heavy capex plan in distribution centres, EUR213m ($270m) in NAS, which will increase melting capacity
by 40% to 1.4m tonnes by 2008.
Despite this ambitious capex plan, and the deterioration in working capital financing
needs (production ramp-up, higher alloy surcharges due to rising nickel costs), we
expect Acerinox to reduce debt levels quickly from 2007 in view of the previously-
mentioned scenario. In fact, we expect debt levels to be mostly reduced by 2008 (from
2X05 debt/EBITDA to 0.1X08).
Acerinox 15
CHEUVREUX SPAIN
Acerinox: Cash-flow estimates 2004-2008E
(in EUR m) 2004 2005 2006E 2007E 2008E

Cash flow 462 265 663 854 707
Changes in working capital (265) (61) (318) (207) (62)
Capex (180) (222) (195) (200) (100)
Other 82 (12) 0 0 0
Financial investments 0 (92) 0 0 0
FCF before dividends 98 (122.2) 151 447 545
Dividends (81) (81) (117) (152) (152)
Changes in debt (17) 203 (34) (295) (393)
Source: Cheuvreux
Debt/EBITDA to fall In the absence of any attractive acquisitions (purchase of a small re-roller in Asia), or
from 2X05 to 0.1X08 any other industrial plan (building up greenfield plant in India?), gearing is expected to
fall rapidly from 2X05 debt/EBITDA to 0.1X by 08. Lastly, we have allowed for a DPS
growth of 45% in 06 and 30% in 07 (equivalent payout ratio close to 30% in 07-08).
Acerinox: Gearing 2004-2008E
(in EUR m) 2004 2005 2006E 2007E 2008E

Equity + Minorities (2) 1,937 2,051 2,367 2,923 3,324
Net debt (1) 671 829 795 500 107
(1)/(2) 37.6% 42.6% 35.6% 18.1% 3.4%
Debt to EBITDA (X) 1.1 2.0 0.8 0.4 0.1
Source: Cheuvreux
4) Tax rate gradually falling

Tax rate falling by The Spanish government will lower the corporate tax rate from 35% in 2006 to 32.5%
1pp in 2007-08 p.a. in 2007 and 30% in 2008. In this context, Acerinox will benefit from this lower tax rate
in its Spanish operations (35-40% of group profits on our estimates), whilst NAS will
continue to pay a 37% tax rate (USA), and Columbus is subject to a 35% tax rate. All
in all, we forecast the tax rate to fall by around 1pp p.a. in 07-08.
Acerinox: Gearing 2004-2008E
(in EUR m) 2004 2005 2006E 2007E 2008E

Tax rate 33.0% 33.0% 35.0% 34.3% 33.3%
Source: Cheuvreux
Acerinox 16
CHEUVREUX SPAIN
Acerinox
FY to 31/12 (Euro m) 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E
Profit & Loss Account
Sales 1,963.8 1,831.5 2,507.7 2,925.8 4,051.3 4,229.7 5,741.6 6,758.9 6,517.7
% Change 36.3% -6.7% 36.9% 16.7% 38.5% 4.4% 35.7% 17.7% -3.6%
Staff costs (162.5) (163.9) (220.2) (238.6) (271.0) (289.7) (316.3) (338.8) (357.7)
Other costs (1,289.7) (1,458.1) (1,879.9) (2,376.6) (3,145.8) (3,524.3) (4,483.7) (5,163.7) (5,156.7)
EBITDA 511.6 209.5 407.6 310.6 634.5 415.7 941.6 1,256.4 1,003.3
% Change 114.2% -59.1% 94.6% -23.8% 104.3% -34.5% 126.5% 33.4% -20.1%
Depreciation (105.6) (99.2) (113.2) (135.1) (131.1) (157.8) (96.5) (148.3) (154.6)
EBITA 406.0 110.3 294.4 175.5 503.4 257.9 845.1 1,108.1 848.7
% Change 150.6% -72.8% 166.9% -40.4% 186.8% -48.8% NS 31.1% -23.4%
Goodwill amortisation before OP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill amortisation [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Non recurring operational items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EBIT 406.0 110.3 294.4 175.5 503.4 257.9 845.1 1,108.1 848.7
Net financial items (9.4) (10.2) (30.7) 1.5 (7.6) (30.0) (29.7) (31.4) (19.3)
Non recurring financial items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other exceptional items 1.0 3.0 (1.2) (1.0) 0.0 0.0 0.0 0.0 0.0
Tax (106.5) (16.6) (77.9) (55.7) (163.8) (75.3) (285.5) (369.4) (276.3)
Associates [contribution] 0.0 0.0 (0.1) 0.3 0.8 0.3 0.3 0.4 0.4
Discontinuing activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net profit [loss] before minorities 291.1 86.5 184.5 120.5 332.8 152.9 530.2 707.7 553.4
Dividend to preferred shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Minorities (3.6) (0.1) (9.0) 5.1 (19.4) 1.6 (25.0) (31.3) (30.4)
Net attributable profit [loss] 287.5 86.4 175.5 125.6 313.4 154.5 505.2 676.4 523.0
Restatement [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Adj. for exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net attrib. profit [loss], restated 287.5 86.4 175.5 125.6 313.4 154.5 505.2 676.4 523.0
% Change 129.6% -69.9% 103.1% -28.4% 149.5% -50.7% NS 33.9% -22.7%
Cash Flow Statement
Cash flow 394.0 184.5 296.1 248.2 462.0 264.7 663.2 853.9 707.1
% Change 92.1% -53.2% 60.5% -16.2% 86.1% -42.7% 150.5% 28.8% -17.2%
Change in WCR (251.3) 189.9 (257.9) (275.4) (265.2) (61.1) (317.6) (207.1) (62.3)
Capex (143.1) (270.0) (190.9) (290.0) (180.0) (222.0) (195.0) (200.0) (100.0)
o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net cash flow (0.4) 104.4 (152.7) (317.2) 16.8 (18.4) 150.6 446.8 544.8
Financial investments 0.0 0.0 (232.0) 0.0 0.0 0.0 0.0 0.0 0.0
Net buyback of treasury shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dividend paid (63.3) (63.3) (66.7) (66.7) (81.2) (81.2) (117.0) (152.0) (152.0)
Capital increase 12.0 12.5 232.0 0.0 0.0 0.0 0.0 0.0 0.0
Other cash flow 15.1 (22.5) 93.0 76.9 81.5 (12.3) 0.0 0.0 0.0
Dec. [inc.] in net debt (36.6) 31.1 (126.4) (307.0) 17.1 (111.9) 33.6 294.8 392.8
Balance Sheet
Shareholders' equity [group share] 1,218.0 1,255.2 1,601.2 1,658.1 1,785.9 1,945.0 2,236.8 2,760.1 3,131.1
Minority interests 21.5 7.8 107.7 106.8 150.8 106.4 131.4 162.7 193.1
Pension provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other provisions 92.8 99.8 118.0 117.6 216.8 257.2 278.5 267.1 324.2
Net debt [cash] 254.8 223.7 352.7 652.2 671.2 828.6 794.9 500.1 107.3
Gearing [%] 20.6 17.7 20.6 37.0 34.7 40.4 32.5 16.7 3.2
Capital invested 1,587.1 1,586.5 2,179.6 2,534.7 2,824.7 3,137.2 3,518.6 3,768.0 3,833.7
Goodwill 0.3 0.0 0.0 0.0 69.1 69.1 69.1 69.1 69.1
Intangible assets 7.8 8.3 73.1 15.1 10.7 15.4 15.4 15.4 15.4
Tangible assets 786.0 963.6 1,254.3 1,393.7 1,359.7 1,587.0 1,650.8 1,693.1 1,696.6
Financial assets 8.9 22.7 21.2 19.5 13.6 33.1 33.1 33.1 33.1
Associates 21.3 18.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Working capital requirement 762.9 573.1 831.0 1,106.4 1,371.6 1,432.7 1,750.3 1,957.4 2,019.7
WCR as a % of sales 38.8 31.3 33.1 37.8 33.9 33.9 30.5 29.0 31.0
Capital employed 1,587.1 1,586.5 2,179.6 2,534.7 2,824.7 3,137.2 3,518.6 3,768.0 3,833.7
Acerinox 17
CHEUVREUX SPAIN
Acerinox
FY to 31/12 (Euro) 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E
Per Share Data (at 24/11/2006)
EPS before goodwill 1.23 0.36 0.67 0.48 1.19 0.59 1.95 2.61 2.02
% Change 129.3% -70.7% 85.3% -28.5% 149.7% -50.4% NS 33.9% -22.7%
EPS, reported 1.23 0.36 0.67 0.48 1.19 0.59 1.95 2.61 2.02
% Change 129.3% -70.7% 85.3% -28.5% 149.7% -50.4% NS 33.9% -22.7%
Goodwill per share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Dividend per share 0.27 0.27 0.29 0.29 0.35 0.35 0.50 0.65 0.65
Cash flow per share 1.68 0.77 1.13 0.94 1.76 1.01 2.56 3.29 2.73
% Change 91.8% -54.3% 46.3% -16.2% 86.1% -42.3% 152.3% 28.8% -17.2%
Book value per share 4.9 5.0 5.8 6.0 6.4 7.1 8.4 10.3 11.7
No. of shares, adjusted 236.958 240.000 263.200 263.200 263.200 259.500 259.500 259.500 259.500
Av. number of shares, adjusted 234.281 240.000 263.200 263.200 263.200 261.350 259.500 259.500 259.500
Treasury stock, adjusted 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Share Price [Adjusted]
Latest price 8.13 9.39 8.75 9.35 11.81 12.29 20.04 20.04 20.04
High 11.75 9.59 11.23 10.04 11.95 13.85 20.58 - -
Low 7.28 5.43 7.51 7.72 8.70 10.53 10.75 - -
Average price 9.03 8.42 9.62 8.95 10.68 11.82 14.25 - -
Market capitalisation 1,903.5 2,253.0 2,302.3 2,459.6 3,108.4 3,212.0 5,200.0 5,200.0 5,200.0
Enterprise value 2,183.4 2,479.0 2,778.8 3,014.9 3,985.1 4,008.8 6,127.3 5,863.4 5,501.0
Valuation
P/E 6.6 26.1 13.1 19.6 9.9 20.8 10.3 7.7 9.9
P/E before goodwill 6.6 26.1 13.1 19.6 9.9 20.8 10.3 7.7 9.9
P/CF 4.8 12.2 7.8 9.9 6.7 12.1 7.8 6.1 7.4
Attrib. FCF yield [%] NS 4.6 NS NS 0.5 NS 2.7 8.1 9.8
P/BV 1.7 1.9 1.5 1.6 1.8 1.7 2.3 1.9 1.7
Enterprise value / Op CE 1.4 1.6 1.3 1.2 1.4 1.3 1.8 1.6 1.5
Yield [%] 3.3 2.9 3.3 3.1 3.0 2.8 2.5 3.2 3.2
EV/EBITDA, restated 4.3 11.8 6.8 9.7 6.3 9.6 6.5 4.7 5.5
EV/EBITA, restated 5.4 22.5 9.4 17.2 7.9 15.5 7.2 5.3 6.5
EV/Sales 1.11 1.35 1.11 1.03 0.98 0.9 1.1 0.9 0.9
EV/Debt-adjusted cash flow 5.4 12.9 8.3 12.6 8.0 13.7 8.7 6.5 7.4
Financial Ratios
Interest cover NS 10.8 9.6 NS NS 8.6 NS NS NS
Net debt/Cash flow 0.6 1.2 1.2 2.6 1.5 3.1 1.2 0.6 0.2
EBITDA margin [%] 26.1 11.4 16.3 10.6 15.7 9.8 16.4 18.6 15.4
EBITA margin [%] 20.7 6.0 11.7 6.0 12.4 6.1 14.7 16.4 13.0
Net margin [%] 14.8 4.7 7.4 4.1 8.2 3.6 9.2 10.5 8.5
Capital turn [Sales/ Op. CE] 1.3 1.2 1.2 1.2 1.4 1.4 1.6 1.8 1.7
Gearing [%] 20.6 17.7 20.6 37.0 34.7 40.4 32.5 16.7 3.2
Payout ratio [%] 22.0 75.0 43.5 60.8 29.4 59.2 25.7 24.9 32.3
Return [%]
Pre-tax RoCE 26.1 7.1 13.6 7.0 17.9 8.3 24.2 29.7 22.7
RoCE after tax 19.1 5.4 9.8 4.9 17.9 8.3 24.2 29.7 22.7
ROE [%] 26.8 7.1 11.6 7.9 19.2 8.3 22.6 24.5 17.7
Return on equity, restated 26.8 7.1 11.6 7.9 19.2 8.3 22.6 24.5 17.7
Acerinox 18
CHEUVREUX SPAIN
Important Disclosures
Applicable disclosure clauses
Company Closing Price Rating Disclosures

Acerinox EUR20.04 3/Underperform E
A - One or more companies in the Crédit Agricole S.A. group owned more than 1% of the total issued share capital of the Company as of the
B - One or more companies in the Crédit Agricole S.A. group owned more than 5% of the total issued share capital of the Company as of the
C - The Company owned more than 5% of the total issued share capital of Crédit Agricole SA as of the end of the second most recent month
preceding the publication date of this report.
D - One or more companies in the Crédit Agricole S.A. group held, as of the end of the second most recent trading day, a net sales position
higher than 1% of the total issued share capital of the Company.
E - The trading portfolio of one or more companies in the Crédit Agricole S.A. group contained shares of the Company as of the end of the
second most recent trading day.
F - Crédit Agricole Cheuvreux and/or a company in the Crédit Agricole S.A. group is a market maker or a liquidity provider for the financial
instruments of the Company.
G - Calyon and/or a company in the Crédit Agricole S.A. group has been involved within the last three years in a publicly disclosed offer of or
on financial instruments of the Company.
H - Calyon and/or a company in the Crédit Agricole S.A. group has concluded or is party to a non confidential agreement relating to the
provision of investment banking services (except publicly disclosed offers mentioned under G) to the Company during the past 12 months
or that has given rise during the same period to the payment of compensation or to the promise to get a compensation paid.
I- This research has been communicated to the Company and following this communication, its conclusions have been amended before its
dissemination.
J - A director or a board member of the Crédit Agricole S.A. group is an officer, director, or board member of the Company.
Specific disclosure clauses
None.
Cheuvreux's rating and target price system
Ratings are built for a 6 to 12 month time horizon.

1/ Selected List Expected to outperform the market and is in our country selected list
2/ Outperform Expected to outperform the market
3/ Underperform Expected to perform at best in line with the market
4/ Sell Expected to underperform the market substantially
No Rating or Suspended The investment rating and target price have been suspended . Such suspension is pursuant to
Cheuvreux's policy in circumstances when Cheuvreux's parent company, Calyon, is acting in an
advisory capacity in a merger or strategic transaction involving this company or when Calyon or
Crédit Agricole has a beneficial interest in this company and in certain other circumstances.
Target price methodology Cheuvreux's target prices are derived from one or more of the following methodologies : DCF,
SOP, peer comparison and EVA.
Quote definitions Unless specified, all quotes that appear on Institutional research reports are closing prices the
last business day.
Acerinox 19
CHEUVREUX SPAIN
Breakdown by rating category (as at 30/06/2006)
400
350
Number of companies
300
in each category
250
200
150 Number of companies

in each rating having
100 received Calyon
investment banking
50 services within the last
12 months
0
1/Selected List 2/Outperform 3/Underperform 4/Sell
Share price trend and dates of changes in rating Dates of changes in target price and/or rating
and/or target price
N° Date Rating Target

price
19.43 1 06/03/2006 2/Outperform EUR14.50
2 11/07/2006 EUR16.10
18.43
3 26/07/2006 EUR17.50
17.43 4 04/10/2006 1/Selected List EUR19.60
5 28/11/2006 3/Underperform EUR21.80
16.43
6
15.43
14.43
13.43
1
12.43
03/06 06/06 09/06
Share price Rating change Target price change
Local regulatory authorities
Country Cheuvreux legal entity Regulatory authority

France Crédit Agricole Cheuvreux SA Autorité des Marchés Financiers (AMF)
Germany Crédit Agricole Cheuvreux Niederlassung – Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin)
Frankfurt Branch
Italy Crédit Agricole Cheuvreux Italia SIM SpA Commissione Nazionale per le Societa e la Borsa (Consob)
The Netherlands Crédit Agricole Cheuvreux - Amsterdam Branch Autoriteit Financiële Markten (AFM)
Spain Crédit Agricole Cheuvreux Espana SV SA Comisión Nacional del Mercado de Valores (CNMV)
Sweden Crédit Agricole Cheuvreux Nordic AB Finansinspektionen
Switzerland Crédit Agricole Cheuvreux - Zurich Branch Swiss Federal Banking Commission (SFBC)
United Kingdom Crédit Agricole Cheuvreux International Ltd Financial Services Authority (FSA)
Acerinox 20
R ESEARCH & D ISTRIBUTION C ENTRES
B ENELUX
C RÉDIT A GRICOLE C HEUVREUX – A MSTERDAM B RANCH
H O NTH OR STST RAA T 9
1071 DC A M ST E R D A M
T E L : +31 20 573 06 66
F AX : +31 20 672 40 41
F RANCE
C RÉDIT A GRICOLE C HEUVREUX S.A.
9, Q U A I P A UL D O U M E R
92400 C OU RB EVO IE
T E L : +33 1 41 89 70 00
F AX : +33 1 41 89 70 05 D ISTRIBUTION C ENTRES
G ERMANY
C RÉDIT A GRICOLE C HEUVREUX – F RA NKFURT B RANCH J APAN
M ESS E T UR M - F R IE D RI CH -E B E RT -A N LA G E 49 C HEUVREUX
D-60308 F RA N KFU R T A M M A I N
C A LY ON C A P IT A L M A R KE T S A S I A B.V., T O KY O B R AN CH
T E L : +49 69 47 897 100
S H IO D O ME S U M IT O M O B U I L D IN G , 15 T H F LO OR
F AX : +49 69 47 897 530
1-9-2 H IG AS HI -S H I MB ASH I
I TALY M INAT O - K U
C RÉDIT A GRICOLE C HEUVREUX I TALIA SIM S. P .A. T O K YO 105-0021
T E L : +81 3 4580 8522
V I A B R E RA 21 F AX : +81 3 4580 5534
20121 M I LA N
T E L : +39 02 80 62 83 00 U NITED S TATES
F AX : +39 02 86 46 15 70 C RÉDIT A GRICOLE C HEUVREUX N ORT H A MERICA , I NC .
S PAIN N E W Y OR K
C RÉDIT A GRICOLE C HEUVREUX E SPAÑA S.V. S.A. 1301 A V E NU E OF T H E A ME R ICA S
15TH F L OO R
P ASE O D E L A C A ST E LL ANA 1 N E W Y OR K , NY 10019
28046 M A DR I D T E L : +1 (212) 492 8800
T E L : +34 91 432 78 21
F AX : +34 91 432 75 13
Fax: +1 (212) 492 8801
S WEDEN S AN F RAN C IS CO
C RÉDIT A GRICOLE C HEUVREUX N ORD IC AB O NE M A R KE T
S PEAR T O WE R , S U IT E 1610
R EGER ING SG ATA N 38
S AN F RAN C IS CO , CA 94105
10393 S TOC K HO L M
T E L : + 1 (415) 543.3111
T E L : +468 723 5100
F AX : + 1 (415) 618.0821
F AX : +468 723 5101
S WITZERLAND
C RÉDIT A GRICOLE C HEUVREUX – Z URICH B RA NCH
B AHN HOF STR ASS E 18
8001 Z UR ICH
T E L : +41 44 218 17 17
F AX : +41 44 212 25 50
U NITED K INGDOM
C RÉDIT A GRICOLE C HEUVREUX I NT ERNATIONAL L IMITED
8 TH F L O OR
122 L E A D E N HA LL S T RE E T
L ON D ON EC3V 4QH
T E L : +44 207 621 5100
F AX : +44 207 621 5101
Copyright © Crédit Agricole Cheuvreux, 2006. All rights reserved

This research report or summary has been prepared by Crédit Agricole Cheuvreux or one of its affiliates or branches (collectively “CA Cheuvreux”) from information believed to be reliable. Such information has not been independently verified
and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Any opinions or estimates expressed herein reflect the judgment of CA Cheuvreux at this date and are subject to
change at any time without notice. Unless otherwise stated, the information or opinions presented, or the research or analysis upon which they are based, are updated as necessary and at least annually. Not all strategies are appropriate at all
times. Past performance is not necessarily a guide to future performance. Independent advice should be sought in case of doubt. In any event, investors are invited to make their own independent decision as to whether an instrument is
proper or appropriate based on their own judgment and upon the advice of any relevant advisors they have consulted. CA Cheuvreux, Calyon and their affiliates may effect transactions in the securities described herein for their own account
or for the account of others, may have positions with the issuer thereof, or any of its affiliates, or may perform or seek to perform securities, investment banking or other services for such issuer or its affiliates. The organisational and
administrative arrangements established by CA Cheuvreux for the management of conflicts of interest with respect to investment research are consistent with rules, regulations or codes applicable to the securities industry. These
arrangements can be found in CA Cheuvreux’s policy for managing conflicts of interest, available at www.cheuvreux.com. Current research disclosures regarding companies mentioned in this report are also available at
www.cheuvreux.com.
This report is provided for information purposes only. It is not intended as an offer, invitation or solicitation to buy or sell any of the securities described herein and is intended for use only by those professional investors to whom it is made available by
CA Cheuvreux. To the extent permitted by applicable securities laws and regulations, CA Cheuvreux accepts no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents.
The delivery of this research report to U.S. persons in the United States of America is made by and under the responsibility of Crédit Agricole Cheuvreux North America, Inc. (registered with the SEC). This research report is only intended
for persons who qualify as Major U.S. Institutional Investors, as defined in Securities Exchange Act Rule 15a-6, and deal with CA Cheuvreux. However, the delivery of this research report or summary to any U.S. person shall not be
deemed a recommendation of Crédit Agricole Cheuvreux North America, Inc. to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. Crédit Agricole Cheuvreux North America,
Inc. may furnish upon request all investment information available to it supporting any recommendations made in this research report. All trades with U.S. recipients of this research shall be executed through Crédit Agricole Cheuvreux
North America, Inc. In the United Kingdom, this report is approved and/or distributed by Crédit Agricole Cheuvreux International Ltd (authorised and regulated by the Financial Services Authority (“FSA”)) and is directed at Market
Counterparties and Intermediate Customers (as defined in FSA Rules). As such, the investments referred to herein are only available to such persons. This report is not for distribution to Private Customers and investments mentioned in this
report will not be available to such persons. In Italy, this report is approved and/or distributed by Crédit Agricole Cheuvreux Italia SIM S.p.a. (regulated by CONSOB) and is not intended for circulation or distribution either to the public at large
or to any other parties other than professional investors, as defined in Art. 100 of decree law No. 58 of 24 February 1998 and in Art. 31 of CONSOB Resolution No. 11522 of 1 July 1998 and later amendments. In Spain, any decision by the
recipient to buy should be taken bearing in mind the existing public information on each stock, or, if applicable, the stock exchange prospectus registered in the CNMV (National Securities Market Commission). In Germany, this report is
approved and / or distributed by CA CHEUVREUX SA NIEDERLASSUNG DEUTSCHLAND regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)).
THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE,
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CA Cheuvreux.

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MÁSTER UNIVERSITARIO EN

ESTRATEGIA AVANZADA. CASOS DE

 David de Pastors Pérez

©: Caso realizado por David de Pastors Pérez, MBA Internacional (EOI).

ANNEX IV (Group Balance Sheets and Income Statements)___________________33

ANNEX V (Simplified Process for Making Stainless Steel)____________________35

THE COLUMBUS OPPORTUNITY______________________________________37

The main characteristics of the product are the following:

• The product is highly standardised on an international level.

International production of stainless steel reached about 17 million tonnes in

Production of Stainless Steel (year 1999)

Source.-- Metal Bulletin Researchnº 90 February 2001.

CONSOLIDATING INDUSTRY STRUCTURE

Main producers of stainless in Europe Main producers of stainless steel worldwide

ARCELOR Acerinox Acerinox

Fuente.- CRU Monitor Marzo 2001.

Of all these competitors, only a few of them (ACERINOX and AVESTA in

The origins of ACERINOX

ACERINOX arose out of a joint venture agreement between two Japanese

The structure of ACERINOX at the beginning of the XXI Century

ACERINOX was a business group comprising a total of 28 companies all over

• ACERINOX, S.A. Production of stainless steel flat products. Based in

Sales by the ACERINOX Group in 1999

Acerinox North American Stainless

Source - Memoria anual deACERINOXdel año 1999.

• 1970 - Creation of ACERINOX, S.A.

Company strategy and philosophy

With regard to strategy, ACERINOX can be considered to have maintained the

Efficiency in production processes

Since its foundation in 1970, ACERINOX always sought to achieve efficient

In order to maximise efficiency levels, from the start ACERINOX decided to

Year of start-up Million

Stage 8 Extension of hot rolling mill and Improvements to 1996 5,007

By implementing the investment plan mentioned above, the capacity of each of

Producción Fábrica de Campo de Gibraltar

Acería Laminación en Caliente Laminación en Frío

Its obsession with constant improvement of production processes, together with

Trends in production costs in the Palmones plant

Fuente. - Presentaci ón de Resultados de ACERINOX Tercer Trimestre A ño 2000.

Sales in foreign markets (millions of pesetas)

Distribution of Foreign Sales 1999

The following can be described as the main stages of internationalisation for

3. Creation of subsidiaries and branch offices in foreign countries. The need to

In addition to the branch offices, it created service centres in a number of

• Participation in MEXINOX. In 1990, the decision was taken to take a

Melting shop capacity 800,000 tonnes/year

Vertical integration and Horizontal diversification

This objective of concentrating on stainless steel is one of the company’s

With regard to horizontal diversification, the company’s commercial strategy has

With a view to improving “everything that can be improved to raise

This objective of controlling expenditure determined that the company’s

Net worth of ACERINOX (millions of euros)

Fuente. - Memoria Anual de ACERINOX S.A. ño 1999

Commitment to the company

The company’s human resources management is another of the factors that

• The hierarchical structure of the organisation is limited in order to facilitate

However, and as is usual in companies with such a highly-experienced

TOWARDS THE XXI CENTURY

The company’s current situation

Facing up to the future

For a number of months, in their regular weekly meetings the management

Globalisation and International coordination

The concept of market globalisation is not a new one in sectors such as

As in other areas, ACERINOX was a pioneer in the international coordination of