cumerio annual report 2006
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ÂTRANSCRIPT
LOOKINGFORWARD
ANNuALREPORT2006
CumerioBroekstraat31RueduMarais1000Brussels,Belgium
T:+3222271222F:[email protected]
AN
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6
E
Content
Message to the shareholders 2
Key figures 4
Strategy 6
Key profitability drivers 8
Copper market 10
Copper Refining 12
Copper Products 16
Sustainability 20
Investor relations 32
Executive Committee 36
Board of Directors 38
Financial review 40
Glossary financial definitions 42
Financial statements 44
Corporate governance 85
DIVIDENDS
If the appropriation of profit pro-posed is approved, a gross dividend of €0.70 per share will be paid for the financial year 2006 representing:
• a net dividend of €0.525 after de-duction of a 25% withholding tax on presentation of coupon n° 3
• a net dividend of €0.595 after deduction of a 15% withholding tax on presentation of coupon and VVPR strip n°3.
From 27 April 2007 on, payment of dividends on presentation of coupon n°3, and VVPR strip if applicable, at the registered offices and branches of the following institutions :
• Fortis Bank • ING • Bank Degroof • Dexia Bank • KBC Bank • Petercam
ADDITIONAL INFORMATION
LISTINg
Eurolist on Euronext Brussels
ANNuAL REpORT
This English version is the basic version. This report is also available in French and Dutch.
INTERNET
The full report can be downloaded on www.cumerio.com
REgISTERED OFFIcE
CumerioBroekstraat 31 Rue du Marais1000 Brussels - BelgiumT : +32 2 227 12 22F : +32 2 227 12 [email protected] Number: 0401574852VAT nr: 873.533.993
pubLIShER RESpONSIbLE AT LAw
CumerioMedia & Investor RelationsFrank Vandenborre
REALIzATION, cONcEpT AND LAy-OuT
The CrewCentral Gate 7th floorCantersteen 471000 Brussels - BelgiumT : +32 2 504 00 00F : +32 2 657 30 [email protected]
EDITINg
Forte cvbaEffective Industrial MarketingVoskenslaan 97d9000 Gent - BelgiumT : +32 9 244 76 76F : +32 9 244 76 75 phOTOgRAphS
Benny De Grovewww.benny-degrove.com
Courtesy of LME
pRINTINg
JNP Printing
IntroductIon LookIng forward
Cumerio is a Belgian company that originated from Umicore’s copper activities in 2005.
The company is listed on Euronext Brussels since 29 April 2005 and has grown to
become one of the leading companies in smelting, refining, recycling, and transformation
of copper in Europe. It supplies the European market with copper cathodes and products
such as wire rod, wire, specialty rod, and profiles, cakes, and billets.
In 2006, Cumerio generated a recurring EBIT of €93.8 million, corresponding
to a return on capital employed of 18.2%. Today, the company employs 1,453 peo-
ple. It operates a copper smelter and refinery in Bulgaria and a refinery and
copper products facility in Belgium. The company also produces wire rod and wire in
Italy, Europe’s largest wire rod market and holds a majority stake in Swiss Advanced
Materials (SAM), a Swiss-based producer of complex profiles.
Cumerio’s strategy focuses on growth. Early 2006, Cumerio decided to
expand its smelting capacity and to build a new state-of-the-art refinery in
Bulgaria. Cumerio is also looking for growth via acquisitions, mainly in copper
products in the higher growth markets, such as South-East Europe.
� Message to the shareholders
2006 a grand cru yearThe year 2006 was an outstanding one for Cumerio. Results show a sharp improvement
compared to the already excellent 2005 start-up year. We can all be proud of this
achievement. It was a year helped on one hand by the interesting commercial conditions
regarding concentrates, scrap materials, and cathodes.
On the other hand, it was a challeng-ing one in the context of increasing energy costs and continued high copper prices. More importantly, our strategy of low cost operator and the addressing of new, high growth markets proved to be the right one. Cumerio increased its 2006 cop-
per sales to the emerging markets around the Black Sea by 24%. All of these achievements are reflected in excellent 2006 results. With a recurring EBIT of €93.8 mil-lion, Cumerio exceeded its own guid-ance and surpassed the 2005 figures by 36%. The net recurring consoli-
dated profit ended up at €70.4 million, 46% higher than the previous year. Return On Capital Employed (ROCE) finished at an outstanding 18.2%, despite significantly higher working capital needs, mainly caused by the higher copper prices.
a decIsIve year for copper refInIng
The most important corporate decision was without doubt the launch of the expansion plan for our Pirdop site. Located next to Bulgaria’s copper mines and benefiting from a low cost operational environment, it is the ideal production location for base metals like copper. Based in the Black Sea region, it makes a natural bridgehead for addressing the high growth markets for copper in South-East Europe.
A €12 million investment in the smelter will increase its annual output by 15% as from mid 2007. This smelter upgrade will coincide with the planned 55-day general overhaul in the second quarter of 2007.
Since developing copper markets need copper cathodes, Cumerio is investing €70 million in a new state-of-the-art refinery in Bulgaria. It will deliver 180,000 tonnes of cathodes annually to the market, bringing Cumerio’s total annual cathodes output to over 520,000 tonnes. Start-up is foreseen in the second quarter of 2008.
Better voLumes for copper products
The Copper Products business unit benefited from improved sales volumes. Unfortunately, the high copper prices also put a strain on working capital requirements and resulted in a low ROCE figure.
The acquisition of a majority stake in Swiss Advanced Materials (SAM) is a strategic reinforcement for the business unit. It will further enhance our ability to address very demanding copper applications.
cumerIo’s growth rewarded By sharehoLders
Cumerio realized an 18.5% increase in share price for 2006. This improvement reflects the investment community’s confidence in Cumerio’s business story. The company adheres to proactive and transparent communication with shareholders and financial analysts. These efforts have been rewarded by the Belgian financial community: as best communication in the mid-cap segment and as best investor relations.
vaLues and peopLe matter!
Any company strategy has to be supported and carried forward by a strong organization and more specifically by competent people. In the course of 2006, focusing on its future growth, Cumerio further strengthened its organization by hiring a number of senior managers for key positions and some young professionals.
A set of common values indicates the social, environmental, and ethical criteria for management. A new Code of Ethics has been instituted in 2006, ensuring compliance as a responsible corporation. Cumerio’s commitment to sustainable development is also expressed in a number of actions and investments in environmental protection, recycling, employee development, and community rela-tions. It receives a specific focus in this annual report.
2007, a posItIve and decIsIve year!
In February, Cumerio issued guidance for 2007 with recurring EBIT that exceeded by far all analysts’ expectations. This is the result of a better cathode producer premium and an improved outlook for the Copper Products business unit, partly compensating for a cyclical downturn in treatment and refining charges and a less interesting €/US$ exchange rate.
On the operational side all eyes will be fixed on the general maintenance shutdown in Pirdop, Bulgaria and the related investments for capacity extension. Despite this, Pirdop will produce 230,000 tonnes of anodes, only slightly below the 2006 figure.
Strategically, Cumerio will look for future growth opportunities along the copper value chain and in emerging markets. This will continue the company’s track record beyond the current organic growth initiatives in Bulgaria.
Finally, it is clear that Cumerio’s success and future is founded on the dynamism, competency, and motivation on the part of all its employees. We expressly thank each and every one for their efforts, their continued trust in copper, and the results that were derived from it. With them, we feel confident about taking the next significant step for strategic growth.
Luc Delagaye
Chief Executive Officer
Karel Vinck
Chairman
� loreM� Key figures
(€ million) 2004 2005 2006
Turnover 1 524.8 1 965.6 3 395.3Revenues (excluding metals) 208.6 275.3 318.4
EBIT - Recurring 19.7 69.1 93.8EBIT - Non-Recurring - (5.4) 1.8EBIT - IAS 39 effect - 1.2 3.3EBIT - Total 19.7 64.9 98.9Recurring EBIT margin % 9.4% 25.1% 29.5%
Net consolidated profit (loss), Group share 15.5 42.7 72.5Net consolidated profit (loss) before 9.1 48.1 70.4non-recurring items and IAS 39 effect, Group share
EBITDA - Recurring 49.5 100.8 132.4
Capital Expenditure 19.3 17.3 48.5Cash Flow before Financing 19.6 83.1 (32.5)Consolidated net financial debt (end of period) 119.7 62.8 131.9
Net debt / (Net debt + Equity) (end of period) % 28.9% 15.6% 24.8%
Capital Employed (end of period) 413.0 398.6 522.9Return on Capital Employed (ROCE) % 4.0% 17.2% 18.2%
Total shares outstanding (end of period) na 25 702 075 25 702 075
EPS declared (€/share) - basic 0.60* 1.66 2.84EPS adjusted (€/share) - basic 0.35* 1.87 2.75
Workforce (end of period) 1 553 1 513 1 453
Figures for 2005 recasted to reflect the implementation of IAS 19 - * Based on the numbers of shares outstanding at 29 April 2005
Contribution to reCurring ebit
(€ million) 2004 2005 2006
Copper Refining (1) 14.5 66.9 93.2Copper Products (2) 5.3 5.7 8.2Unallocated (3) (0.1) (3.5) (7.6)
TOTAL 19.7 69.1 93.8Figures for 2005 recasted to reflect the implementation of IAS 19
(1) Includes the smelting and refining operations in Bulgaria and Belgium (2) Includes the production of wire rod, specialty rod, shapes and wires in Belgium and Italy. It also includes the production of complex
copper profiles in Switzerland (SAM)(3) Includes mainly corporate costs
25
20
15
10
share PriCe evolution
€ 18.20 +18.49%
€/share
0 50000 100000 150000 200000 250000 300000
Jan 06
Monthly average trading voluMes
Feb 06
Mar 06
Apr 06
May 06
June 06
July 06
Aug 06
Sep 06
Oct 06
Nov 06
Dec 06
0 50 000 100 000 150 000 200 000 250 000 300 000
274 844
243 326
219 745
208 583
277 717
159 130
63 492
145 503
83 560
154 937
113 204
76 260
01/01/06 28/02/06 29/04/06 28/06/06 27/08/06 26/10/06 29/12/06
� strategy
Construction new refinery in Pirdop, Bulgaria
The company aims to achieve growth by following its four strategic pillars:• Maintain and improve operational
excellence• Secure long-term supply of copper
concentrates and strive for further diversification of feeds
• Expand refining activities• Establish copper products activities
in emerging markets and focus on more added-value products
maIntaInIng and ImprovIng operatIonaL exceLLence
Its continuous strive for operational excellence enables Cumerio to produce at low cost. This is a key competitive factor to remain at the top in a commodity business such as the base copper production industry.Cumerio’s smelting operations in Bulgaria rank fourth worldwide
in terms of direct cash production costs. It achieved this position thanks to:• The state-of-the-art Flash smelting
technology• The significant investments since
the acquisition of the plant in 1997, mainly in modernizing and opti-mizing the processes
• The advantageous labour and en-ergy cost
• The presence of highly skilled staff, specifically knowledgeable in pro-cess and supply optimization.
LookIng forward, BoostIng growthState-of-the-art assets, financial stability, early presence in emerging markets, and full flex-
ibility. Cumerio holds all the right cards to further deploy its strategy: focus on growth,
both organically as through acquisitions and partnerships. The company has set out four
strategic pillars for realizing the company’s growth ambitions.
In February 2006, Cumerio has announced more investments in Bulgaria to further improve opera-tional efficiency. The construction of a new refinery will triple the capacity of the current one and position it as a worldwide cost leader, just like the smelter. In addition, the de-bottle-necking of the smelter will increase its efficiency and expand annual capacity to 275,000 tonnes.
In the late nineties, Cumerio also invested in a totally new refinery in Olen, Belgium, equipped with state-of-the-art FSD (Full Size Deposit) technology. This together with the substantial metallurgical expertise available in the company, enabled the Belgian plant to operate at full capacity, disregarding changing supply sources.
Operational excellence also trans-lates in financial performance. In that context, Cumerio endeavours to further optimize its use of working capital and proactively manages its components: inventories and pay-ment terms.
Long-term suppLy securIty and more dIversIfIcatIon of feed
Cost excellence in the copper busi-ness is only possible if production, in particular the smelting and refining operations, runs smoothly. Cumerio has to guarantee a continued inflow of supply since any interruption has an almost immediate substantial negative impact on cost. For this reason, Cumerio holds a diversified portfolio for its supply of concen-trates, anodes, scrap, and cathodes and has negotiated long-term sup-ply contracts. This enhances stability and provides also a solid base for Cumerio’s growth strategy.
Cumerio’s smelter location, next to two important Bulgarian mines, is also an important factor in securing a stable supply. Today, more than half of Cumerio’s feed comes from mines in
Bulgaria and its surrounding countries. As the only sustainable operation in the region, the Pirdop smelter is the natural hub for these concentrates. It has also developed quite some expertise in treating this gener-ally lower grade material. To the ex-tent possible, Cumerio will further develop sourcing in the Black Sea region. The remaining part of the concentrates is being sourced internationally, mainly from South America.
On the other hand, Cumerio is in-creasing its recycling of copper scrap. In 2006, about one third of the to-tal amount of cathodes produced originated directly or indirectly from scrap.
expandIng copper refInIng actIvItIes
Cumerio’s state-of-the-art refining assets are key for guaranteeing its longer term cost leadership and for remaining profitable. The company’s investments in Belgium in the late 1990s have enabled it to take and maintain a leading position in the Western European market.
In addition, operating modern refining and smelting technology in Bulgaria poses major growth potential as well. It offers vast opportunities to take a leading role in supplying the emerging Black Sea market with high quality copper cathodes. It confirms Cumerio’s local number one posi-tion as copper producer.
The announced investments will increase Cumerio’s smelting and re-fining capacity. The de-bottlenecking of the Bulgarian smelter will increase annual capacity up to 275,000 tonnes as from mid 2007 on. The new state-of-the-art FSD refinery, currently un-der construction, will gradually ramp up Cumerio’s total cathodes output to 520,000 tonnes per year.
more copper and hIgh added-vaLue products In emergIng markets
Cumerio’s Copper Products business unit holds a leading position in West-ern Europe. Although on the longer term it is a rather stagnating market, the focus is to consolidate this po-sition qualitatively, both in terms of market share and profitability.
On the other hand, Western Eu-rope is still an interesting market for copper specialties in specific niche segments. A first move in the direc-tion of high added-value products is the acquisition of Swiss Advanced Materials (SAM), a Swiss producer of complex copper profiles based on specialty rod.
Furthermore, the division is look-ing for real growth opportunities by developing activities in new emerg-ing markets, whereby South-East Europe is of specific interest. All the ingredients are available to set up a products business in that region, preferably via acquisitions.
� Key Profitability drivers
Anode casting in Olen, Belgium
treatment and refInIng charges (tc&rcs)
TC&RCs are the terms obtained from miners to smelt concentrates and refine the resulting anodes. When the market is in oversupply, meaning there are more concentrates avail-able than there is smelting capacity, TC&RCs typically increase. The op-posite will occur in the event of a shortage of concentrates and an ex-cess of smelting capacity.
Cumerio’s short-term sensitivity to TC&RCs is determined by the volume of concentrates used for producing anodes. Based on 2006 figures, each increase/de-
crease of 1 US cent per pound in TC&RCs resulted in an increased/decreased EBIT contribution of approximately US$5 million.
Cumerio has decided to secure most of its future concentrates re-quirements under long-term supply contracts of three to eight years. The TC&RCs applicable under those contracts are negotiated annually. In the concentrates business, there are two main negotiation periods. Some contracts are negotiated at the mid-dle of each year ; while the largest portion is negotiated at the end of each year. This is the so-called ma-ting season. The first negotiations typically take place between miners and Japanese and Chinese smelters.
The resulting TC&RCs are then con-sidered as a benchmark for the in-dustry as a whole.
Cumerio buys more than half of its concentrates feed in the Black Sea region, close to its smelting facil-ity. The resulting logistic advantage has enabled the company to ben-efit from higher effective TC&RCs than the benchmark. This presents Cumerio with a significant com-petitive advantage over its principal European competitors.
Cumerio’s results are driven by a number of external commercial factors. The price of
copper is not a significant driver for Cumerio’s profitability. Treatment and refining charg-
es for copper concentrates, refining changes on scraps. The cathode producer premium,
and the premium for copper products have a greater impact.
cathode producer premIum
The cathode producer premium is the premium charged for LME grade A quality copper cathodes on top of the price for copper. It is the premium at which Chilean cath-odes are sold under annual contracts basis Antwerp or Rotterdam. Euro-pean refiners use this premium as a benchmark.
The producer premium is deter-mined by the balance between supply and demand for copper cathodes. It also reflects transport costs between producers and con-sumers of cathodes.
Since 2004, continued tightness in the availability of cathodes has led to a significant increase in the producer premium: US$115 per tonne in 2005, US$105 per tonne in 2006, and even US$125 per tonne in 2007.
Earnings sensitivity is linked with Cumerio’s annual production volume of cathodes. At current annual production levels of 400,000 tonnes, each US$10 increase/decrease in the premium results in a US$4 mil-lion increase/decrease in Cumerio’s operating results.
refInIng charges (rcs)
RCs are the terms that refiners, such as Cumerio, obtain from suppliers of anodes, blister, and scrap for refining them into copper cathodes. The RCs are driven by the balance between supply and demand for those prod-ucts.
Cumerio purchases anodes, blister, and scrap material to feed its re-finery in Olen, Belgium. The com-pany also sells anodes and blister in Bulgaria as a result of its prevailing shortage in refining capacity. This will change however when the new Pir-dop refinery becomes operational in the second quarter of 2008.
€/us$ currency rate
A considerable portion of Cumerio’s revenues are US$-denominated. Still, most costs are in euro or Bulgarian lev, which is linked to the euro. As a result, Cumerio’s profitability is sensi-tive to the €/US$ exchange rate.
At 2006 average rates and disre-garding any built-in hedges, each US cent increase/decrease in the €/US$ exchange rate led to a decrease/in-crease of Cumerio’s operating results of approximately €1.8 million.
This sensitivity is subject to changes in the level of the €/US$ exchange rate. It also depends on Cumerio’s total US$ exposure. The latter is im-pacted by, among other things, the level of TC&RCs, RCs, and cathode producer premium.
metaL prIces
The copper price is affected by the supply and demand balance for refined copper. When the mar-ket for refined copper is in deficit and demand exceeds supply, the copper price will tend to go up and vice versa.
The copper market has been in deficit since 2004, as evidenced by continued low cathode inventories on the main metal exchanges. This situation has led to the strongest ral-ly in copper prices since the 1970s.
The price for copper has limited impact on Cumerio’s profitabil-ity compared with TC&RCs and the cathode producer premium. The sensitivity is a result of several fac-tors, including the price participation clauses in copper concentrates con-tracts, the rather positive impact that copper prices have on the availability of and terms for copper scrap, and the existence of metal surpluses.
• Price participationPrice participation is one of the side clauses in contracts between miners and smelters whereby both parties agree to share part of the benefit or loss that results from a copper price which exceeds or falls below an agreed upon level. Cumerio has generally benefited less from price participation than many of its competitors. Most of its contracts were negotiated in the late 1990s at a time when copper prices were extremely low.
• Refining charges on copper scrapRefining charges on copper scrap are the terms obtained from scrap suppliers to compensate for the necessary costs from refining scrap material into cathodes. When cop-per prices increase, the availability of secondary copper tends to rise as well, leading to higher refin-ing charges. About one third of the feed for Cumerio’s refinery in Olen, Belgium, originates directly or indirectly from copper scrap.
• Metal surpluses Contracts for raw materials take into account the fact that some metal is lost during the metallur-gical phase, for instance in slags. A strict and efficient process con-trol can reduce these losses and generate metal surpluses. The value of these surpluses will increase as metal prices rise. This applies mainly to copper, gold, and silver.
Increasing copper prices also lead to increasing working capital require-ments and reversely.
CoPPer MarKet10
an unexpected shIft on the copper market
Contrary to general expectations, the copper price did not reach its peak in 2005. The price for copper continued its upward trend to reach a record new level in May 2006 close to US$8,800 per tonne. The price remained very high throughout the rest of the year. In addition, copper inventories were very low on all of the metal exchanges.
During the last quarter of 2006, the copper market was sending mixed signals. The price for copper star ted to decrease slightly and the inventories on the London Metal Exchange (LME), Comex, and Shanghai Metal Exchange picked up. This evolution was triggered by the expectation of a weaken-ing economy in 2007, a sentiment nourished by the figures on the US housing market that have already given rise to fund liquidation and short selling.
At the close of the year, publicly held inventory had more than doubled compared to 2005, up to 225,000 tonnes. This is still only five days of world consumption. Moreover, most of the inventories are situated in Asia and the US.
Given these evolutions, the pressure on short-term demand relieved and copper forward prices gained ground on the copper cash prices.
record copper prIces In a contInued tIght marketIn 2006, the price for copper rallied further to reach new historical highs, while publicly
held copper inventories remained low. During the second half of the year, however,
the situation changed and the copper market shifted from backwardation to contango.
Nevertheless, supply remained tight and demand increased worldwide.
Codelco’s El Teniente underground mine, Chile
800
700
600
500
CoPPer PriCes vs Metal exChange inventories
400
300
US$/tonne
200
100
0
10 000
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
’000 tonnes
Since November 2006, the cash-to-three-months difference turned from a situation of backwardation into one of contango, one where the forward price is higher than the cash price for copper.
copper market remaIned tIght
Over the past year, mining compa-nies were not capable of meeting worldwide demand. A number of supply disruptions, among other things, was one of the main reasons for this. Operational difficulties such as the tunnel collapse in Chuquicamata, Chile, the temporary production stop in the Indonesian Grasberg mine, and some logistic issues had an immediate effect on worldwide supply in 2006.
On the other hand, labour negotia-tions did not affect the supply side as much as expected. Apart from the mine strike in Escondida, Chile, other negotiations on new collective labour agreements did not cause for supply disruptions.
worLdwIde Increase of copper consumptIon
Worldwide consumption of copper was up by 3.4% compared to 2005, according to Brook Hunt figures. Western Europe performed ex-tremely well with a 7% increase.
The US, South Korea, and China did not meet the expected consump-tion levels. China, however, remains
an important driver for world-wide consumption of copper. Their yearly consumption of four million tonnes still represents around 22% of the worldwide total. But China’s appetite for refined copper was par-ticularly subdued over the balance of the year. This was reflected in a sharp decline of its refined copper imports, a drop of more than 25% compared to 2005. The main reasons are the more stringent import policy, local de-stocking at end-product manu-facturers, and the Strategic Reserves Bureau selling important volumes of copper. The increased output from Chinese mines also lowered the need for import.
01/01
/04
25/03
/04
17/06
/04
09/09
/04
02/12
/04
24/02
/05
19/05
/05
19/05
/05
11/08
/05
03/11
/05
30/01
/06
24/04
/06
æ LME+Comex stocks
æ Cu-price Cash
æ Cu-price 3 m
17/07
/06
29/12
/06
Copper price:• Maximum: US$8,788
per tonne on 12 May• Average: US$6,727
per tonne• Closing: US$6,290
per tonne
Exchange inventory (LME + Comex):• Maximum: 217,000 tonnes
on 31 December• Minimum: 94,000 tonnes
on 2 January• Average: 138,000 tonnes
copper market hIghLIghts
Key figures - business unit CoPPer refining
(€ million) 2004 2005 2006
Turnover 1 137.0 1 482.6 2 572.0Revenues (excluding metals) 146.1 214.0 246.4EBIT - Recurring 14.5 66.9 93.2EBIT - Non-Recurring - (3.8) 1.8EBIT - IAS 39 effect - 1.1 2.5EBIT - Total 14.5 64.2 97.5Recurring EBIT margin % 9.9% 31.3% 37.8%EBITDA - Recurring 38.8 94.1 123.5Capital Expenditure 14.5 12.2 40.5Capital Employed (end of period) 306.8 277.4 316.3ROCE % 4.0% 22.6% 32.2%Workforce (end of period) 1 192 1 149 955
Figures for 2005 recasted to reflect the implementation of IAS 19
1� CoPPer refining
contInuousLy ImprovIng profItaBILIty2006 was a strong financial year for Cumerio’s Copper Refining unit, reflected in an
EBIT of €93.2 million and a Return On Capital Employed (ROCE) of 32.2%. This is the
result of continued excellent operational performance in both smelting and refining and
beneficial external conditions. The year was also marked by Cumerio’s investment
decision to further strengthen its position in the promising Black Sea Region.
400
300
200
100
02002
181213
227 240 239
114106 97
113 103
anodes ProduCtion
2003 2004 2005 2006
æ Pirdop æ Olen*
*Anodes produced from blister copper and copper scrap.
’000 tonnes
500
400
300
200
100
02002
318 325 343 341 34341 46 55 60 65
Cathodes ProduCtion
2003 2004 2005 2006
æ Olen æ Pirdop
’000 tonnes
copper productIon In LIne wIth 2005
During 2006, Cumerio’s smelter in Bulgaria produced a total of 238,500 tonnes of copper anodes. In the first half of the year, the smelter in Pirdop, Bulgaria, was temporarily shut down for some necessary maintenance. This intervention has not significantly affect-ed the full-year production of anodes, which was only slightly lower than in 2005. The plant in Olen, Belgium, produced 103,000 tonnes of anodes out of scrap and blister material.
The company’s refining installations in Bulgaria and Belgium combined for a total production of 408,000 tonnes of copper cathodes. The Pirdop refinery produced a total of 65,500 tonnes of copper cathodes, about 8% more than the year before. Cath-ode production in Belgium was again at full capacity with 342,600 tonnes.
1� loreM
favouraBLe condItIons for treatment and refInIng charges
Year 2005 ended with a surplus of copper concentrates on the market. This led to an increase of contract-ed treatment and refining charges (TC&RCs) in 2006. In addition, Cumerio was able to benefit from higher levels of price participation (PP) than initially expected, follow-ing contract negotiations during the second quarter.
These favourable conditions amount-ed to a total effective TC/RC/PP of approximately 31 US cents per pound of copper for 2006, exceed-ing the market benchmark of 23.9 US cents. This is primarily the result of price participation and Cumerio’s logistic advantage of being close to the main concentrates suppliers in the Black Sea area.
cathode producer premIum remaIns hIgh
At the close of 2005, the market for copper cathodes was still very tight. As a result, the cathode producer premium for 2006 was set at US$105 per tonne of copper cathode. An excellent operating performance en-abled Cumerio’s refining activities to benefit from such a high premium.
At the close of 2006, the tight situ-ation was expected to continue. This sentiment is reflected in an even higher premium of US$125 per tonne set for 2007.
posItIve contrIButIon from copper cathodes scrap condItIons
Over the past year, certain evolu-tions positively affected Cumerio’s position on the copper scrap mar-ket. A stricter import policy in China led to considerably lower purchase levels of copper scrap compared to 2005. In addition, the continued high copper price supported a good of-fering of copper scrap material. As a result, there was ample supply of secondary copper and recyclers, such as Cumerio, gained a stronger bargaining position. This resulted in improved refining charges for Cumerio on copper scrap.
600
400
200
0
1995
long-terM MarKet tC&rCs* vs CoPPer ConCentrates balanCe
-200
-400
30
20
10
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
18.1
23.1
26.9 26.3
17.3 16.8 19.317.4
15.0
11.0
22.223.9
æ Concentrates balance æ TC&RCs (Japanese long-term in current US$)
Source: Brook Hunt Q4 2006 * Based on 30% copper content
’000 tonnes ¢/lb
annual Cathode ProduCer PreMiuM
120
80
60
40
20
02002
38 38
60
115105
2003 2004 2005 2006
100
US$/tonne
cumerIo seLLs stake In nfI
In December, Cumerio announced the sale of its 8.8% interest in Non Ferrous International (NFI). NFI, through its operating subsidiary Metallo-Chimique, is a leading Euro-pean recycler of non-ferrous ma-terials with operations in Beerse, Belgium and Bilbao, Spain. In the context of the transaction, the non- secured subordinated loan facility granted by Cumerio will be fully repaid, including interests. The transaction is expected to be completed during March 2007. Cumerio and Metallo-Chimique have extended the supply contract until 2015.
further pavIng the way as a trustworthy partner for the BLack sea regIon
Cumerio’s plant in Pirdop, Bulgaria, is a strong bridgehead for fur-ther expansion in the emerging Black Sea market. By starting up two major investment programmes, Cumerio reinforces its presence in the region as an important and reliable cathode supplier.
In 2006, Cumerio has decided to invest €12 million for the de- bottlenecking of the smelter. This project will increase local anodes production up to 275,000 tonnes per year as of mid 2007. Works will start simultaneously with the scheduled maintenance shutdown in the second quarter of 2007. At the same time, the smelter will be prepared for future low-cost expan-sion, without the need of a major shutdown.
Last August, the Bulgarian Prime Minister attended the ground-break-ing ceremony for the construction of a new refinery in Pirdop. This €70 million project will increase local annual production capacity to 180,000 tonnes of cathodes as of the second quarter of 2008. It will enable Cumerio to follow
125
100
75
50
25
02002
CuMerio’s sales evolution in the blaCK sea region
2003 2004 2005 2006
æ Cathodes æ Anodes
’000 tonnes150
æ Bulgarian concentrates
æ Regional concentrates
æ International concentrates
37%45%
18%
breaKdown feed PirdoP, bulgaria by origine
why Invest In BuLgarIa?At the end of 2004, Cumerio had invested more than US$300 million in its copper facility in Pir-dop, Bulgaria. The company will continue its local investments for various reasons:• The Black Sea region is a pro-
mising copper market - local consumption accounts for ap- proximately 700,000 tonnes of copper and is expected to grow at an estimated rate of 4% to 6% per year
• Historically, the local smelter
was already equipped with state-of-the-art Flash smelter technology. Since the acquisi-tion in 1997, Cumerio’s invest-ments have turned it into the sole sustainable copper smelter in South-East Europe
• The presence of copper mines in Bulgaria and the surrounding countries was and still is a major advantage on which Cumerio can build a profitable activity
• Bulgaria offers ample experien-ced and high-skilled staff with a long tradition in the copper industry
• Low costs for labour and ener-gy make Bulgaria an interesting region for expansion, especially in a commodities business
• The tax structure in Bulgaria offers considerable advantages - up to 2006, Cumerio benefited from a 10.5% corporate tax rate, negotiated in the context of the acquisition of the Pir-dop assets in 1997. As of 2007, Cumerio will pay the normal tax rate, which will decrease from 15 to 10%.
growing market demand for copper cathodes in the Black Sea region and become an even more reliable and sustainable partner for local produc-ers of copper products.
Key figures - business unit CoPPer ProduCts
(€ million) 2004 2005 2006
Turnover 1 071.8 1 226.0 2 216.6Revenues (excluding metals) 62.5 61.3 72.0EBIT - Recurring 5.3 5.7 8.2EBIT - Non-Recurring - (0.6) -EBIT - IAS 39 effect - 0.1 0.8EBIT - Total 5.3 5.2 9.0Recurring EBIT margin % 8.5% 9.3% 11.4%EBITDA - Recurring 9.4 9.8 13.6Capital Expenditure 2.3 3.6 5.3Capital Employed (end of period) 99.4 115.0 203.6ROCE % 3.4% 4.7% 2.1%Workforce (end of period) 361 349 351
Figures for 2005 recasted to reflect the implementation of IAS 19
1� CoPPer ProduCts
fIrst sIgns of a changIng market envIronmentThe growing demand for copper products in Western Europe has significantly benefited
Cumerio’s business. Although high copper prices and increased energy costs had
impacted the sector’s profitability. Cumerio was also able to negotiate a compensation
for increased costs during the second half of the year. In 2006, it also took an important
step to further strengthen its specialty rod business.
Improved deLIvery voLumes
2006 was characterized by good demand in all consumption areas. Cumerio realized an 8.2% increase in sales volumes for wire rod up to a to-tal of approximately 406,000 tonnes.
Specialty rod represented close to 14,800 tonnes. This is a 9.9% increase, compared to deliveries in 2005.
Deliveries of cakes and billets were stable at 84,800 tonnes compared to 84,500 tonnes in 2005.
copper prIces Impacted the performance of the BusIness
Although 2006 deliveries exceeded 2005 figures, the volumes could have been even better. The high copper price dramatically increased the credit risk exposure and, as a result, Cumerio had to stop respond-ing to the increasing demand from customers in some cases. The high copper price also significantly im-pacted the working capital needs of Cumerio. The company has tried to control these effects to the extent possible through proactive manage-ment of inventories and payment terms.
compensatIon for Increased costs
At the close of 2005, Cumerio nego-tiated next year’s product premium based on a stabilizing copper price. But, contrary to expectations, the copper price climbed to new heights. As a result, the 2006 premium did not provide sufficient compensation for the increased working capital needs and for increased costs, such as for energy. The increased costs had a significant impact on perform-ance of the business unit throughout the year.
In the second half of the year, Cumerio was able to convince its customers of the inconsistency of the agreed terms. Consequently, the company could charge an additional financial contribution for its con-tracts. This led to better performance of the business in the second half of the year, despite the usual impact of seasonality.
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2002
CoPPer ProduCts deliveries
2003
2004
2005
2006
367
364
407
375
406 85
84
94
80
79
0 100 200 300 400 500 600
æ Wire rod æ Shapes
’000 tonnes
the hIgh copper prIce Leads to a changIng market envIronment
The financial situation throughout the industry was put under pressure by the high copper price. As a con-sequence, one of our competitors, Prysmian, decided to shut down its UK Prescott wire rod plant. This way, a capacity of approximately 150,000 tonnes of wire rod disappears from the market in 2007. Taking into account a continued strong demand, this will result in a tighter supply for wire rod in Western Europe. It is expected that this would lead to better commercial terms for wire rod producers.
creatIng added vaLue In specIaLty rod
Early May 2006, Cumerio took an important step to further develop its specialty rod business. The company acquired a 51% majority stake of the shares in Swiss Advanced Materials SA (SAM).
SAM develops, produces, and sells complex profiles for electro-techni-cal industries based on copper and low-alloyed copper. This experience will enable Cumerio to enter into new high added-value products with SAM as a platform for research and development.
geograPhiCal breaKdown CoPPer ProduCts deliveries
æ Italy
æ Benelux
æ Germany
æ France
æ Spain
æ Other Europe
æ Other World
37%
14%12%
10%
6%
15%
6%
A complex profile produced by SAM
2006, a good year for copper wIre In western europe
2006 has proven to be a very good year for Europe in terms of consumption of copper wire and cable. According to CRU Monitor January 2007, total con-sumption of wire rod in Western Europe accounts for 2,300,000 tonnes, a rise of 4.2% compared to the previous year. Italy, the largest market in Western Europe and Cumerio’s main market, performed particularly well - up by 5% to 550,000 tonnes. Germany is the second largest market in Western Europe, consuming close to 500,000 tonnes.
The European market continues to be driven by a strong demand for power cables, both from the utility and industrial sectors. The special cable markets such as the automotive and railway sector also showed good demand.
western world refined CoPPer ConsuMPtion - �00� by first use
æ Wire Rod
æ Sheet/Strip
æ Tube
æ Cu Alloys
æ Other
Source: Brook Hunt Q4 200654%
8%
10%
17%
11%
æ Construction
æ Electronic products
æ Industrial Machinery
æ Transport
æ Consumer Products
Source: Brook Hunt Q4 2006
37%
26%
15%
11%
11%
western world refined CoPPer ConsuMPtion - �00� by MarKet seCtor
�0 sustainability
Cumerio finances the kindergarten in Zlatitsa, Bulgaria
remaInIng a profItaBLe and sustaInaBLe company In the Long-termCumerio is committed to the principles of sustainable development. It wants all of its
products and activities to be beneficial for all of its stakeholders: investors, customers,
suppliers, staff, and neighbours. That is the reason why the company is equally dedicated
to stepping up to its social responsibilities and to reducing the impact of its operations
and products on the environment.
care for the envIronment
Cumerio realizes that the nature of the base metal industry has a consid-erable impact on the environment. In this context, the company is making every effort to improve its envi-ronmental performance in respect of legal requirements and beyond. Cumerio’s environmental manage-ment systems, its investments in energy efficient installations, and its continuous efforts in recycling attest to its long-term engagement.
supportIng the surroundIng communItIes
Cumerio is a responsible corporate citizen in the communities where it is active. Besides contributing to the local economy by generating employment and paying taxes, the company invests in good relations with local authorities. Cumerio reg-ularly sits down with local mayors to increase mutual understanding. Cumerio also contributes directly to local development. In Bulgaria, for instance, the company has invested in new school infrastructure and finances regular health checks for inhabitants of the Pirdop-Zlatitsa region.
open and honest dIaLogue wIth empLoyees
As a socially responsible employer, Cumerio values good relationships throughout the group. The company strives to create optimal condi-tions for mutual understanding and bilateral collaboration through clear communication with all employees and their representatives. Addition-ally, Cumerio guarantees all of its employees a safe and healthy work environment.
profItaBILIty supports sustaInaBILIty
Cumerio aims to remain a strong and profitable player for its share-holders. By investing in its processes and by looking for new applications the company strives to guarantee its continuity into the future.
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managIng the envIronment wIth Iso 14001
The ISO 14001 norm is an interna-tional framework for benchmark-ing environmental management systems. The norm prescribes:• A clear environmental policy
with concrete goals, training, and alerting staff to environ-mental issues
• An inventory of all environ-mental aspects on which the company has an impact
• An action plan to reduce the environmental impact of the company’s activities and deci-sions.
ISO 14001 helps companies deal with anomalies. It also enables them to improve environmental per-formance by fine-tuning their en-vironmental management system.
Once the certificate has been granted, it is in effect for three years. During this period, accred-ited organizations will regularly audit the company’s environmen-tal efforts.
Cumerio’s EMS ensures that care for the environment is embedded in every aspect of its production proc-ess. It maps all of the processes and how they affect the environment, including among others, noise, emis-sions into the air and water, and the use of hazardous materials. Based on this information, new procedures and instructions are defined to mini-mize environmental impact. Constant monitoring of the various processes enables Cumerio to follow up and continuously improve environmental performance.
cLose monItorIng of envIronmentaL management system effectIveness
Cumerio periodically evaluates the appropriateness and effectiveness of its site-specific environmental management systems. Environmental management reviews monitor and follow up the progress in environ-mental performance as well as the evolution in related legislation. This enables the reviewers to evaluate the compliance of Cumerio’s op-erations with environmental targets and standards. Management then formulates recommendations based on this review and launches new ac-tion plans and projects to promote progress along the path of continu-ous improvement.
envIronmentaL management systems
As a responsible company, Cumerio has put a system in place to assess its interactions with and impact on the environment. The com-pany uses the ISO 14001 norm as its primary reference in aligning day-to-day industrial activities with sound environmental policies and management. Since 2006, all its opera-tions are fully ISO 14001 certified.
aLL cumerIo sItes Iso 14001 certIfIed
Cumerio uses the newest version of the ISO 14001 norm as its environ-mental management working tool. Today, all of Cumerio’s operations are fully certified:• Belgian sites in Olen and Brussels
received their ISO 14001 certifi-cate in October 2006
• Cumerio’s Bulgarian plant obtained its certificate in March 2006
• Cumerio Italia has been certified since the end of 2005.
contInuousLy ImprovIng envIronmentaL performance
All Cumerio subsidiaries are peri-odically and thoroughly audited by an external accredited auditor. The Environmental Management System (EMS) of each site is reviewed re-garding its performance and effec-tiveness.
harmonIzIng cumerIo’s vIsIon on the envIronment
In 2006, Cumerio appointed an internal Group Environmental Au-ditor. This function underlines the company’s intent to streamline its site-specific initiatives into a common environmental approach. Cumerio will harmonize all site-specific en-vironmental policies into a uniform structure and align environmental evaluation systems and improve-ment logs.
mInImIzatIon of envIronmentaL Impact
Cumerio strives to minimize the inter-action of its operations with the envi-ronment. The company has embarked upon a multilayer action plan to struc-turally reduce emissions into air and water and to limit waste production.
state-of-the-art wastewater treatment
Over the past year, Cumerio signifi-cantly improved the efficiency of its water treatment facilities on all sites. This initiative ensures that all installa-tions operate well within the applica-ble standards for industrial processes. For instance, the new state-of-the-art wastewater treatment plant in Bulgaria has significantly reduced the emission of metals in the plant’s wastewater stream.
The focus is on both the physico- chemical treatment and the improved containment of wastewater. For in-stance, Cumerio totally revamped the water network at its Italian plant in 2006. In Bulgaria, Cumerio’s IPPC investment programme includes a €4 million budget for repair and par-tial replacement of the sewage net-work at its Pirdop plant. Most of the work will be performed throughout 2007.
a structuraL downward trend for aIr emIssIons
Cumerio is committed to progres-sively reduce its air emissions. In 2006, the company allocated two third of the €30 million IPPC investment programme to realize yet another breakthrough in the treatment of secondary flue gases in Pirdop, Bulgaria. The company will install an additional scrubber and bag house filter system. This will enable Cumerio to be fully compliant with the new IPPC emission standards for which it already holds the necessary permit. The new norms for Cumerio
will go into effect end October 2007.In addition, Cumerio Belgium capital-ized on the planned replacement of the waste heat boiler in its anodes casting facility to completely re- assess the existing design of its off-gas circuits. Besides spectacularly improving on past performances in the domain of energy recuperation and fugitive emissions, the re-engi-neered concept will materialize in a vast improvement of emission data, both in terms of emission volume and emission load (heavy metals, dioxin).
taILIngs pond, a safe soLutIon for smeLter waste dIsposaL
As copper concentrates typically contain only 30% copper, most of the material ends up in a slag, gener-ating a significant waste stream.
Cumerio decided to process these slags further to recover a maximum of metal and then retain the final waste, so-called fayalite, in a specially engineered disposal pond on site. This pond has been designed to pre-vent any leakage into soil and ground water.
In-depth technical-economic studies of alternative methods have revealed that the current approach conforms to Best Available Technology to pre-vent or reduce emissions and impact on the environment, taking into con-sideration costs and advantages. It provides the most reliable and safe way to minimize the potential envi-ronmental impact.
Cumerio monitors metals and dioxins deposition in Olen, Belgium
Sampling the Kiselo Sere River in Pirdop, Bulgaria
meetIng kyoto oBLIgatIons
Cumerio is actively involved in the Benchmarking Covenant. This initia-tive was introduced by the Flemish authorities to help implement the obligations resulting from the Kyoto protocol. According to this covenant, energy intensive industries located in Flanders must meet or exceed the top world standards and tech-niques in terms of energy efficiency and consumption reduction no later than 2012.
With the support of certified external consultants, Cumerio has developed an energy plan in line with those requirements. Based on reasonable assumptions, the progress already achieved in terms of energy efficiency, as well as the investments that have already been imple-mented and planned, should enable Cumerio’s Olen site to comply with these requirements.
Cumerio Med is involved in the Bulgarian National Scheme as well. This plan went into force as of 2007 as a result of Bulgaria’s accession to the EU. This scheme provides for emission permits issued and moni-tored by authorities on a case-by-case basis, depending on industrial and technical parameters for each combustion installation.
Cumerio Med has already received its emission permit but is not yet informed of the CO2 allowances that will be allocated by the Bulgarian authorities to our industry.
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respect for naturaL resources
recycLIng
Recycling is an important aspect of sustainability, especially so at Cumerio. The company produces approximately one third of its entire volume of cath-odes out of secondary materials, both through close collaboration with scrap suppliers and through far-reaching optimization of its refining processes.
recycLIng copper Leads to Important savIngs
Copper is a metal that can be recycled indefinitely. Cumerio capi-talizes on this unique characteristic and uses lots of copper scrap as additional supply source for its production lines. This allows the company to save on both energy consumption and waste disposal. In addition, the refining charges that the industry receives for treating secon-dary copper are a most welcome add-on to the revenues from treat-ment and refining charges on copper concentrates.
approxImateLy 140,000 tonnes of cathodes from copper scrap
Over the years, Cumerio has contin-ued its efforts in recycling copper. In 2006, Cumerio produced approxi-mately 140,000 tonnes of cathodes from recycled copper. This accounts for 34% of the company’s total cathode output. Cumerio’s Con-timelt process in Olen, Belgium, has been specifically designed to handle large amounts of copper scrap in an efficient and environmentally sound way.
cLose tIes wIth the recycLIng Industry
To safeguard the inflow of vast amounts of secondary copper, Cumerio has progressively ex-panded its presence in the recycling market and capitalized on partnering with major recyclers. One of them is Metallo-Chimique, the second larg-est recycler in Europe. In 2006, they delivered approximately 20% of the anode feed for Cumerio’s Belgium-based refining operations. To ensure this inflow of secondary copper, Cumerio has renewed its partner-ship with this company through 2015.
new waste heat BoILer saves energy
In the summer of 2006, Cumerio installed in Belgium a new boiler system that will vastly improve the plant’s environmental per-formance.
The new boiler will reduce the energy intensive production of steam. The system will cover about one third of the average demand for steam within the plant through recuperation of waste heat in flue gases.
The new boiler will also reduce the load on the flue gas filters since it already collects a sub-stantial portion of the coarse flue gas dust. This reduces the total
amount of dust laden flue gas through the filters. This in turn will enhance the performance of the filters in collecting fine flue gas dust.
Increased productIon and Improved energy effIcIency
Since 2003, Cumerio Belgium in Olen has improved its energy efficiency by approximately 7%:- Energy efficiency of the elec-
trolytic refinery has improved by 8%
- By focusing on the cathodes loading system, energy efficiency of wire rod production has im-proved by approximately 13%.
energy effIcIency
Improving energy efficiency makes economic and ecological sense. Ration-al use of energy enables Cumerio to counter the impact of increasing prices and allows to minimize the direct and indirect influence of Cumerio’s activi-ties on the environment.
contInuousLy strIvIng for energy effIcIency
Cumerio is dedicated to improving the efficiency of its energy use at all levels. From a technical standpoint, the company has incorporated spe-cific projects to create more energy efficient installations, to choose an optimal energy driver for its proc-esses, and to regularly monitor and report on the energy use in all of its activities.
The increased intake of copper scrap also helps Cumerio reduce its energy use. The recycling process is far less energy intensive than refining copper concentrates.
In addition, Cumerio is dedicated to changing the traditional energy use mindset throughout the group. The company relentlessly encourages its employees to fully integrate energy efficiency into their daily routines, both on and off the job.
Cumerio has put an energy con-trol programme into effect to continuously improve its energy performance. The company con-stantly monitors the energy efficiency of all of its industrial processes and regularly reports its findings.
New waste heat boiler in Olen, Belgium
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reach for safer chemIcaLs
REACH is a new regulatory framework commissioned by the European Commission to Regis-ter, Evaluate, Authorize, and re-strict CHemicals (REACH). This new legislation brings more clar-ity to the manufacturing, market-ing, import, and use of chemical
substances since it replaces forty legislative instruments.
The goal of the new legislation is to increase knowledge about chemical substances and enhance safety. It will also spur innovation since it encourages substitution of highly dangerous substances with safer ones.
Ippc dIrectIve
The Integrated Pollution Prevention and Control directive (IPPC) stimulates organizations to adopt Best Available Technology (BAT). Cumerio is commit-ted to following these guidelines. In 2006, the company continued to direct its investments in that regard.
cumerIo In BuLgarIa, a trendsetter In Ippc permIttIng
Europe negotiated strict environ-mental norms when accepting Bulgaria for entry into the European Union. Cumerio was one of the first companies in Bulgaria to obtain an IPPC permit. This achievement rec-ognizes that the company’s local operating conditions for the copper smelter comply with the strictest industrial requirements and guaran-tees the sustainability of its industrial processes. The IPPC permit enables Cumerio’s Bulgarian plant to operate under transitional emission norms until the end of October 2007.
contInued Investments for the envIronment
During 2006, Cumerio has contin-ued its €30 million investment pro-gramme to adhere to the IPPC-based regulation in Bulgaria. In the third quarter of 2006, Cumerio started foundation works for a new scrub-ber and bag house filter in Pirdop to control and reduce emissions. The investments are evolving according to plan. Consequently, Cumerio is confident that it will be able to bring the new infrastructure online by mid 2007, and offer full compliance with the new standards by end October 2007.
the Ippc permIt In BeLgIum
In Belgium, Cumerio has initiated studies for renewal of its permit in 2009. The company continuously improves its processes and its environmental performance is fully compliant with current industry norms.
reach, the copper Industry Is fuLLy prepared for regIstratIon of chemIcaLs
The European Union enacted the new REACH legislation in 2006 to better monitor chemical products. The direc-tive will be gradually implemented over the next decade. Cumerio has proac-tively taken the necessary steps to en-sure compliance with the directive.
cumerIo, ready for reach
Cumerio and the copper industry have proactively prepared for the REACH legislation. The European Copper Institute, representing the copper industry, conducted a Volun-tary Risk Assessment in preparation for REACH. Thanks to this initiative, Cumerio already has all the infor-mation and scientific data necessary to register the various substances it uses and imports.
æ Managers
æ White collars
æ Blue collars
120
971
362
by Category
ManPower on 31.1�.�00�
0 500 1000 1500 2000
2002
2003
2004
2005
2006
559
535
494
502
526
1022
965
939
910
798
122
122
120
101
29100
æ Belgium
æ Bulgaria
æ Italy
æ Switzerland
0 500 1 000 1 500 2 000
by loCation
0 100 200 300 400 500 600 700 800
æ Male
æ Female25 4Switzerland
Bulgaria
Italy
Belgium
0 100 200 300 400 500 600 700 800
604 194
95 5
484 42
by gender
human resources
Cumerio constantly strives for an open and honest dialogue with its employees and their representatives. By investing in our employees we seek to optimize our human potential for future growth.
facts and fIgures
On 31 December 2006, Cumerio employed 1,453 individuals, compared to 1,513 employees in 2005.
The number of employees remained fairly stable in Belgium and Italy. In Bulgaria, 117 employees joined a vol-untary leave programme in the first half of the year.
The past year, Cumerio acquired Swiss Advanced Materials (SAM). Its 29 employees are also accounted for in the total headcount for 2006.
new european works councIL enhances mutuaL communIcatIon and the group’s overaLL functIonIng
In anticipation of Bulgaria’s accession to the European Union, Cumerio and its labour unions agreed upon the installation of a European Works Council (EWC). This initiative will help forge an overall group identity. It also offers a new communication channel in which all Cumerio plants can confer from a uniform European perspective. In addition, the EWC is beneficial to the company, its labour unions, and its employees:• By giving labour unions a better
– and more European – view on what the group stands for
• Through enhancing the commu-nication between management, unions, and employees on all group matters affecting the Cumerio employee.
The first official seating will take place on 16 March 2007.
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tImeLy renewaL of coLLectIve LaBour agreements
Cumerio values an open and hon-est dialogue with each of its labour unions. This approach has led to a timely renewal of all open collective labour agreements, both in Belgium and in Bulgaria.
optImIzIng the human resources potentIaL
The past year, Cumerio took a number of decisions to further op-timize its organization and maximize the use of its existing human re-sources potential:• Existing employees get priority for
new positions or promotions• Cumerio’s matrix-based organiza-
tion and the stimulation of cross-functional teams create learning opportunities for all employees involved
• Installing development assessments followed by an individualized action plan to prepare managers for future growth opportunities.
Furthermore in 2006, Cumerio re-inforced its organization by hiring a number of external senior managers for key management positions.
cumerIo In the communIty
Cumerio realizes that the nature of its activities can have an im-pact on the surrounding communi-ties and may lead to some concern. The company has strengthened mutual understanding through regular communication and consultation with local communities. Cumerio also direct-ly contributes to the local community. The company focuses its sponsoring budget primarily on projects that ben-efit the municipalities surrounding its Bulgarian plant in Pirdop.
IntensIve consuLtatIon and communIcatIon
In Belgium, Cumerio’s relationship with the community emphasizes consulta-tion and communication. For instance, Cumerio publishes and distributes a magazine designed to create under-standing of Cumerio’s activities within the local Olen community. In Septem-ber 2006, the company distributed 5,000 copies of its first edition of Rondom Cumerio magazine in the di-rect vicinity of the plant.
Furthermore, Cumerio meets on a regular basis with the local au-thorities of the communities that surround its major plants.
Consultation meeting with the Olen mayor.
focus on the BuLgarIan communItIes
Cumerio decided to focus its community sponsoring programme towards Bulgaria. The past year, Cumerio invested €130,000 in mul-tiple projects for the municipalities of Pirdop and Zlatitsa. Among other things, the company contributed to the improvement of local roads, invested in new equipment and infrastructure for local schools and hospitals, and sponsored integration programmes for minority groups.
ensurIng safe workIng condItIons
Cumerio continuously assesses the working conditions in all of its plants. The past year, Cumerio improved the safe operation of its wire rod production unit in Olen. The com-pany installed a completely new elevator system that enables em-ployees to safely enter, inspect, and maintain the installation’s melting furnace.
fIne-tunIng of the on-sIte traffIc pLan
Cumerio’s plant in Olen, Belgium, produces a large amount of copper cathodes and products. This causes for a huge amount of loading and unloading, which in turn leads to a dense traffic of trucks. To ensure safe operation for all its employees, the company has elaborated an on-site traffic safety plan. In 2006, Cumerio finalized the third phase of the plan:
• All team leaders received training on the correct reaction to traffic offences and on the execution of safety interventions
• Renewal of the on-site outlines for roads and operation areas with multiple heavy work traffic
• Improvement of lighting, signalling, and outlining of pedestrian traffic.
safety
Safety is very important for a company that deals with metallurgi- cal processes. Consequently, Cumerio leaves nothing to chance when it comes to safety. From emergency plans to on-site traffic safety and close collaboration with municipal fire departments – Cumerio again initiated several safety action plans throughout 2006.
reguLar traInIng of on-sIte InterventIon unIts
Cumerio’s site in Olen is a so-called Seveso company as it uses specific hazardous substances in certain minimal quantities. For this reason, the company has elaborated an internal and external emergency plan. Cumerio organizes periodical train-ing exercises for its own intervention unit. Once every two years, the com-pany schedules a large-scale safety exercise with internal as well as ex-ternal intervention units.
In 2006, the biannual Seveso exer-cise simulated the release of a toxic gas in the electrolysis installation. The aim was to train the Cumerio intervention unit in the evacuation of victims from the stricken building. In addition, the team also had to sweep this vast building in cooperation with the municipal fire department. In combination with the weekly training sessions, such Seveso drills ensure that intervention units stay alert and can carry out their responsibilities ef-fectively.
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cumerIo Looks after the heaLth of Its personneL In BuLgarIa
Cumerio is a socially respon-sible employer. The company’s efforts in detecting breast can-cer, a significant social disease, illustrate this. All female workers above the age of forty undergo a mammography. In addition, the medical department at Cumerio provides all women in the Pirdop-Zlatitsa region in Bulgaria with the opportunity to participate in this programme. The company’s medi-cal department finances the costs of bringing a mobile laboratory to Pirdop.
heaLth
Cumerio is committed to the health of its employees. Therefore, the com-pany organizes regular medical checks on all sites, sets out action plans, and invests in training, protective garment, and specialized equipment to guaran-tee healthy working conditions. A short view on some of the examples from Cumerio’s many action plans.
thorough monItorIng of the workIng condItIons on aLL sItes
In 2006, Cumerio’s medical de-partment in Bulgaria continued its annual health programme in Pirdop. In concrete terms, the company monitored working condition pa-rameters and executed a new health risk assessment in all production departments. For instance, the SO2 levels and exposure to heavy met-als was screened at all workplaces in the various production departments. The measurements did not detect any individual exposure above the prevailing norms, with the exception of very specific cases in the smelter and acid plant.
Cumerio Belgium in Olen, also closely monitors working conditions, especially in its pyro-refining process. In this context, the company regu-larly measures the exposure to lead and arsenic on the work floor.
extended IndIvIduaL BIo-monItorIng of aLL empLoyees
In addition to exposure measure-ments, Cumerio also runs in Bulgaria an extended individual bio-monitoring programme:• The local health department indi-
vidually monitors the levels of lead in blood and arsenic in urine and follows up the results on a monthly basis with all production units.
• Personnel’s blood is checked for sugar and cholesterol levels
• All employees undergo a biannual X-ray lung screening plus an ECG
Twice a year, the company organizes a Management Review on Well-being. On this occasion, the group results of the bio-monitoring programme are presented and discussed. Based on this information, the meeting sets out new action plans in order to continue improving the working environment.
InvestIng In heaLthIer workpLaces
Blood tests for detecting the pres-ence of heavy metals have already revealed the positive impact of recent investments. Cumerio, for instance, has put a new diesel pre-heater into operation in the acid plant in Pirdop, Bulgaria. This invest-ment significantly reduced the level of SO2 emissions in this particular area of the smelter.
Also, a new evaporative cooler was installed in the converter section. This resulted in a further reduction of dust emissions and also lowered dust levels in the ventilation gases emitted through the stack.
In addition, the company invested in high-class personal protection equip-ment and installed a control pro-gramme on the use of the equipment. All employees were also extensively informed about the risks associated with potential exposure, resulting from not wearing the protective garment.
protectIng empLoyees agaInst excessIve noIse
Cumerio also focuses on reducing the noise levels in its production facilities. During the past year, the company’s medical depart-ment finalized its noise monitoring programme for all workplaces in the production and maintenance departments in Pirdop, Bulgaria. The installation of a new gas blower and the replacement of the pump units for the drying tower in the acid plant realized a significant noise reduction in the most critical areas. In addi-tion, Cumerio’s medical department defined the protective equipment required for each workplace and put in place strict controls ensuring the proper use of this equipment.
InnovatIon and deveLopment
Cumerio believes that in the long run, innovation and entering new niche markets will ensure profitability and sustainable development. In the past year, the company took various important steps to secure growth in the market of high added-value copper products.
expandIng Its InnovatIve focus
Cumerio aims at further expansion of its technology base and its offer of new copper-based applications and products. This will help to develop its business in a sustainable way.
During the past year, the company has worked on several projects in close collaboration with research centres and universities. Special emphasis has been placed on refractory materials and advanced production technologies.
CuMerio and its environMental PerforManCe indiCators Olen Pirdop Avellino Safety 2005 2006 2005 2006 2005 2006Frequency Rate # accidents/million working hours 14.6 14 5.5 5.06 11 18Severity Rate lost days/1 000 working hours 0.72 0.43 0.27 0.25 0.16 0.56 Environment Materials Used tonnes 396 216 395 313 936 793 887 943 139 800 152 130% secondary % 21.1 20.3 2.9 4.3 1.3 1.6 Waste produced tonnes 4 048 5 213 47 876 25 108 341 337% waste recovery % 21.9 24.5 3.0 16.3 80.1 75Fayalite Flotation Sand produced tonnes - - 573 274 438 627 - - Water Consumption 1 000 m3 754 738 6 660 5 640 98.3 87.9Energy Consumption gigajoules 1 576 035 1 554 019 1 412 742 1 349 728 285 306 307 045 Metals emitted to Water kg 2 190 2 197 2 710 1 967 85 66Metals emitted to Air kg 1 475 1 130 34 814 54 704* 6,4 7.2SOX emission tonnes 48 8.7 3 414 4 084* 0.08 0.08NOX emission tonnes 99 161.5* 29.8 27.1 21.5 21.8 Compliance excess rate % 0.30 0.39 9.5 3.8 5 5Number of complaints on hindrance number 9 8 0 5* 0 0* Figures 2006 are based on newly installed equipment enabling a more accurate monitoring
BuILdIng a strong posItIon In hIgh added-vaLue products
Since its inception, Cumerio has in-vested heavily in developing its spe-cialty rod business.
With the acquisition of a majority stake in Swiss Advanced Materials (SAM), Cumerio has secured a strong position in the specialty rod appli-cations market. SAM is specialized in the production of complex pro-files that are commonly used in the electrical industry. Its team will bring important expertise to the Cumerio group which will enable it to realize a substantial growth in previously un-tapped niche markets.
3� investor relations
Cumerio is committed to ensuring a continuous information flow to ana-lysts and investors. During the past year, the company has undertaken various road shows throughout Eu-rope, the United States, and Canada to meet with institutional investors. Cumerio has also attended a number of conferences and fairs for retail investors in Belgium. Additionally, the company has upgraded its Web site to improve access to information about Cumerio and the markets in which it operates.
Those extensive communication efforts have been well received and widely appreciated:• In March, Cumerio received the
award for ’Best communication in the mid-cap segment’ from Cash, a Belgian financial magazine
• In November, the company was awarded ’Best Investor Relations’ by the Belgian Association of Finan-cial Analysts ABAF/BVFA.
proactIve and transparent communIcatIon recognIzedFrom the start, proactive and transparent communication has been a key priority for
Cumerio. During the year, the company has pursued its communication efforts with both
analysts and institutional and private shareholders. As a recognition, the company has
received two awards.
share prIce up By 18%
For most commodity market play-ers, 2006 has been a volatile year. Cumerio was no different. During the first five months, the share price peaked at approximately €23. After-wards, the price came down to its 2005 year-end level. This evolution reflected some profit taking, after a very good run since Cumerio was first listed, and a somewhat negative
bias towards commodities. The last quarter was marked by an upward move with the stock closing the year at €18.20, a 18.49% increase com-pared to the end of 2005.
The Cumerio share is part of several domestic and international indices. In comparison with these indices, the Cumerio share has shown a mixed performance throughout the year. The share slightly outperformed the Euronext Brussels’ Eurolist Bel Mid
Index, but it underperformed the Dow Jones Stoxx TMI Small Index and the Dow Jones Stoxx TMI Basic Resources Index by approximately 10%. This latter performance reflects the significant mining component of the index.
150
125
100
75
æ Cumerio Share æ Cumerio vs Bel Mid Index æ Cumerio vs DJ Stoxx TMI Small Index
æ Cumerio vs DJ Stoxx TMI Basic Resources Index
30/12/05 03/03/06 09/05/06 07/07/06 21/08/06 29/12/06
relative share PerforManCe
Cumerio present at VfB’s retail investors fair in Antwerp, Belgium
3� loreM
good LIquIdIty refLects a 100% free fLoat
In terms of liquidity, volumes remai-ned high for a mid-cap company. In 2006, daily volumes averaged about 170,000 shares, representing a turn-over of approximately €3 million. This performance ranks Cumerio among the top twenty on Euronext Brussels in terms of velocity and among the top three of Belgian mid-cap com-panies.
Cumerio has a 100% free float. The one-year lock-up of shares owned by Umicore and Parfimmo expired in 2006. At the time of the de-merger, both companies had agreed not to sell their shares for a period of twelve months from the listing date.
InternatIonaL sharehoLder Base
Cumerio’s shareholder base re-mains very international. Although there is still a large part of domestic retail and institutional shareholders, a major portion of today’s sharehold-ers reside in the United Kingdom and North America. The rest of the shareholder base is situated in other European countries.
an attractIve dIvIdend poLIcy
In February 2006, Cumerio further specified the dividend policy that it intends to pursue in the coming years. The company targets an aver-age pay-out ratio of 40 to 50% over the copper cycle, aiming at more stability than what is typical for cy-clical stocks. In accordance with this policy, the 2005 gross dividend has increased compared to the previous year to €0.60 per share, correspond-ing to a dividend payout of 36%.
æUKæBelgiumæUS/CanadaæFranceæGermanyæOthers
estiMated shareholder base �00�
35%
13%
25%
8%
4%
15%
fInancIaL caLendar 2007
26 April General Shareholders Meeting Extraordinary Shareholders Meeting26 April Quarterly update22 August 2007 half-year resultsEnd October - early November Quarterly update
Retail investors’ visit to Olen
The Board of Directors proposed a gross dividend of €0.70 per share for 2006, a 17% increase compared to the year before.
treasury shares and stock optIon pLans
Cumerio launched a new stock op-tion plan in 2006. Members of the Executive Committee and other senior executives received a total of 183,000 options giving them the right to buy existing or new shares over a period of seven years at an exercise price of €18.24 per share. Also taking into account the 2005 stock option plan, a total amount of 465,500 stock options have been granted. During the year, 38,500 op-tions from the 2005 plan have been exercised.
On 27 April 2006, the Extraordinary Shareholders Meeting granted the company the right to buy back up to 10% of the outstanding number of shares. During the year, the company bought 282,500 shares at an average price of €17.60 per share, to finance the 2005 stock option plan. At the close of the year, Cumerio held a total of 244,000 shares, recorded as treasury shares, reflecting those op-tions which have already been exer-cised.
IncreasIng anaLyst coverage
During the year, Cumerio’s cover-age by analysts almost doubled compared to 2005. The company continues its efforts to further ex-
pand its coverage by analysts in 2007.Cumerio is dedicated to helping analysts increase their understand-ing of the sector and of Cumerio’s activities. This is mostly done dur-ing its regular contacts or meetings. In May 2006, the company organ-
ized a field trip to the Pirdop site in Bulgaria, which was attended by a number of analysts and investors. The programme consisted of pres-entations by members of the Exec-utive Committee and a visit to the local smelter and refining facilities.
On 31 December 2006, the follow-ing institutions carried out equity Bank Degroof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brussels, Belgium
Credit Suisse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .London, United KingdomDawnay, Day Lockhart. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .London, United KingdomExane BNP Paribas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paris, FranceFortis Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brussels, BelgiumHSBC* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Dusseldorf, GermanyING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brussels, BelgiumKBC Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brussels, BelgiumKepler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amsterdam, the NetherlandsPetercam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brussels, BelgiumUBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .London, United Kingdom
Key share data 2005 2006
Share price (€/share) High 15.51 22.88
Low 10.30 14.26
Close 15.36 18.20
Average 13.75 17.82
Average daily trading volume (q) 178 299 168 418
Gross dividend (€/share) 0.60 0.70*
Total number of outstanding shares 25 702 075 25 702 075
Total number of VVPR strips 5 208 963 5 208 963
Shareholder base at 31/12/06 (%)(1):Lansdowne Partners (UK)(4 May 2005) 6.76 6.76
East Side Capital L.P. (jointly with Margate Capital L.P.)(US)(12 May 2005) 3.01 3.01
Schroders Investment Management (UK)(29 September 2005) 3.57 3.57
Cumerio (treasury shares) - 0.95
Free float 95 100
(1) Based on official declarations to Euronext (date of declaration between brackets)* Dividend proposed to the General Assembly of 26 April 2007.
* started coverage with 2006 annual results publication
3�
Luc deLagayechIef executIve offIcer
Luc Delagaye holds an MSc Degree in Mechanical Electrotechnical Engi-neering from the University of Ghent. In 1984 he joined Bekaert, a leading Belgian steel wire company. He left for Chile in 1985 where he worked for more than seven years as Manager Operations of Bekaert’s joint venture. He joined Umicore Copper at the end of 1996. In January 2004 he became Umicore Copper business unit manager.
He is Vice-Chairman of the European Copper Institute and Board member of the Interna-tional Copper Association, and of Non Ferrous International.
With the de-merger from Umicore, he was appointed Chief Executive Officer and Director of Cumerio on 28 April 2005.
mIcheL moserchIef fInancIaL offIcer
Michel Moser holds a Commercial Engineering Degree from the University of Brussels (Ecole de Commerce Solvay) and a post gradu-ate degree in International Trade. He joined Société Générale des Mine-rais in 1983 and has held positions in Brussels, New York, and Hong Kong. He managed the Sogemin Metals brokerage in London between 1995 and 2000.
Early 2000, he joined Umicore as Vice-President Corporate Devel-opment and Investors Relations and was appointed to the Umicore Executive Committee in May 2003.
With the de-merger from Umicore, he became Chief Financial Officer and Director of Cumerio on 28 April 2005.
patrIcIo BarrIosvIce-presIdent operatIons
Patricio Barrios assumed the respon-sibility of Vice-President Operations as of 1 April 2006. He holds a PhD in Chemistry and an MBA from ESADE in Barcelona (Spain). He has more than 30 years of experience within the copper industry.
He began his career with Rio Tinto Patiño, then Rio Tinto Minera, where he became Vice-President Metallurgy and member of the Executive Board of Management in 1993. In 1996 he was appointed Senior Vice-President Operations of Atlantic Copper, the Spanish subsidiary of the US com-pany Freeport-McMoRan Copper & Gold.
In 2004 he left Atlantic Copper and continued his career as an independ-ent consultant.
exeCutive CoMMittee
stefan BoeLvIce-presIdent copper refInIng
Stefan Boel holds a PhD in Chemis-try from the University of Antwerp. He joined the Aralco group (alumin-ium building products) in 1993 and held several successive positions in Production, Projects, and Sales.
He joined Umicore Copper in 2001 as Application and Marketing Manager. He became Commercial Manager and subsequently Com-mercial Director responsible for the commercial activities of Umicore’s copper smelting and refining activi-ties in Bulgaria (Umicore Med).
thIerry centnervIce-presIdent copper products
Thierry Centner was a consult-ant for Sorca in North Africa before joining Société Générale des Minerais in 1976 as Commer-cial Manager for Lead and Special Metals. He headed the department for Cobalt, Chemicals, and Special Metals before moving to Metallurgie Hoboken Overpelt as Commercial Manager for Copper, Lead, and Pre-cious Metals.
In 1990, he became Commercial Director of the Copper Division of Union Minière, thereafter Umicore Copper. He is also Chairman of the International Wrought Copper Council (IWCC).
Leo depesteLevIce-presIdent human resources
Leo Depestele joined Metallurgie Hoboken Overpelt, in 1982. Based in Hoboken he worked for the Human Resources Department as Project and Payroll Manager. Following the merger between Metallurgie Hobo-ken Overpelt, Vieille Montagne, and Union Minière he held several Hu-man Resources positions, including Compensation and Benefits Man-ager for Belgium and later for the Umicore Group.
In 2004 he was appointed HR Direc-tor responsible for Belgian sites as well as for Northern Europe.
phILIppe gothIervIce-presIdent LegaL
Philippe Gothier holds a Law De-gree from the University of Liège. He started his career in the legal and tax department of the Société des Mines et Fonderies de Zinc de la Vieille Montagne.
After holding various management positions in this company and in its subsidiaries, he joined Umicore’s legal department in 1992 in the ca-pacity of Deputy General Counsel.
1. Leo Depestele
2. Philippe Gothier
3. Michel Moser
4. Luc Delagaye
5. Patricio Barrios
6. Thierry Centner
7. Stefan Boel
1 2 3 4 5 6 7
3� board of direCtors
kareL vInckchaIrmanIndependent, Non-Executive Director
Karel Vinck has been Chief Execu-tive Officer of Eternit, Bekaert, and Umicore and was chairman of the Executive Committee of S.N.C.B./N.M.B.S. until early 2005. He is chairman of the Board of Direc-tors of Umicore and a Board mem-ber of Suez-Tractebel, Tessenderlo Group, Eurostar, the Catholic Univer-sity of Leuven, and the Théâtre Royal de la Monnaie. He is Honorary Chair-man of VOKA, the Flemish employ-ers association, and Chairman of the Flemish Science Policy Council. He is coordinator of the European Rail Traffic Management System (ERTMS) with the European Commission.
Karel Vinck heads the Board of Direc-tors as well as the Nomination and Remuneration Committee. His current period in office expires at the 2008 Ordinary General Meeting.
etIenne davIgnonvIce-chaIrmanIndependent, Non-Executive Director
From 1962 to 1977, Etienne Davignon was Head of the Cabinet of the Belgian Ministry of Foreign Affairs and, from 1969 to 1977, he was responsible for the Political Depart-ment of that Ministry. In 1977, he was appointed Vice-President of the European Commission, in charge of industry, research, and energy until the end of 1984. In 1985, he joined Société Générale de Belgique, today integrated in the Suez Group, and was the company’s Executive Chair-man until 2001.
Etienne Davignon is a Member of the Board of Suez, Sofina, Real Software, Accor (France) and Gilead (USA); Vice-Chairman of the Board of Suez-Tractebel and Chairman of SN Air-Holding, Recticel, and CMB.
He is a member of the Audit Committee and Nomination and Remuneration Committee. His current period in office expires at the 2007 Ordinary General Meeting.
Luc deLagayeChief Executive Officer,Executive Director
Please refer to the Executive Com-mittee for a detailed resume.
Luc Delagaye has been appointed as Chief Executive Officer of Cumerio since the de-merger in April 2005. His current period in office expires at the 2008 Ordinary General Meeting.
phILIppe deLaunoIsIndependent, Non-Executive Director
Philippe Delaunois worked in the Belgian steel industry for most of his career and was Managing Direc-tor of the Cockerill Sambre group until 1999. He is currently Chair-man of the Board of Mediabel and CFE. He is a member of the Board of the ING group, Mobistar, Corelio, DEME, Shanks plc, and Suez Energy Services.
He is a member of the Audit Committee and Nomination and Remuneration Committee. His current period in office expires at the 2007 Ordinary General Meeting.
etIenne denIsIndependent, Non-Executive Director
Etienne Denis holds a PhD in Science from the University of Louvain (UCL). After working at the University and with Gécamines in Congo he joined Umicore in 1974 where he held numerous management positions until 2003. Thereafter, he became a Board Member at Umicore until mid 2005, the date on which he switched to Cumerio’s Board.
His current period in office expires at the 2007 Ordinary General Meeting.
mIcheL moserChief Financial Officer,Executive Director
Please refer to the Executive Com-mittee for a detailed resume.
Michel Moser became the Chief Financial Officer of Cumerio upon the de-merger in April 2005. His current period in office expires at the 2008 Ordinary General Meeting.
thomas LeysenIndependent, Non-Executive Director
Thomas Leysen holds a Law De-gree from the University of Leuven (Belgium). He joined Umicore in 1993 as member of the Execu-tive Committee and became Chief Executive Officer in May 2000. In this context, he has been the driving force in the creation of Cumerio.
He is a Board member of Atlas Copco (Sweden), the Leuven-based micro-electronics research centre IMEC (Belgium), and the supervisory Board of the Bank Metzler (Ger-many). Furthermore, he is Chairman of the Board of Corelio, Belgium’s leading newspaper publishing com-pany, and a member of the Executive Committee of the Belgian Employers Federation, VBO/FEB.
His current period in office expires at the 2010 Ordinary General Meeting.
remI vermeIrenIndependent, Non-Executive Director
Remi Vermeiren was CEO of Kredietbank, which became KBC Bank and Insurance Holding (KBC) after the merger with Cera Bank and ABB Insurance. He led, among others, the penetration of KBC into Central Europe and retired in 2003.
He is a member of the Board of Directors of Devgen, a Belgian listed biotech company as well as of a number of private Belgian companies and non-profit organizations.
He is Chairman of the Audit Com- mittee. His current period in office expires at the 2008 Ordinary General Meeting.
1. Michel Moser
2. Etienne Denis
3. Thomas Leysen
4. Karel Vinck
5. Luc Delagaye
6. Remi Vermeiren
7. Etienne Davignon
8. Philippe Delaunois
1
2
3 5
6
7
4
8
�0 finanCial review
strong earnIngsRecurring operating results rose in 2006 to €93.8 million, mainly resulting from a strong
performance of the Copper Refining unit. Favourable external market conditions
combined with good production figures are the main reason for these results.
The profitability for its Copper Products division also improved in the second half, due to a sustained demand and receipt of an additional contribution from customers, justi-fied by the impact of higher copper
prices. Net recurring earnings, group share, totalled €70.4 million, up from €48.1 million in 2005, representing an adjusted earnings per share of €2.75.
cash fLow and deBt
In 2006, Cumerio generated a strong operating cash flow before net working capital requirements, at €125.8 million.
Net working capital requirements were impacted during the year by the much higher metal prices and the increased deliveries of copper prod-ucts. Compared to June, a proactive management and somewhat lower copper prices enabled Cumerio to reduce working capital requirements at the end of the year.
Capital expenditures for the period amounted to €48.5 million, with a larger portion during the second half of 2006. Key non-maintenance items included the new investment programme and the IPPC related investments in Pirdop, Bulgaria.
Cumerio’s net financial debt increased from €62.8 million to €131.9 million, down from €171.1 million at the end of June. This represents a gearing ra-tio - net debt / (net debt + equity) - of approximately 25%.
In July, Cumerio issued 7-year notes for an amount of €125 million in the form of a public offering in Bel-gium. The notes have a coupon of 4.875%. The funds have been used to consolidate the net working capital requirements and will provide ad-
ditional means to finance future organic and external growth oppor-tunities. Part of the interests have been swapped into floating, with a view to achieving some balance between fixed and floating interest rates.
fInancIaL resuLts and taxatIon
Recurring financial charges for the year amounted to €13.4 million. Net interest charges for the period totalled €14.1 million, reflecting the impact of the increased financial debt and rising interest rates.
Both total tax charges for the year and recurring tax charges amounted to €10.3 million. This corresponds to an effective tax rate of approxi-mately 12.8% on recurring pre-tax earnings. Recurring current taxes for the period amounted to €8.3 million, or 10.3% of the recurring pre-tax consolidated profit. In addition to the favourable tax situation in Bulgaria, the introduction of notional interest in Belgium at the beginning of the year has also had a positive effect on the group’s consolidated tax charge.
non-recurrIng Items and Ias 39 effect
In 2006, Cumerio has booked non-recurring results of €1.6 million after tax. The non-recurring items include
a write-back on inventories and expenses relating to a voluntary redundancy plan in Bulgaria.
The application of IAS 39 in respect of transactional hedges resulted in a positive impact of €0.5 million after tax for the year. As announced previously, the strict application of this standard creates some non-cash P&L volatility that Cumerio has decided to exclude from recurring operating, financial and tax results, with a view to improving the read-ability and comparability of the financial statements.
hedgIng
Cumerio’s effective dollar rate for 2006 was approximately €/US$1.2350. During the year, Cumerio has started to hedge part of its antici-pated structural dollar exposure for 2007. At 21 February 2007, approxi-mately 60% of the group’s structural dollar exposure for 2007 has been hedged at about €/US$1.3050.
Cumerio has also taken advantage from the high prevailing metal prices to hedge 70% of its exposure to copper and precious metals for 2007. Similarly, half the exposure to metal prices for the years 2008 and 2009 has also been hedged. The related in-come streams have been hedged into euros.
InternatIonaL fInancIaL reportIng standards
In line with IFRS standards, Cumerio has implemented IAS 19, Employee Benefits, retroactively with effect from 1 January 2005. In accordance with this standard, Cumerio has elected to recognize actuarial gains and losses in equity.
�� glossary finanCial definitions
eBIt
Operating profit (loss) of fully con-solidated companies.
non-recurrIng eBIt
Includes non-recurring items related to restructuring measures, impair-ment of assets, and other income or expenses arising from events or transactions that are clearly distinct from the ordinary activities of the company. Metal inventory write-downs and write-backs are part of the non-recurring EBIT of the busi-ness units.
Ias 39 effect
Non-cash timing differences in revenue recognition due to the non-application of hedge accounting to transactional hedges, which means that hedged items can no longer be measured at fair value.
recurrIng eBIt
EBIT - non-recurring EBIT - IAS 39 effect.
recurrIng eBIt margIn
Recurring EBIT/ revenues (excluding metals).
eBItda
EBIT + depreciation and amortiza-tion + non-cash expenses other than depreciation, (i.e., increase and reversal of provisions, changes in inventory valuation, IAS 39 effect and impairment results) of fully con-solidated companies.
revenue excLudIng metaLs
All revenue elements - value of pur-chased metals.
return on capItaL empLoyed (roce)
Recurring EBIT / average capital em-ployed where EBIT is adjusted for certain financial items such as secu-ritization costs.
capItaL empLoyed
Shareholders equity excluding fair value reserves and currency transla-tion adjustments + net interest-bear-ing debt including provisions for em-ployee benefits.
capItaL expendIture
Investments in tangible and intangible assets.
cash fLow Before fInancIng
Net cash generated by (used in) operating activities + net cash gener-ated by (used in) investing activities.
net fInancIaL deBt
Non-current financial debt + current financial debt - cash and cash equivalents
eps decLared - BasIc
Net earnings, Group share / (average number of outstanding shares - treasury shares).
eps decLared - dILuted
Net earnings, Group share / (average number of outstanding shares - treas-ury shares + (number of potential new shares to be issued under the exist-ing stock option plans x dilution im-pact of the stock option plans)).
eps adJusted - BasIc
Net recurring earnings, Group share/ (average number of outstanding shares - treasury shares).
eps adJusted - dILuted
Net recurring earnings, Group share/ (average number of outstanding shares - treasury shares + (number of potential new shares to be issued under the existing stock option plans x dilution impact of the stock option plans)).
vvpr strIps
In Belgium, each VVPR strip, pre-sented together with the ordinary coupon of the same number, gives the holder the right to a reduced rate of withholding tax. This current-ly amounts to a reduction from 25 to 15%. The period of presentation has now been extended to 3 years starting on 1 January of the year during which the dividend is paid. The VVPR strips are listed on Eurolist by Euronext Brussels.
Contents
Consolidatedincomestatement 46
Consolidatedbalancesheet 47
Consolidatedcashflowstatement 48
Consolidatedstatementofincomeandexpensesrecognizedinequity 49
Notestotheconsolidatedfinancialstatements 50
Parentcompanyseparatesummarizedfinancialstatements 82
Reportofthestatutoryauditorontheconsolidatedfinancialstatements 84
at31December2006
44 Cumerio Group / FinanCial statements
Cumerio Group / FinanCial statements
Consolidated income statement
Consolidated balance sheet
Consolidated cash flow statement
Consolidated statement of income and expenses recognized in equity
Notes to the consolidated financial statements
1. Basis of preparation
2. Accounting policies
3. Impact of the amended IAS 19 standard on the financial statements
4. Financial risk management
5. Critical accounting estimates and judgements
6. Group companies
7. Foreign currency measurement
8. Segment information
9. Business combinations
10. Operating income
11. Other operating expenses
12. Non-recurring results and impact of IAS 39 included in operating results
13. Payroll and related benefits
14. Net finance cost
15. Income taxes
16. Intangible assets
17. Property, plant, and equipment
18. Financial assets
19. Inventories
20. Trade and other receivables
21. Deferred tax assets and liabilities
22. Cash and cash equivalents
23. Consolidated statement of changes in shareholder’s equity
24. Share capital
25. Financial debts
26. Trade and other payables
27. Provisions for employee benefits
28. Provisions for other liabilities and charges
28. Notes to the cash flow statement
30. Financial instruments
31. Off-balance sheet rights and commitments
32. Contingencies
33. Related party transactions
34. Earnings per share
35. IFRS developments
Parent company separate summarized financial statements
Report of the statutory auditor on the consolidated financial statements at 31 December 2006
Consolidated income statement(€ thousand) Notes 2006 2005
Revenues 3395325 1965608
Otheroperatingincome 27857 11721
Operating income 10 3 423 182 1 977 329
Rawmaterialsandconsumablesused 3179953 1756217
Payrollandrelatedbenefits 13 51719 50063
Depreciationandimpairmentresult 36180 39182
Increase(decrease)inprovisions (4254) 3602
Otheroperatingexpenses 11 60655 63387
Operating expenses 3 324 253 1 912 451
RESULT FROM OPERATING ACTIVITIES 98 929 64 878
Financialincome 14 6163 2947
Financialexpenses 14 (21648) (10895)
Foreignexchangegains(losses) 14 (863) 884
PROFIT (LOSS) BEFORE INCOME TAX 82 581 57 814
Incometaxes 15 (10267) (15085)
GROUP PROFIT (LOSS) OF THE PERIOD 72 314 42 729
Ofwhichgroupshare 72499 42645
Ofwhichminorityinterest (185) 84
(€)
Basicearningspershare 34 2.84 1.66
Dilutedearningspershare 34 2.83 1.66
Proposeddividendpershare 0.70 0.60
The comparables for 2005 are restated to reflect the retrospective application of IAS19 as amended.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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Consolidated balance sheet(€ thousand) Notes 31/12/06 31/12/05
NON-CURRENT ASSETS 271 022 245 600
Intangibleassets 16 2734 2621
Goodwill 16 4947
Property,plantandequipment 17 246469 226484
Available-for-salefinancialassets 18 20 20
Longtermloansgranted 18 13710 13763
Trade&otherreceivables 20 20
Deferredtaxassets 21 3122 2692
CURRENT ASSETS 672 993 526 351
Inventories 19 330862 246792
Trade&otherreceivables 20 271795 187810
Incometaxreceivables 21 413 582
Cashandcashequivalents 22 69923 91167
TOTAL ASSETS 944 015 771 951
GROUP SHAREHOLDERS’ EQUITY 23 399 072 338 821
Sharecapital 181220 181220
Sharepremiums 31282 31282
Retainedearnings 172137 115021
Fairvalueandotherreserves 18977 11298
Treasuryshares (4544)
MINORITY INTERESTS 23 569 345
GROUP EQUITY 399 641 339 166
NON-CURRENT LIABILITIES 146 868 88 263
Provisionsforemployeebenefit 27 9149 9321
Financialdebt 25 130890 76145
Tradedebt&otherpayables 26 2470 2797
Deferredtaxliabilities 21 3563
Provisionsforotherliabilities&charges 796
CURRENT LIABILITIES 397 506 344 522
Financialdebt 25 70949 77775
Tradedebt&otherpayables 26 321400 260341
Incometaxpayable 21 5157 1356
Provisionsforotherliabilities&charges 28 5050
TOTAL EQUITY & LIABILITIES 944 015 771 951
The comparables for 2005 are restated to reflect the retrospective application of IAS19 as amended.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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Consolidated cash flow statement
(€ thousand) Notes 2006 2005
Consolidatedprofit(loss)(Groupshare) 72499 42646
Minorityinterestinconsolidatedprofit(loss) (185) 84
Adjustmentsfornon-cashtransactions 29 31403 42121
Adjustmentsforitemstodiscloseseparatelyorunderinvestingandfinancingcashflows 29 22 126 21 641
Changeinworkingcapitalrequirements 29 (102492) (3863)
Cash flow generated from operations 23 351 102 629
Taxpaidduringtheperiod 29 (4260) (4661)
Net cash flow generated from operating activities 19 091 97 968
Acquisitionsofproperty,plant,andequipment (47699) (17163)
Acquisitionsofintangibleassets (850) (102)
Acquisitionsofnewsubsidiaries(netofcashacquired) 9 (1583)
Acquisitionsoffinancialassets (19)
Newloansextended (1864) (3)
Subtotal acquisitions (51 996) (17 287)
Disposalsofproperty,plant,andequipment 369 2306
Repaymentofloans 53 63
Subtotal disposals 422 2 369
Net cash flow generated from investing activities (51 574) (14 918)
Grantsreceived 22
Treasuryshares (4544)
Interestreceived 1997 726
Interestpaid (11536) (8204)
Newloans 25 150414 132409
Repaymentofloans 25 (109890) (211072)
DividendspaidtoCumerioshareholders (15230) (7478)
Dividendspaidtominorityshareholders (15)
Net cash flow generated from financing activities 11 196 (93 597)
Effectofexchangeratefluctuationsoncashheld (8) 3739
Total net cash flow of the period (21 295) (6 808)
Netcashandcashequivalentsatthebeginningoftheperiod 91137 97945
Net cash and cash equivalents at the end of the period 22 69 842 91 137
The comparables for 2005 are restated to reflect the retrospective application of IAS19 as amended.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Consolidated statement of income and expenses recognized in equity
(€ thousand) Notes 2006 2005
Changesincashflowhedgereserves 8920 (12937)
Changesinpostemploymentreserves (775) (2266)
Changesinsharebasedpaymentsreserves 694 692
Changesindeferredtaxesrecognizedinequity (1097) 3863
Changesincurrencytranslationdifferences (13) 17729
NET INCOME (EXPENSE) RECOGNIzED IN EQUITY 23 7 729 7 081
Profit(loss)oftheperiod 72314 42729
TOTAL RECOGNIzED INCOME (EXPENSE) 80 043 49 810 of which minority share (171) 151 of which group share 80 214 49 659
The comparables for 2005 are restated to reflect the retrospective application of IAS19 as amended.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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notes to the Consolidated FinanCial statements
1. Basis oF preparation
The Company’s consolidated financial statements forthe year ending on 31 December 2006, which wereauthorizedforissuancebytheBoardofDirectorson20February2007,andtheannualBoardreportpreparedinaccordancewitharticle119oftheBelgianCompanyLawsetforthonpages1to44,havebeenpreparedinaccordancewiththelegalandregulatoryrequirementsapplicable to the consolidated financial statements ofBelgiancompanies.TheyincludethoseoftheCompanyandofitssubsidiaries.
Cumerio was established on 28 April 2005 by thede-merger of the copper activities of Umicore. Foraccountingandtaxpurposes,thede-mergertookeffectretroactivelyon1January2005andhasbeenaccountedforasareverseacquisition.
Since 1 January 2005, the Group presents its annualconsolidated financial statements in accordance withall International Financial Reporting Standards (IFRS)1adoptedbytheEuropeanUnion(EU).
In 2006, Cumerio for the first time implemented theamendments to IAS 19 ‘Employee Benefits’, morespecifically theoption to recognize actuarial gains andlossesinequity.Comparativefiguresfor2005havebeenrestatedaccordingly.Theimpactofchangesinaccountingpolicies relevant for the opening balance sheet, at1January2006andforthecomparableperiodof2005isdisclosedinnote3‘ImpactoftheamendedIAS19onthefinancialstatements’.
Theconsolidatedfinancialstatementsarepresented inthousandsof euros, rounded to thenearest thousand,andhavebeenpreparedonahistoricalcostbasis,exceptforthoseitemsvaluedatfairvalue.
New standards, amendments and interpretations thataremandatoryfortheaccountingperiodsbeginningonorafter1January2007havenotbeenearlyadoptedbytheGroup.
(1) AsperthestandardsandinterpretationspublishedbytheInternationalAccountingStandardsBoard(IASB)andtheIASB’sStandingInterpretationCommittee(SIC),respectively.
2. aCCoUntinG poliCies
2.1 prinCiples oF Consolidation
Cumerio applies full consolidation for its subsidiaries- entities inwhich theCompany has control - i.e., thepowertogovernthefinancialandoperatingpoliciessoastoobtainbenefitsfromitsactivities.Controlispresumedwhen Cumerio owns, directly or indirectly throughsubsidiaries,morethan50%ofthevotingrights.
Subsidiaries are consolidated from the date on whichcontrol is transferredtotheGroupandareno longerconsolidatedfromthedatethatcontrolceases.
Note6givesalistingofallsubsidiariesoftheGroupattheclosingdate.
Acquisitionsareaccountedforaccordingtothepurchasemethod.The assets, liabilities and contingent liabilitiesof the acquired company are measured at their fairvalueatthedateofacquisition.Thecostofacquisitionismeasuredasthe fairvalueofassetsgivenup,sharesissuedorliabilitiesassumedatthedateofacquisition,pluscostsdirectlyattributabletotheacquisition.TheexcessofthecostofacquisitionovertheGroup’sshareinthefairvalueofthenetassetsofthesubsidiaryisrecordedasgoodwill(seechapter2.7onIntangibleassets).IftheGroup’s share in the fair value of the subsidiary’s netassets exceeds the cost of acquisition, the excess isrecognizedimmediatelyintheincomestatement.
Intra-group transactions, balances and unrealizedgains on transactions between Group companies areeliminated.Unrealizedlossesarealsoeliminated,unlessa loss isan indicationof impairment.Wherenecessary,thesubsidiaries’accountingpolicieshavebeenchangedtoensureconsistencywiththepoliciesthattheCumerioGrouphasadopted.
AnassociateisanentityoverthefinancialandoperatingpoliciesofwhichtheCompanyhasasignificantinfluence,butinwhichithasnocontrol.Typically,thisisevidencedbyanownershipofbetween20and50percentofthevotingrights.Ajointventureisacontractualarrangementwhereby the company and other parties undertake,directlyorindirectly,aneconomicactivitythatissubjecttojointcontrol.
Both associates and joint ventures are accountedfor using the equity method. Under this method, theGroup’s share of the post-acquisition profits or lossesisrecognizedintheincomestatement,anditsshareofpost-acquisitionmovementsinreservesisrecognizedinreserves.
UnrealizedgainsontransactionsbetweentheCompanyanditsassociatesorjointventuresareeliminatedtotheextentoftheCompany’s interest intheassociatesand
jointventures.Unrealizedlossesarealsoeliminated,unlessthetransactionprovidesevidenceofanimpairment.
Theinvestmentsinassociatesandjointventuresincludethegoodwillonacquisitions.
TheCompanycurrentlyhasnoinvestmentsinassociatesorjointventures.
2.2 seGment reportinG
Abusinesssegmentisagroupofassetsandoperationsengaged inprovidingproducts and/or services that aresubjecttorisksandreturnsthataredifferentfromthoseofotherbusinesssegments.
Ageographicalsegmentisengagedinprovidingproductsand/orserviceswithinaparticulareconomicenvironmentthataresubjecttorisksandreturnsthataredifferentfromthoseofsegmentsoperatinginotherenvironments.
ThebusinesssegmentsaretheprimarysegmentsoftheGroup. The geographical segments are its secondarysegments.
2.3 inFlation aCCoUntinG
During theperiodsunder review,noneof theGroup’sentities report in the currency of a hyperinflationaryeconomy.
2.4 ForeiGn CUrrenCY translation
Functionalcurrency:itemsincludedinfinancialstatementsof each entity in the Group are measured using thecurrency that best reflects the economic substance oftheunderlyingeventsandcircumstancesrelevanttothatentity.Theconsolidatedfinancialstatementsarepresentedineuroswhich is the functionalcurrencyoftheparent.ToconsolidatetheGroupandeachofitssubsidiaries,thefinancialstatementsaretranslatedasfollows:
• Assets and liabilities at the period-end rate aspublishedbytheEuropeanCentralBank
• Incomestatementsattheaverageexchangeratefortheperiod
• The components of shareholders’ equity at thehistoricalexchangerate
Exchangedifferencesarising fromthetranslationofthenet investmentinforeignsubsidiariesattheperiod-endexchangeratearerecordedaspartoftheshareholders’equityunder‘Currencytranslationdifferences’.
Goodwill and fair value adjustments arising from theacquisitionofaforeignentityaretreatedaslocalcurrencyassetsandliabilitiesoftheforeignentityandaretranslatedattheclosingrate.
2.5 ForeiGn CUrrenCY transaCtions
Foreign currency transactions are recognized in thefunctional currency of each entity at exchange ratesprevailing at the date of the transaction.The date ofa transaction is the date at which the transaction firstqualifiesforrecognition.Forpracticalreasons,aratethatapproximatestheactualrateatthedateofthetransactionisused insomecases, forexample,anaveragerate fora week or month. Subsequently, monetary assets andliabilitiesdenominatedinforeigncurrenciesaretranslatedattheclosingrateatthebalancesheetdate.
Gainsandlossesresultingfromthesettlementofforeigncurrency transactions, and from the translation ofmonetary assets and liabilities denominated in foreigncurrencies, are recognized in the income statement asfinancialresult.
In order to hedge its exposure to certain foreignexchange risks, the Company has entered into certainforward and options contracts (see chapter 2.22 onFinancialinstruments).
2.6 propertY, plant and eQUipment
Property,plantandequipmentarerecordedathistoricalcost, less accumulated depreciation and impairmentlosses. Cost includes all direct costs and appropriateallocationofindirectcostsincurredtobringtheassettoworkingconditionforitsintendeduse.
Therearenoborrowingcostscapitalizedinthecostsoftheassets.Allborrowingcostsarerecognizedasexpenseintheperiodinwhichtheyareincurred.
Thestraight-linedepreciationmethodisappliedthroughtheestimateduseful lifeof theassets.Useful live is theperiod of timeoverwhich an asset is expected to beusedbythecompany.
Repairandmaintenancecostsareexpensedintheperiodinwhich they are incurred if theydonot increase thefutureeconomicbenefitsoftheasset.Otherwise,theyareclassifiedas separatecomponentsof itemsofproperty,plantandequipment.Thosecomponentsareaccountedforasseparateassetsastheyhaveuseful livesdifferentfrom those itemsof property, plant and equipment towhichtheyrelate.
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2.7 intanGiBle assets
2.7.1 Concessions, patents and licences
Patents and licences are amortizedover theperiodoftheir legal protection. Land use rights are amortizedovertherelevantcontractualperiodusingastraight-linemethod.
Internally generated customer relationships are notcapitalized.
2.7.2 Software
Software and related internal development costs areamortizedovertheirestimatedusefullife,typicallyoveraperiodoffiveyears.Theestimatedusefullifeisassessedand explicitly validated in the investment requestfor all newly acquired material software and relateddevelopmentcosts.
2.7.3 Research and development
Research costs related to the prospect of gaining newscientificortechnologicalknowledgeandunderstandingarerecognized inthe incomestatementasan incurredexpense.
Developmentcostsaredefinedascostsincurredforthedesignofneworsubstantiallyimprovedproductsandfor
the processes prior to commercial production or use.They are capitalized if, among others, the followingconditionsaremet:
• Theintangibleassetwillgiverisetofutureeconomicbenefitsor,inotherwords,themarketpotentialhasbeenclearlydemonstrated;
• Theexpendituresrelatedtotheprocessorproductcanbeclearlyidentifiedandreliablymeasured.
Incircumstanceswhereitisdifficulttoclearlydistinguishbetween research and development costs, the costsare consideredasbeing research. If development costsare capitalized, they are amortized using a straight-linemethodovertheperiodoftheirexpectedbenefitsbutnotexceedingfiveyears.
2.7.4 Goodwill
Goodwill represents the excess of the cost of anacquisitionofasubsidiary,associate,orjointlycontrolledentity over the Group’s share in the fair value of theidentifiableassetsandliabilitiesoftheacquiredentityatthedateofacquisition.Goodwillisrecognizedatcostlessanyaccumulatedimpairmentlosses.
Land Non-depreciable
Buildings
-Industrialbuildings 20years
-Improvementstobuildings 10years
-Otherbuildingssuchasofficesandlaboratories 30years
-Investmentproperties 30years
Plant, machinery and equipment 10 years
-Furnaces 7years
-Smallequipment 5years
Furniture and vehicles
-Vehicles 5years
-Mobilehandlingequipment 7years
-Computerequipment 3to5years
-Furnitureandofficeequipment 5to10years
The estimated useful life is assessed and explicitlyvalidatedintheinvestmentrequestforallmaterialnewlyacquiredorconstructedinvestments.
Assets are reviewed for an indication of impairmentat each balance sheet date to assess whether theyare recoverable in the form of future benefits. If therecoverable amount has decreased below the carrying
amount,animpairmentlossisrecognizedandaccountedfor as an operational charge. To assess impairments,assetsaregroupedincash-generatingunits(CGU)(seechapter 2.13 on Impairment of non-financial assets).Acash-generatingunit is the smallest identifiable groupofassets that generates cash inflows from continuing usethatarelargelyindependentfromthecashinflowsfromotherassetsorgroupsofassets.
Typically,usefullifepermaintypeofproperty,plantandequipmentisdefinedasfollows:
Goodwillfromassociatesandjointventuresispresentedinthebalancesheetas‘Investmentsaccountedforundertheequitymethod’,togetherwiththeinvestmentitself.
Toassessanimpairment,goodwillisallocatedtoaCGU.At each balance sheet date, CGUs are tested forimpairment,meaningananalysisisperformedtodeterminewhether the carrying amount of goodwill allocated toeachCGUisfullyrecoverable.Ifthecarryingamountisnot fully recoverable,anappropriate impairment loss isrecognized in the income statement.These impairmentlossesareneverreversed.
TheexcessoftheGroup’sshareinthefairvalueofthenetidentifiableassetsacquiredoverthecostofacquisitionisrecognizedimmediatelyintheincomestatement.
2.8 lease
Leaseoperationscanbedividedintotwotypes:
2.8.1 Finance lease
LeasesunderwhichtheCompanyassumesasubstantialpartoftherisksandrewardsofownershipareclassifiedasfinanceleases.Theyarerecordedatinceptionoftheleaseatfairvalueor,iflower,atthepresentvalueoftheestimatedleasepayments,lessaccumulateddepreciationandimpairmentlosses.
Each lease payment is allocated between the liabilityand finance charges. The rental obligations, net offinancecharges,are included in long-termpayables.Theinterest element is charged to the income statementover the lease period. Assets under finance lease aredepreciatedovertheshorteroftheirusefullifeandtheleaseterm.
2.8.2 Operating lease
Leases underwhich a substantial part of the risks andrewards of ownership are effectively retained by thelessorareclassifiedasoperatingleases.Paymentsunderoperating leases are considered as an expense in theincomestatement.
2.9 FinanCial assets
Financialassetsareclassifiedintothefollowingcategories:• Availableforsalefinancialassets• Loansandreceivables
Availableforsalefinancialassetsarecarriedatfairvalue.Unrealizedgainsandlossesfromchangesinfairvalueofsuchassetsarerecognizedinequityasfairvaluereserves.When the assets are sold, the accumulated fair valueadjustments are included in the income statement asgainsandlosses.
Loansandreceivablesarecarriedatamortizedcostlessanyimpairment.
2.10 inVentorY
Inventories are carried at the lower of cost and netrealizable value. Cost comprises direct purchase ormanufacturing costs and an appropriate allocation ofoverheads.
Inventoriesareclassifiedas:
1. Baseproductswithmetalhedging2. Baseproductswithoutmetalhedging3. Consumables4. Advancespaid
Baseproductswithmetal hedging aremetal-containingproducts forwhichCumerio isexposedtometalpricefluctuation risks and where Cumerio applies an activeand structured risk management to minimize potentialadverseeffectsonthefinancialperformanceoftheGroup.The metals are classified in inventory categories thatreflecttheirspecificnatureandbusinessuse.Appropriatehedging mechanisms are applied (see chapter 2.22 onFinancialinstruments).Aweightedaverageisappliedpercategoryofinventory.
Baseproductswithoutmetalhedgingandconsumablesarevaluedusingtheweighted-averagemethod.
Write-downs on inventories are recognized when thecarryingamountexceedsthenetrealizablevalue.Write-downsarepresentedseparately.
Advancespaidaredown-paymentsontransactionswithsuppliersforwhichthephysicaldeliveryhasnotyettakenplaceandarebookedatnominalvalue.
2.11 trade and other reCeiVaBles
Trade receivables are measured at amortized cost, i.e.,at thenetpresentvalueof the receivableamount.Thenominalvalueistakenunlesstheimpactofdiscountingismaterial.Receivablesarewrittendownforunrecoverableamounts.
Assets inrespectofwhichsubstantiallyalltherisksandrewardshavebeentransferred-orforwhichalltherisksandrewardshavenotbeentransferredbutthecontrolofwhichhasnotbeenretained–arederecognizedfromthebalancesheet.
Fairvaluegainsonderivativesareincludedintradeandotherreceivables.
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2.12 Cash and Cash eQUiValents
Cash includes cash in hand and cash with banks. Cashequivalentsareshort-term,highlyliquidinvestmentsthatarereadilyconvertibleintoknownamountsofcash,havematuritydatesofthreemonthsorlessandaresubjecttoaninsignificantriskofchangeinvalue.
Bankoverdraftsareincludedinthecurrentliabilitiesonthebalancesheet.
2.13 impairment oF non-FinanCial assets
Property, plant and equipment and other non-currentassets, including intangible assets, are reviewed forimpairment losses whenever events or changes incircumstances indicate that the carrying amount maynot be recoverable. If any such indication exists, therecoverableamountoftheassetisestimated.
The recoverable amount is the higher of an asset’snet selling price and its value in use.To estimate therecoverable amount of individual assets, the Companyoftendetermines the recoverable amountof the cash-generatingunit(CGU)towhichtheassetbelongs.
Wheneverthecarryingamountofanassetexceeds itsrecoverable value, an impairment loss is immediatelyrecognizedasanexpense.
AreversalofimpairmentlossesisrecognizedwhenthereisanindicationthattheimpairmentlossesrecognizedfortheassetorfortheCGUnolongerexistorhavedecreased.Animpairmentlossisreversedonlytotheextentthattheasset’scarrying amount does not exceed the carrying amountthatwouldhavebeendetermined,netofdepreciationoramortisation,ifnoimpairmentlosshadbeenrecognized.
2.14 share Capital and retained earninGs
Sharebuybacks :When theCompanypurchases someofitsownshares,theconsiderationpaid-includinganyattributable transaction costs, net of income taxes - isdeductedfromthetotalshareholders’equityastreasuryshares.Nogainorlossshallberecognizedinprofitorlossonthepurchase,sale, issueorcancellation.Wheresuchsharesaresubsequentlysoldorreissued,anyconsiderationreceivedisincludedinshareholders’equity.
Incremental costs directly attributable to the issue ofnewsharesareshowninequityasadeductionfromtheproceeds,netoftax.
Dividendsof the parent company payableonordinarysharesareonlyrecognizedasaliabilityfollowingapprovalbytheshareholders.
2.15 minoritY interests
Minorityinterestsincludeaproportionofthefairvalueof identifiable assets and liabilities recognized uponacquisitionofasubsidiary,togetherwiththeappropriateproportionofsubsequentprofitsandlosses.
In the income statement, the minority share in theCompany’sprofitorlossispresentedseparatelyfromtheCompany’sconsolidatedresult.
2.16 proVisions
Provisionsarerecognizedonthebalancesheetwhen:
• Thereisapresentobligation(legalorconstructive)asaresultofapastevent
• It is probable that an outflow of resources will berequiredtosettletheobligation
• A reliableestimatecanbemadeof theamountoftheobligation
A constructive obligation is an obligation that derivesfromCompanyactionswhere,byanestablishedpatternofpastpracticeorpublishedpolicies,theCompanyhasindicated that it will accept certain responsibilities and,asaresult,theCompanyhascreatedavalidexpectationthatitwilldischargethoseresponsibilities.
The amount recognized as a provision is the bestestimate of the expenditure required to settle thepresentobligationat thebalancesheetdateandtakingintoaccounttheprobabilityofthepossibleoutcomeoftheevent.Wheretheeffectofthetimevalueofmoneyismaterial,theamountofaprovisionisthepresentvalueof the expenditure expected to be required to settletheobligation.Theresultoftheyearlydiscountingoftheprovision,ifany,isaccountedforasfinancialresult.
Themaintypesofprovisionsareasfollows:
1. Provisions for employee benefits(Seechapter2.17onEmployeebenefits)
2. Provisions for environmental obligations
Environmentalprovisionsarerecognizedbasedonlegalandconstructiveobligations frompastevents, inaccor-dance with the Company’s environmental policy andapplicable legal requirements.The full amount of theestimatedobligationisrecognized.
3. Other provisions
Other provisions include those for litigation, onerouscontracts(seechapter2.22.1onTransactionalrisks–Fairvaluehedging),warrantiesandrestructuring.
A provision for restructuring is recognized when theCompany has approved a detailed and formal restruc-turingplanandtherestructuringhaseithercommencedor has been announced publicly before the balancesheetdate.Anyrestructuringprovisiononlyincludesthedirectexpenditurearising fromthe restructuringwhichis necessarily entailed and is not associated with theongoingactivitiesoftheCompany.
2.17 emploYee BeneFits
2.17.1 Short-Term Employee Benefits
These include wages, salaries and social securitycontributions, paid annual leave and sick leave, bonusesand non-monetary benefits.These items are taken asanexpenseintherelevantperiod.Bonusestocompanymanagers are based on key financial targets and otherindicators.Theamountofthebonusesisrecognizedasanexpense,basedonanestimateatthebalancesheetdate.
2.17.2 Post employment benefits (pensions, medical care)
The Company has various pension and medical careschemesinaccordancewiththeconditionsandpracticesofthecountriesitoperatesin.Theschemesaregenerallyfunded through payments to insurance companies ortrustee-administeredfunds.
2.17.2.1 Defined benefit plans
TheCompanyisaccountingforalllegalandconstructiveobligations,bothundertheformaltermsofdefinedbenefitplansandundertheCompany’sinformalpractices.
The amount presented in the balance sheet is basedonactuarialcalculations(usingtheprojectedunitcreditmethod)andrepresentsthepresentvalueofthedefinedbenefit obligations as adjusted for unrecognized pastservice costs, and as reduced by the fair value of theplan’sassets.
Unrecognized past service costs result from theintroduction of new benefit plans or changes in thebenefits payable under an existing plan. Past servicecostsforwhichthebenefitsarenotyetvested(i.e.,theemployees must deliver employee services before thebenefits are granted) are amortized on a straight-linebasis over the average period after which the new oramendedbenefitsbecomevested.
All actuarial gains and losses following changes in theactuarial assumptions of post-employment definedbenefitplansarerecognizedthroughequityintheperiodinwhichtheyoccurandaredisclosedinthestatementof income and expense as post-employment benefitreserves.
2.17.2.2 Defined contribution plans
TheCompanypayscontributionstopubliclyorprivatelyadministered insurance plans. The payments arerecognizedasexpensesastheyfalldueand,assuch,areincludedinpersonnelcosts.
2.17.3 Other long-term employee benefits (jubilee premiums)
These benefits are accrued for their expected costsover the period of employment using an accountingmethodology similar to thatofdefinedbenefitpensionplans.Theseobligationsareingeneralvaluedannuallybyindependentqualifiedactuaries.Allactuariallossesorgainsareimmediatelyrecognizedintheincomestatement.
2.17.4 Termination benefits (pre-retirement plans, other termination obligations)
ThesebenefitsariseasaresultoftheCompany’sdecisionto terminate an employee’s employment before thenormal retirement date or of an employee’s decisionto accept voluntary redundancy in exchange for thosebenefits. Future obligations are also recognized whentheyare reasonablypredictable inaccordancewith theconditions and practices of the countries in which theCompanyoperates.
These benefits are accrued for their expected costsover the period of employment, using an accountingmethodology similar to that of defined benefit plans.In general, these obligations are valued annually byindependentqualifiedactuaries.Allactuariallossesorgainsareimmediatelyrecognizedintheincomestatement.
2.17.5 Equity and equity-related compensation benefits (Share based payments IFRS 2)
StockoptionprogrammesallowseniormanagementtoacquiresharesoftheCompany.InaccordancewithBelgianlaw,theexercisepriceoftheoptionsisdeterminedbasedontheaverageclosingpricesoftheshareforthe30listingdayspriortothedecisionbytheBoardofDirectors.
Theseoptionsarevestedat thedateof thegrantandtheir fair value is recognized as an employee benefitsexpense with a corresponding increase in equity asshare-basedpaymentreserves.
Theexpensetoberecognizediscalculatedbyanactuary,using a valuation model which takes into account allfeaturesofthestockoptionsprogramme,thevolatilityoftheunderlyingstockandanassumedexercisepattern.
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2.17.6 Presentation
The employee benefits are recorded under operatingresults intheincomestatement,exceptfortheinterestcostandthereturnontheassetsofthedefinedbenefitplans.Theseareclassifiedunderfinancialresults.
2.18 FinanCial deBt
Borrowingsareinitiallyrecognizedasreceivedproceeds,netoftransactioncosts.Subsequently,theyarecarriedatamortizedcostusingtheeffectiveinterestratemethod.Amortizedcostiscalculatedbytakingintoaccountanyissuecosts,andanydiscountorpremiumonsettlement.
2.19 trade and other paYaBles
Trade payables are measured at amortized cost, i.e.,at the net present value of the payable amount.Thenominalvalue istaken,unlessthe impactofdiscountingismaterial.
FairvaluelossesonderivativesareincludedinTradeandotherpayables.
2.20 inCome taXes
Taxesonprofitor lossof theyear includecurrentanddeferred tax. Such taxes are calculated in accordancewith the tax regulations in effect in each country theCompanyoperatesin.
Currenttaxistheexpectedtaxpayableonthetaxableincomeoftheyear,usingtaxratesinforceatthebalancesheet date, and any adjustment to tax payable (orreceivable)inrespectofpreviousyears.
Deferredtaxesarecalculatedusingthe liabilitymethodontemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Thesetaxesaremeasuredusingthetaxratesthatwillapplywhentheassetisrecoveredandtheliabilitysettled.
Deferredtaxassetsareonlyrecognizedtotheextentthatit is probable that future taxable profit will be availableagainstwhichthetemporarydifferencescanbeutilized.
Deferredtaxassetsandliabilitiesareoffsetandpresentednet,onlyiftheyrelatetoincometaxesleviedbythesametaxationauthorityonthesametaxableentity.
2.21 reVenUe reCoGnition
2.21.1 Goods sold and services rendered
Revenuefromthesaleofgoodsintransformationactivitiesisrecognizedwhensignificantrisksandrewardsofownershiphavebeentransferredtothebuyer,andnosignificantuncer-taintiesremainregardingrecoveryoftheconsiderationdue,associatedcostsorthepossiblereturnofthegoods.Revenuefromrefiningactivities isrecognizedwhenthemetal reference stage is reached. Metal reference is agenerallyrecognizedstandardformofmetal,withdefinedmetal content, tradedonwell-established commoditiesmarkets.
Revenue from services rendered is recognized byreferencetothestageofcompletionofthetransactionwhenthiscanbemeasuredreliably.
2.21.2 Government grants
Agovernmentgrantisaccountedforinthebalancesheetinitially asdeferred incomewhen there is a reasonableassurancethatitwillbereceivedandthattheCompanywill comply with the conditions attached to it. Grantsarerecognizedintheincomestatementovertheperiodnecessarytomatchthemwiththecoststheyareintendedtocompensate.
2.22 FinanCial instrUments ias 39 (hedGinG)
TheCompanyuses derivative financial and commodityinstrumentsprimarilytoreducetheexposuretoadversefluctuations in foreign exchange rates, interest rates,commoditypricesandothermarketrisks.
TheCompanyusesmainlyspotandforwardcontractstocoverthemetalpriceandcurrencyrisks.Thetransactionscarriedoutonthefuturesmarketsarenotofaspeculativenature.Tohedgepartoralloftheinterestrateexposurefromfixedorfloatingrateborrowings,theCompanycanuseinterestrateswaps.
2.22.1 Transactional risks - fair value hedging
Derivative financial and commodity instruments areusedtoprotectthefairvalueoftheunderlyinghedgeditems (assets, liabilities and firm commitments) and arerecognizedinitiallyatcost.
All derivative financial and commodity instruments aresubsequentlymeasuredatfairvalueatthebalancesheetdate via the “Mark-to-Market” mechanism. All gainsand losses are immediately recognized in the incomestatement - as an operational result for commodityinstrumentsandasafinancialresultinallothercases.
Hedged items such as physical commitments andcommercialinventories,arealsovaluedatfairvaluewhenhedge accounting can be documented in accordancewiththeIAS39criteria.
In the absence of hedge accounting, the hedged itemsare kept at cost and are subject to the valuationrules applicable to similar non hedged items, e.g., therecognitionatthelowerofcostandmarket(IAS2)forinventories,ortherecognitionofprovisionsforonerouscontracts(IAS37)forphysicalcommitments.
TheCompanyappliesfairvaluehedgeaccountingwhenhedging the interest rate exposure from fixed rateborrowings.The changes in fair value of interest rateswapsandoffixedrateborrowingsarerecognizedintheincomestatementwithinfinancecosts.
2.22.2 Strategic risks - cash flow hedging
Derivative financial andcommodity instruments relatedto the protection of future cash flows are designatedas hedges qualifying for cash flow hedge accountingundertheprovisionsofIAS39.Theeffectiveportionofthechange in the fairvalueof thehedging instrumentswhich qualify as cash flow hedges is recognized in theshareholders’ equity until the underlying forecasted orcommitted transactions occur (i.e., affect the incomestatement).Atthattime,therecognizedgainsandlossesonthehedginginstrumentsaretransferredfromequitytotheincomestatement.
When a hedging instrument is exercised or maturesbefore the underlying forecasted or committedtransactionsoccur,thegainsorlossesaremaintainedinequityuntilthehedgedtransactionsoccur.
If the hedged transactions are no longer probable orthehedgesbecomeineffective,thenanygainsorlosseswhichwere initially recorded inequityare immediatelyrecognizedintheincomestatement.
2.23 non-reCUrrinG resUlts and ias 39 eFFeCt
Non-recurring results relate to restructuring measures,impairment of assets and other income or expensesarisingfromeventsortransactionsthatareclearlydistinctfromtheordinaryactivitiesoftheCompany.
TheIAS39effectrelatestonon-cashtimingdifferencesin revenue recognition due to the non-application ofIAS39hedgeaccountingtotransactionalhedges,whichmeans that hedged items can no longer be measuredat fairvalueandmustbesubjecttothevaluationrulesapplicabletosimilarnon-hedgeditems.Thishascreatedsome non-cash P&L volatility which the Company hasdecided to exclude from recurring operating, financialandtaxresults,withaviewtopreservingthereadabilityandcomparabilityofthefinancialstatements.
Note12providesdetailsontheseresults.
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NewIFRSstandardsforwhichapplicationismandatoryonorafter1January2006islimitedtotheamendedIAS19standard‘EmployeeBenefits’.Thechangeinaccounting
policyisappliedretrospectivelyandthecomparablesarerestatedasrequiredbyIAS8.
3. impaCt oF the amended ias 19 standard on the FinanCial statements
Share Profit Fair value capital and Retained (Losses) & Minority TOTAL share earnings for the other interest (€ thousand) premiums year reserves
Balance at 1 January 2005 as published 212 502 80 086 4 337 234 297 159
Changeinaccountingpolicies
-EmployeebenefitsIAS19-amended (a) (141) (141)
-DeferredtaxIAS19-amended (b) 48 48
Balance restated at 1 January 2005 212 502 80 086 4 244 234 297 066
Balance at 31 December 2005 as published 212 502 72 375 42 678 12 794 345 340 694
Changeinaccountingpolicies
-EmployeebenefitsIAS19-amended (a) 92 (2407) (2315)
-DeferredtaxIAS19-amended (b) (124) 911 787
Balance restated at 31 December 2005 212 502 72 375 42 646 11 298 345 339 166
4. FinanCial risk manaGement
Each ofCumerio’s activities is exposed to a variety ofrisks: market risk (including changes in metal prices,foreigncurrencyexchangerates,andcertaincommercialterms),creditrisk,liquidityrisk,andinterestraterisk.Thecompany’soverallriskmanagementprogrammeseekstominimizeanyadverseeffectsonitsfinancialperformancebyhedgingsomeoftheserisksthroughtheuseofvariousfinancialinstruments.
Risk management is carried out by theTreasury andMetalHedgingdepartments,underpoliciesapprovedbytheBoardofDirectors.
4.1. market risk
4.1.1 Currency risk
Currencyriskscanbesplitintothreedistinctcategories:structural,transactional,andtranslationalrisk.
4.1.1.1 Structural risk
ThelargestportionofCumerio’srevenuesisdenominatedinUSdollar,whileitscostsaremostlyineuroorBulgarianlev, which is linked to the euro. Any change in the€/US$exchange ratewill thereforehavean impactonthe company’s results.This currency exposure derivesmainly from treatment and refining charges for copperconcentrates,thecathodeproducerpremium,themetalsurplusthatisrecoveredfromtreatment,and,toalesserextent,therefiningchargesforanodesandblister.
Cumerio has a policy of hedging part of its structuralUS dollar exposure.This is done either in isolation orin combination with hedging its structural metal priceexposurewhencurrencyexchangeratesormetalpricesdenominated in euro are at a level where attractivemarginscanbesecured.
Beginning inthe lastquarterof2005,Cumeriohadsetup several hedging arrangements for 2006 to secure
(a)Allactuarialgainsandlossesfollowingchangesintheactuarial assumptions of post-employment definedbenefitplansarerecognizedinequityintheperiodinwhichtheyoccurandaredisclosedintheStatementofrecognizedincomeandexpenseaspostemploymentbenefitreserves.On1 January2005,a lossof€141thousandwas recognized in equity.During 2005 anactuariallossof€2,266thousandhasbeenrecognized,leading to an accumulated actuarial loss of €2,407thousand at the end of 2005.The €92 thousandimpactonthe2005incomestatementrepresentsthe
reversaloftheamortizationofunrecognizedlossesoftheperiodintheincomestatementastheyarefullyrecognizeddirectlyinequity.
(b)The related deferred taxes on the gains and lossesrecognized are equally recognized directly in equitywhenappropriate.
Thecashflowstatement2005hasnotbeenrestatedastheamendmentofIAS19hasanimmaterialimpactonthepresentation.
the company’s profitability and cash flows. In 2006, theeffective exchange rate for Cumerio was €/US$1.235.The average exchange rate was €/US$1.259. CumeriorecentlybeganhedgingapartofitsstructuralUSdollarexposure for 2007.As of 21 February 2007, Cumeriohadhedgedapproximately60%ofitsstructuralUSdollarexposurefor2007atapproximately€/US$1.305.
In the absenceof anyhedgingof theUSdollar andatcurrentexchangerates,astrengtheningoftheUSdollarby one US cent against the euro would lead to anincreaseinthegroup’soperatingresultsontheorderof€1.4millionperyear.Conversely,aweakeningoftheUSdollarbyoneUScentagainsttheeurowouldgiverisetoadecrease inCumerio’s consolidatedoperating resultsofthesamemagnitudeonanannualbasis.Thedecreasedsensitivity compared with the prior year reflects thelower US dollar-denominated revenues expected for2007, in particular treatment and refining charges forcopperconcentrates.
The sensitivities discussed above should be seen as ashort-termindicationonlyandaresomewhattheoretical.ExchangeratelevelsoftenimpactcommercialconditionsnegotiatedinUSdollaraswellascertainelementsoutsideofCumerio’scontrol.Forexample,aUSdollarexchangeratewhosevariationsmayimpactUSdollar-denominatedmetalpricesandtreatmentand/orrefiningcharges,caninturnhaveaneffectonCumerio’searnings.
As set out in chapter 2.22 of theAccounting Policies,these hedging instruments qualify as cash flow hedgesandanychangeintheirfairvalueisrecognizedinequity.
4.1.1.2 Transactional risk
The company is also subject to transactional risks inrespectofcurrencies,thatis,theriskofcurrencyexchangeratesfluctuatingbetweenthetimethepriceisfixedwitha customeror supplier and the time the transaction issettled.Cumeriosystematicallyhedgessuchtransactionalrisks,primarilythroughspotandforwardcontracts.
Assetoutinchapter2.22oftheAccountingPolicies,thesehedginginstrumentsaremeasuredatfairvalueoneachbalance sheet date while the underlying hedged itemsaregenerallymeasuredatthelowerofcostandmarketprice.ThisisallowedasCumeriodoesnotmeetthestrictcriteriaoftheIAS39accountingstandard.Thiswillinducetimingdifferences inrevenuerecognitionandcreateanelement of non-cash P&L volatility.The company hasdecidedtoexcludethisfromthedefinitionofrecurringoperational, financial and tax results to improve thereadabilityandcomparabilityofthefinancialstatement.
4.1.1.3 Translational risk
SomeCumeriooperationsdonotusetheeuroastheirfunctional currency. In Switzerland, for instance, theSwissfrancisused.WhentheresultsofSwissAdvancedMaterials (SAM) are consolidated into the Cumeriogroup accounts, the translated amount is exposed tovariationsinthevalueoftheSwissfrancagainsttheeuro.Cumeriodoesnothedgeagainstsuchrisk.
TheUSdollarwasthefunctionalcurrencyforCumerioMedinBulgariauntiltheendof2005.HoweverthiswaschangedtotheeuroasofJanuary2006.
4.1.2. Metal Price Risk
Metalpriceriskscanbesplitintotwocategories:structuralandtransactionalrisk.
4.1.2.1. Structural risk
Cumerio is exposed to structural metal related pricerisks.Those risksoriginatemainly from the impact thatmetalpriceshaveontreatmentandrefiningchargesforcopper concentrates (through the existence of priceparticipation clauses) and on surplus metals recoveredduring treatmentof thematerials.These risks primarilyrelate to copper, gold, and silver and can be hedgedusing metal derivatives, mostly on the London MetalExchange.
Priceparticipationisoneofthesideclausesincontractsbetween miners and smelters whereby both partiesagreetosharepartofthebenefitsor lossesthatresultfrom a copper price that exceeds, or falls below, anagreeduponlevel.Cumeriohasgenerallybenefitedlessfrompriceparticipationthansomeofitspeersasmostofitscontractswerenegotiatedatatimewhencopperpriceswerelow.Recentmarkettrendssuggestthatpriceparticipation clauses may be removed or significantlycurtailedwitheffectfromthisyear.Cumeriohasapolicyofhedgingpartof thisstructuralmetalpriceexposure.This is done either in isolation or in combinationwiththe hedging of its structural US dollar exposure whenmetalpricesareatalevelwhereattractivemarginscanbe secured. Cumerio took advantage of strengtheningmetal prices during 2006 to start hedging part of itsstructuralmetalpriceexposurefor2007.By21February2007, 70% of Cumerio’s exposure to metal prices for2007hasalreadybeenhedged,atUS$7,044pertonneofcopper,US$663perounceofgold,andUS$12.85perounceofsilver.Similarly,50%ofCumerio’sexposuretometal prices for the years 2008 and 2009 has alreadybeenhedged.
Assetoutinchapter2.22oftheAccountingPolicies,thehedginginstrumentsrelatedtosurplusmetalsqualifyascash flow hedges and any change in their fair value is
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recognizedinequity.Thehedginginstrumentsinrespectofpriceparticipationclausesqualifyasfairvaluehedgesandchangesinthefairvalueofboththosehedgesandthe underlying hedged items are recognized in theincomestatement.
4.1.2.2. Transactional risk
Cumerioisalsoexposedtotransactionalpricerisksonmetalspurchasedand sold.Transactional risk is the riskrelatedtometalpricefluctuationsbetweenthetimethepriceisfixedwithacustomerorasupplierandthetimethe transaction is settled.The raw materials used andthe metals or products manufactured by Cumerio aregenerallypurchasedandsoldonthesamebasis,usingtherelevantLondonMetalExchangequotations.Thisallowstheuseofcertainhedginginstruments.Cumerio’spolicyis to hedge the transactional risk as much as possible,primarilythroughforwardcontracts.
Assetoutinchapter2.22oftheAccountingPolicies,thesehedginginstrumentsaremeasuredatfairvalueoneachbalancesheetdatewhiletheunderlyinghedgeditemsaregenerallymeasuredatthelowerofcostandmarket.ThisisallowedasCumeriodoesnotmeetthestrictcriteriaoftheIAS39accountingstandard.Thiswillinducetimingdifferencesinrevenuerecognitionandcreateanelementofnon-cashP&Lvolatility.Thecompanyhasdecidedtoexclude this from the definition of recurring EBIT toimprovethereadabilityandcomparabilityofthefinancialstatement.
4.2 other CommerCial risks
Cumerio is exposed to certainother commercial risksrelated to the supply of raw materials or unavoidablewaste streams as a result of the various productionprocesses.
Themostsignificantexposurearises fromtheneedforcopperconcentrates.Cumerioprocessesapproximately850,000 tonnes of copper concentrates annually, ofwhich approximately 55% originate from Bulgaria andothercountriesintheBlackSearegion.EachUScentperpound increase or decrease in the annually negotiatedtreatmentandrefiningcharges(TC&RCs)willresultinaUS$4.7 million increase or decrease in Cumerio’s2007operating results.There is a similar though lowerexposuretootherrawmaterial,includingcopperblister,anodes,andscrap.Cumerioseekstoensuresupplyandreduce the effect of short-term changes in treatmentand/orrefiningchargesbyenteringintolong-termsupplyarrangements.
Regarding the waste streams, the most significantexposure arises from the production of sulphuric acid,aby-productwhensmeltingcopperinBulgaria.Cumerioproducesapproximately850,000tonnesofsulphuricacid
peryear,primarilysoldinBulgariaandothercountriesintheBlackSearegion,underlong-termsupplycontracts.
4.3 Credit risk
Credit risk is the risk related to non-payment by anycounterparty for the purchase of goods. Cumerio’scustomerportfolioischaracterizedbyalargenumberofclients.But,therearealimitednumberoflargecustomers,causing a concentration of risk on certain companiesandcountries.Inordertomanagecreditriskexposures,Cumerio has introduced a credit management policyapproved by the Board of Directors, including creditlimits,approvalprocedures,andacontinuousmonitoringprocess.GroupTreasury is responsible for ensuring fullcompliance with the credit policy within Cumerio. AGroup Credit Committee has been set up to manageandcontrolanycreditrelatedissues.
ThecompanyhasdecidedtocovercreditrisksbyenteringintoacreditinsurancecoveragewithafirstclassEuropeancreditinsurancecompany.Thecontractscoverallpartsoftheworld.Salesaregenerallycreditinsuredforpoliticaland commercial risks with an individual deductible of10%perinvoice.Thecreditinsurancecoverageissubjecttoaglobalmaximal indemnificationcapintheorderof€63millionperyear.Someofthereceivablesaresoldonanon-recoursebasisthroughasecuritizationprogrammeorcertainfactoringarrangements.
There has been a significant increase in credit riskexposures during the year as a result of increaseddeliveries of copper products and the increase incopper prices. Although the credit limits granted bythe credit insurance company were frequently raised,Cumerio has been exposed to increased credit risksduring the year since, in some cases, the outstandingamounts exceeded the granted credit insurance lines.To cover these uninsured balances, Cumerio closed acomplementarycredit insurancecoveragewithanotherinsurancecompanywithamaximalindemnificationcapof€ 5 million per year. In certain cases, Cumerio alsodecidedtostoprespondingtoincreasingdemandsfromsomecustomers.
In2006,paymentdefaultswerelessthan€100,000.
4.4 liQUiditY risk
Prudent liquidity risk management implies maintainingsufficientanddiversifiedavailabilityof funds. Inordertoachieve this, the companyholds an appropriatemixofcommittedanduncommittedshort-termcreditfacilities,inadditiontothefive-year€110millionrevolvingcreditfacilityfinalizedin2005andtheseven-year€125millionbondthatwasissuedinJuly2006.Withaviewtocreatingmoreflexibility,Cumeriohasalsosetupa€100millioncommercialpaperprogrammeattheendof2006.
4.5 interest rate risk
Cumerio’s exposure to changes in interest rates arisesmainlyfromitsfinancialdebtobligationsandsecuritizationprogramme. At the end of 2006, the company’s netfinancial debt amounted to €131.9 million, of whichapproximately50%wassubjecttofloatinginterestrates.
Inordertomanagepartof itscostsforfundingandtoachieveareasonablebalancebetweenfixedandfloatinginterestrates,Cumeriohasdecidedtoswap50%ofthefixed interestpayableunder the seven-yearnotes issueintofloatinginterest.
% interest Registered Office VAT number 2006
Belgium Cumerio 100.00 Broekstraat31RueduMarais,1000Brussels BE873-533-993 CumerioBelgium 100.00 Broekstraat31RueduMarais,1000Brussels BE859-575-891Bulgaria CumerioMedJSCO 99.77 2070Pirdop CumerioBulgaria 100.00 YankoZabunovStreet3,1408SofiaItaly CumerioItalia 100.00 ViaPontaccio10,20121MilanoAustria CumerioAustria 100.00 Tuchlauben17,1014ViennaSwitzerland SwissAdvancedMaterialsAG 51.34 Y-Parc,RueGalilée15,1400Yverdon-les-Bains
5. CritiCal aCCoUntinG estimates and jUdGements
The preparation of the financial statements requiresmanagement to make assumptions and estimates thathave an impact on the measurement of assets andliabilities in theconsolidatedbalance sheetand incomestatement.
Assumptions and estimates are among other thingsappliedwhen:• Assessing the need for, and measurement of,
impairment losseson fixed assets,when calculatingdiscountedcashflows
• Accountingforpensionobligations
• Recognizing and measuring provisions for tax,environmental,andlitigationrisks,andrestructuring
• Determininginventorywrite-downs• Assessingtheextenttowhichdeferredtaxassetswill
beutilized• Determining the useful lives of property, plant and
equipmentandintangibleassets.
The assumptions and estimates are disclosed in thenotesrelatedtotheitemforwhichtheywereusedformeasurement.
7. ForeiGn CUrrenCY measUrement
For the main currencies applicable within the group’sconsolidated entities and investments, the prevailingratesused for translation into thegroup’spresentation
currency(€)areassetoutbelow.Thesubsidiarieshaveas functional currency the currency of the country inwhichtheyoperate.
Closing rates Average rates
2006 2005 2006 2005
AmericanDollar USD 1.31700 1.17970 1.25560 1.24409
NewBulgarianLev BGN 1.95580 1.95630 1.95580 1.95580
SwissFrancs CHF 1.60690 1.55510 1.57288 1.54828
The financial debt of the Bulgarian entities has beendrawnpartlyineurosat1January2006.Combinedwithan adapted hedging procedure in compliancewith the
company’spolicy,thishasledtothechangeinfunctionalcurrency for the Bulgarian entities with effect from1January2006.
6. GroUp Companies
Belowisalistofthecompaniesincludedintheconsolidatedfinancialstatements:
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8. seGment inFormation
primarY seGment inFormation at 31 deCemBer 2006 (by segment)
(€ thousand) Refining Products Unallocated Total
Total segment revenues 2 572 022 2 216 569 (1 393 266) 3 395 325
ofwhichexternalrevenues 1178725 2216569 31 3395325
ofwhichinter-segmentrevenues 1393297 (1393297)
Operating result 97 540 9 021 (7 632) 98 929
ofwhichrecurring 93271 8187 (7632) 93826
ofwhichnon-recurring 1759 1759
ofwhichIAS39effect 2510 834 3344
Net financial cost (16 348) (16 348)
ofwhichrecurring (13361) (13361)
ofwhichIAS39effect (2987) (2987)
Income taxes (10 267) (10 267)
ofwhichrecurring (10276) (10276)
ofwhichnon-recurring (185) (185)
ofwhichIAS39effect 194 194
Minority interest 185 185
Net profit for the year 72 499
ofwhichrecurring 70374
ofwhichnon-recurring 1574
ofwhichIAS39effect 551
Consolidated total assets 598 476 229 405 116 134 944 015
Segmentassets 598476 229405 19314 847195
Unallocatedassets 96820 96820
Consolidated total liabilities 264 387 25 951 254 036 544 374
Segmentliabilities 264387 25951 16288 306626
Unallocatedliabilities 237748 237748
Capital expenditure 40 452 5 254 2 843 48 549
Depreciation and amortization 30 665 5 490 25 36 180
Non-cash expenses other than depreciation (2 662) (2 662)
(€ thousand) Refining Products Unallocated Total
Total segment revenues 1 482 576 1 225 972 (742 940) 1 965 608
ofwhichexternalrevenues 739636 1225972 1965608
ofwhichinter-segmentrevenues 742940 (742940)
Operating result 64 279 5 174 (4 575) 64 878
ofwhichrecurring 66969 5694 (3547) 69116
ofwhichnon-recurring (3834) (583) (1028) (5445)
ofwhichIAS39effect 1144 63 1207
Net financial cost (7 064) (7 064)
ofwhichrecurring (7524) (7524)
ofwhichnon-recurring (484) (484)
ofwhichIAS39effect 944 944
Income taxes (15 085) (15 085)
ofwhichrecurring (13454) (13454)
ofwhichnon-recurring (1261) (1261)
ofwhichIAS39effect (370) (370)
Minority interest (84) (84)
Net profit for the year 42 645
ofwhichrecurring 48054
ofwhichnon-recurring (7190)
ofwhichIAS39effect 1781
Consolidated total assets 517 605 142 386 111 960 771 951
Segmentassets 517605 142386 17503 677494
Unallocatedassets 94457 94457
Consolidated total liabilities 222 507 27 388 182 890 432 785
Segmentliabilities 222507 27388 11345 261240
Unallocatedliabilities 171545 171545
Capital expenditure 12 203 3 583 1 501 17 287
Depreciation and amortization 27 158 4 104 402 31 664
Non-cash expenses other than depreciation 999 999
Impairment losses/ (Reversal of impairment losses) 7 518 7 518
primarY seGment inFormation at 31 deCemBer 2005 (by segment)
64
Belgium Italy Germany Black Sea Other Other non- Total(€ thousand) region Europe Europe
Totalsegmentrevenues 391065 774906 476725 545443 827474 379712 3 395 325
Totalsegmentassets 363721 74598 491445 14250 944 014
Capitalexpenditure 9250 540 37766 993 48 549
seCondarY seGment inFormation at 31 deCemBer 2006 (by Geographical area)
Belgium Italy Germany Black Sea Other Other non- Total(€ thousand) region Europe Europe
Totalsegmentrevenues 240073 423932 226722 277692 650161 147028 1 965 608
Totalsegmentassets 326279 50240 395411 21 771 951
Capitalexpenditure 6858 530 9899 17 287
seCondarY seGment inFormation at 31 deCemBer 2005 (by Geographical area)
Geographical segments
Thegroup’stwobusinesssegmentsoperateinsixmaingeographicalareas.TheBlackSearegionincludesBulgaria,Turkey,Romania,Cyprus,Greece, andSerbia.Themostsignificant countries in ‘Other Europe’ are France, theUnitedKingdom,theNetherlands,andSwitzerland.
Theprimarysegmentinformationispresentedinrespectofthegroup’ssegments.
The two segments correspond to the business units,as defined below, and meet the segment criteria setforwardbyIFRS.
The segment results, assets and liabilities include itemsdirectly attributable to the segment as well as thoseelements that can reasonably be allocated to suchsegment.Thepricingof inter-segmentsales isbasedonanarm’slengthtransferpricingsystem.Intheabsenceofrelevantmarketpricereferences,‘costplus’mechanismsareused.
Unallocatedresultscovermainlycorporatecosts,financialresultsandtaxes.Unallocatedassetsandliabilitiesincludedeferred and current taxes, long-term provisions foremployee benefits, the fair value of the transactionalhedges,financialdebts,andcashandcashequivalents.
Business segments
Thegroupisorganizedintwobusinessunits:
Copper Refining includes the smelting and refiningoperations located in Pirdop, Bulgaria and Olen,Belgium. Cumerio sources about 20% of the feed forits Olen refinery from Metallo-Chimique nv and itssubsidiaries.Therefore the financial investment in NonFerrous International nv (holding company of Metallo-Chimique) is included in the assets of the Refiningsegment(seenote18).
Copper Products includes the transformation activitiesofcopperintoproductssuchaswirerod,specialtyrod,complexprofiles,wires,cakes,andbillets.Theinstallationsare located in Olen, Belgium, Avellino, Italy and inYverdon-les-Bains,Switzerland.
9. BUsiness ComBinations
(€ thousand) Notes 30/04/06
Intangibleassets 16 504
Tangibleassets 17 7119
Inventories 697
Trade&otherreceivables 2027
Cash 3949
TOTAL ASSETS 14 296
Non-currentliabilities 8392
Currentbankloans 1144
Tradedebt&otherpayables 3914
TOTAL LIABILITIES 13 450
Groupshareinnetassetsacquired 434
Translationadjustment 16 151
Goodwill 16 4947
Purchase price 5 532
Netcashandcashequivalentsacquired (3949)
Net cash out 1 583
InApril2006,Cumeriohastakenastakeof51%inSwissAdvanced Materials sa (SAM), established in 2002 inYverdon-les-Bains,Switzerland.
SAM develops, produces, and sells profiles made outof copper and low-alloyed copper mainly serving theelectro-technical industries. SAM is a leader in usingtheConformTM-technology,offering ahighpotential forcomplex profiles. ConformTM applications represent an
importantpartofCumerio’sspecialtyrodbusiness.
BytakingamajoritystakeinSAM,Cumerioisenlargingitstechnologyportfoliowhichwillboostthedevelopmentofnewhigheradded-valueproductsbasedonitsexpertiseinspecialtyrodandisusingSAMasitsR&Dplatform.
BesidesCumerio,theotherSAMshareholdersarePyroisPrivatstiftungofAustriaandSAM’scurrentmanagement.
10. operatinG inCome
(€ thousand) 2006 2005
Sales 3374496 1948464
Services 20829 17144
Revenues 3 395 325 1 965 608
Other operating income 27 857 11 721
Services mainly include the revenues from tollingcontracts.
Other operating income covers mainly the re-billingof expenses or services, income from governmentgrants,andtheresultsfromfinancialinstrumentsthat,incompliancewith IAS 32, have to be classified as otheroperating income rather than as sales, when hedgeaccountingisnotapplied.
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12. non-reCUrrinG resUlts and impaCt oF ias 39 inClUded in operatinG resUlts
non-reCUrrinG resUlts inClUded in operatinG resUlts
Non-recurringresultsfor2006and2005areincludedinthefollowingitemsoftheincomestatement,(gain,(loss)).
(€ thousand) 2006 2005
Rawmaterialsandconsumablesused 2478 3486
Payrollandrelatedbenefits (719) (385)
Depreciationandimpairmentresults (7518)
Otheroperatingexpenses (1028)
Operating expenses 1 759 (5 445)
RESULT FROM OPERATING ACTIVITIES 1 759 (5 445)
Non-recurring results for 2006 include a write-backon inventories and expenses relating to a voluntaryredundancyplaninBulgaria.
Non-recurring results for 2005 include the positive
impact from an inventory adjustment, an adjustmentto employeebenefits relatedprovisions, the company’sshare in the cost of the Umicore de-merger, and theimpairment loss recognized on the investment in NonFerrousInternationalnv(NFI).
the impaCt oF ias 39 inClUded in operatinG resUlts
(€ thousand) 2006 2005
Revenues (19794) 689
Otheroperatingincome 18236 4196
Operating income (1 558) 4 885
Depreciationandimpairmentresults 148 76
Increaseandreversalofprovisions (5050) 3602
Operating expenses (4 902) 3 678
RESULT FROM OPERATING ACTIVITIES 3 344 1 207
11. other operatinG eXpenses
(€ thousand) 2006 2005
Miscellaneoustaxes,otherthanincometax 2586 1897
Rentsandrelatedcharges 1833 1227
Subcontractedmajorrepair&maintenanceexpenses 5151 4918
Fees,commissions,andinsurance 6595 9812
Subcontractedtransport 27330 25513
Otherservicessubcontracted&otherconsumables 21972 19601
Otheroperatingexpense 2816 2799
Expensescapitalizedasfixedassets (7648) (2436)
Capitallossesondisposalofassets 20 56
Other operating expenses 60 655 63 387
Therecurringotheroperatingexpensesdecreasedduring2006 by €1,704 thousand from €62,359 thousand in2005. Non-recurring other operating expenses for theyear2005were€1,028 thousand.Therewerenonon-
recurringotheroperatingexpensesin2006.(seenote12)The €5,212 thousand increase in capitalized expensesup to €7,648 thousand in 2006 relates mainly to theinvestmentprogrammeinBulgaria.(seenote17)
IAS 39 has introduced a number of documentationrequirementstobemetfortheapplicationoffairvaluehedgeaccounting.Theinabilitytomeetthoseverystrictcriterialeadstoasituationwherehedginginstrumentsaremeasuredatfairvaluewhilehedgeditemsaremeasuredatcost(orlowerofcostandmarket).Thisinducestimingdifferencesinrevenuerecognitionandcreatesanartificialnon-cashP&Lvolatilityandpotentiallymisleadingresults,contradicting theactualobjectiveofCumerio’shedgingpolicywithrespect totransactional risks.Therefore, thecompanyhasdecidedtoexcludethesetimingdifferencesfromtherecurringoperatingresults,inordertopreservethe readability and comparability of the financialstatements.
Hedged items, such as the commercial stocks and thephysical commitments, are subject to the standardsIAS2,Inventories(lowerofcostandmarket)andIAS37,Provisions(onerouscontracts).
The notion of onerous contract provisions allowsthe recognition of losses (similar to a negative mark-to-market) for loss-making contracts, or commercialcontractsleadingtoanopportunitylosswhencomparedtomarketconditions.Therecognitionofsuchprovisionshas reduced the accounting timing differences at 31December2005.Thisapproachdoeshowevernotallowtherecognitionofpositivemark-to-marketsonphysicalcommitmentsaswasthecaseattheendof2006.
Commercialstocksaremeasuredatamonthlyweightedaverage.Positivemark-to-marketsoncommercialstocksare therefore less material. Negative mark-to-marketscontinuetoberecognizedinaccordancewiththe“lowerofcostandmarket”principle.
Theresultsfromfinancialinstrumentsforwhichfairvaluehedgeaccountingcannotbeappliedareclassifiedunder“Otheroperatingincome”.
(€ thousand) Notes 2006 2005
Wages,salariesanddirectsocialadvantages 35690 35405
Employer’ssocialsecurityandcontributiontodefinedbenefitplans 14779 14513
Temporarystaff 518 84
Contributiontodefinedcontributionplan 955 645
Employer’svoluntarycontributions-other 153 86
Sharebasedpayments 694 692
Pensionspaiddirectlytobeneficiaries 215 102
Provisionsforemployeebenefits(increase/(useandreversals)) 27 (1285) (1464)
Total 51 719 50 063
13. paYroll and related BeneFits
Theexpenserelatedtoemployeebenefitsprovisionsfor2005,hasbeenrestatedby€92thousandfortheapplicationoftheIAS19amendments.
Average headcount in consolidated companies 2006 2005
Executives 121 115
Monthlypaid 361 364
Hourlypaid 1001 1054
Total 1 483 1 533
AsecondstockoptionplanwasapprovedbyCumerio’sBoard of Directors on 22 February 2006. The stockoptionplanallowsseniormanagementtoacquireexistingornewsharesoftheCompany.InaccordancewithBelgian
legislation,theexercisepriceoftheoptionsisdeterminedbasedontheaverageclosingpriceoftheCumerioshareforthe30listingdayspriortothedecisionoftheBoard.
68
14. net FinanCe Cost
(€ thousand) 2006 2005
Interestincome 6145 728
Otherfinancialincome 18 2219
Financial income 6 163 2 947
Interestexpense(incl.securitization) (19883) (8935)
Discountingofnon-currentprovisions (338) (345)
Otherfinancialexpenses (1427) (1131)
Non-recurringfinancialexpenses (484)
Financial expense (21 648) (10 895)
Recurringforeignexchangegains(losses) 2124 (60)
Foreignexchangegains(losses)-IAS39effect (2987) 944
Foreign exchange gains (losses) (863) 884
Total (16 348) (7 064)
Recurring financial charges for the year amounted to€13,362 thousand compared to €7,524 thousand in2005.Netinterestchargesincreased(€14,077thousandcompared to €8,552 thousand for 2005), reflectingthe impact of the increased financial debt and risinginterestrates.
The discounting of non-current provisions relates toemployeebenefits(seenote27).
Recurring exchange results include realized exchangegains and losses, unrealized translation adjustments inrespectofmonetaryitemsusingtheclosingrateofthe
share-Based paYment arranGement Arrangement Share options granted to senior executives
ISOP 2006 ISOP 2005
Natureofthearrangement Grantofshareoptions Grantofshareoptions
Dateofgrant 22February2006 22June2005
Numberofinstrumentsgranted 183000 282500
Exerciseprice €18.24 €11.28
Sharepriceatthedateofgrant €19.31 €12.11
Contractuallife(years) 7 7
Vestingconditions none none
Settlement Neworexistingshares Existingshares
Assumedvolatility 24.18% 23%
Expectedoptionlifeatgrantdate(years) 7 7
Risk-freeinterestrate 3.41% 2.90%
Assumeddividendyield 3.35% 3.35%
Assumeddepartures(grantdate) 0% 0%
Assumedoutcomeofmeetingperformancecriteria(atthegrantdate) n/a n/a
Fair value per granted instrument determined at the grant date € 3.79 € 2.45
Valuation model Black & Scholes Black & Scholes
Theexpensetoberecognizediscalculatedbyanexternalactuary,usingtheBlack&Scholesvaluationmodelwhichtakes intoaccountall featuresof thestockoptionplanand the volatility of the underlying stock. The share
optionsgrantedin2006canbesettledwithexistingornewshares.The shareoptions granted in2005canbesettledwithexistingsharesonly.
15. inCome taXes
(€ thousand) 2006 2005
Recognized in the income statement
Currenttaxexpense 8230 5510
Deferredtaxesexpense(income) 2037 9575
Total tax expense 10 267 15 085
a) Major component of tax expense (income)
Currentyear 8517 5510
Currenttaxexpense(income)relatedtoprioryear (287)
Currentyear’staxexpense 8230 5510
Relatingtothereversaloftemporarydifferences 4733 10695
Relatingtotherecognition(origination)oftemporarydifferences(deferredtaxassets) (1010) (291)
Deferredtaxexpenserelatedtochangesintaxratesorresultingfromtheuseofforeigntaxrates (1686)
Taxexpensesarisingfromthewrite-down,orreversalofapreviouswrite-down,ofadeferredtaxasset (829)
Deferredtaxexpense(income) 2037 9575
Tax expense on continuing operations 10 267 15 085
b) Relationship between tax expense (income) and accounting profit
Profitbeforetax,consolidatedgroupcompanies 82581 57814
Taxatthedomesticincometaxrateof33.99% 28069 19651
Adjustments on tax expenses
-Sundrytaxdeductions (1845) (72)
-Sundryamountsdisallowed 1322 7314
-Utilizationoftaxlossesandtaxcreditnotpreviouslyrecognized (46) (1479)
-Impactofchangeindeferredtaxrate (1686) 65
-Impactofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions (15317) (10788)
-Taxcomputedonotherbasis 262 345
-Previousyeartaxadjustments (492) 49
Tax expense at the effective tax rate for the year 10 267 15 085
Both total tax charges for the year and recurring taxchargesamountedto€10.3million.Thiscorrespondstoaneffectivetaxrateofapproximately12.8%onrecurringpre-taxearnings,comparedto21.5%in2005.
Recurringcurrenttaxesfortheperiodamountedto€8.2million, or 10.3%of the recurring pre-tax consolidatedprofit, compared to 7% in 2005. In addition to thefavourable tax situation in Bulgaria, the introduction of
notionalinterestinBelgiumatthebeginningoftheyearhasalsohadapositiveeffectonthegroup’sconsolidatedtaxcharge.
TheincometaxrateinBulgariahasbeenreducedto10%asfrom1January2007.Thischangehasapositiveimpactonthedeferredtaxliabilityanddeferredtaxchargefor2006.
period,andrealizedandfromunrealizedfairvaluegainsandlossesfromcurrencyfinancialinstrumentsandfromthecurrencycomponentofmetalderivativeinstrumentsandfromphysicalcommitments.
Intheabsenceofhedgeaccounting,thefairvaluegainsandlossesfromthecurrencycomponentofmetalderivative
instrumentsandphysical commitmentsdenominated inforeigncurrencycannotberecognizedintheNetfinancecost.Toensure thereadabilityandcomparabilityof thefinancialstatements,thecompanyhaselectedtoexcludethiseffectfromtherecurringfinancialresults.Theimpactfor2006wasnegativeat€2,987thousand.
70
16. intanGiBle assets
Notes Goodwill Development Concessions, Software Other Total expenses patents, intangible capitalised licences, assets (€ thousand) etc.
At 31 December 2004
Grossvalue 3421 3808 7 229
Accumulatedamortization (2147) (1564) (3 711)
Net book value 1 274 2 244 3 518
.additions 68 34 102
.amortizationcharged (272) (758) (1 030)
.translationadjustments 18 13 31
At 31 December 2005
Grossvalue 3443 3932 34 7 409
Accumulatedamortization (2423) (2365) (4 788)
Net book value 1 020 1 567 34 2 621
.acquisitionsthroughbusinesscombinations 9 5098 364 140 5 602
.additions 194 2 212 442 850
.amortizationcharged (148) (293) (788) (1 229)
.translationadjustments (151) (9) (6) (8) (174)
.othermovements 77 4 (70) 11
At 31 December 2006
Grossvalue 4947 760 3516 4340 406 13 969
Accumulatedamortization (359) (2716) (3213) (6 288)
Net book value 4 947 401 800 1 127 406 7 681
Management has tested whether the goodwill hassufferedany impairmentandwillcontinuetodosoonanannualbasis.TherecoverableamountofthegoodwillwhichisallocatedtoSAM,hasbeendeterminedbasedon
value-in-usecalculations,bymeansofadiscountedcash-flowmodelthatisbasedontheentity’soperationalplan.Aweightedaveragecostofcapitalofapproximately8%isusedasdiscountingfactor.
17. propertY, plant, and eQUipment
Notes Land and Plant, Furniture Construction Total buildings machinery and in progress and vehicles and advance(€ thousand) equipment payments
At 31 December 2004
Grossvalue 85582 335774 16683 17139 455 178
Accumulateddepreciation (42354) (182477) (13950) (238 781)
Net book value 43 228 153 297 2 733 17 139 216 397
.additions 286 3028 349 13499 17 162
.disposals (78) (72) (121) (765) (1 036)
.depreciations (3710) (24770) (812) (29 292)
.translationadjustments 3983 18686 168 1735 24 572
.othermovements 3315 22486 538 (27658) (1 319)
At 31 December 2005
Grossvalue 95278 384472 17956 3950 501 656
Accumulateddepreciation (48254) (211817) (15101) (275 172)
Net book value 47 024 172 655 2 855 3 950 226 484
.acquisitionsthroughbusinesscombinations 9 3043 4003 27 46 7 119
.additions 139 4978 269 42318 47 704
.disposals (94) (23) (45) (162)
.depreciations (4497) (29119) (858) (34 474)
.translationadjustments (48) (86) (1) (1) (136)
.othermovements 1080 5596 486 (7228) (66)
At 31 December 2006
Grossvalue 99742 397605 18452 39085 554 884
Accumulateddepreciation (53095) (239601) (15719) (308 415)
Net book value 46 647 158 004 2 733 39 085 246 469
Capitalexpendituresareconsiderablyhighercomparedto2005andreflecttheinvestmentprogrammeinBulgaria.InviewofthecurrentshortfallinrefiningcapacityinBulgaria,the company decided to build a new state-of-the-artcopper refinery with an annual production capacity of180,000 tonnes of cathodes.Works are proceeding asplannedandthestart-upofthenewrefineryisforeseeninthe2ndquarterof2008.
As planned, a large proportion of the IntegratedPollution,PreventionandControl(IPPC)relatedcapitalexpenditureshasbeenspentduring2006.Thisinvestmentwillbecompletedin2007.
Therearenopledgeson,orrestrictionsto,thetitleonproperty,plant,andequipment,asdisclosedinnote31.
Managementdetermines theestimateduseful livesandrelateddepreciation charges for its property, plant andequipment.Managementusesstandardestimatesbasedon a combination of physical durability and projectedindustry life cycles. Management will increase thedepreciationchargewhereuseful livesareshorterthanpreviously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets thathavebeenabandonedorsold.
72
InDecember,Cumerio announced the saleof its 8.8%interest in Non Ferrous International nv (NFI). NFI is,through its operating subsidiaries Metallo-Chimiquenv and Botrade, a leading European recycler of non-ferrous metals and other materials, with operations
in Beerse, Belgium and Bilbao, Spain. In the context ofthe transaction, the non-secured subordinated loanfacilitygrantedbyCumeriowillbefullyrepaid,includinginterests.The transaction is expected to be completedduringMarch2007.
19. inVentories
(€ thousand) 2006 2005
Baseproductwithmetalhedging(grossvalue) 313332 235935
Baseproductwithoutmetalhedging(grossvalue) 145 135
Consumables(grossvalue) 15787 14016
Write-downs (3592) (3294)
Advances 5190
Total inventories 330 862 246 792
Inventories have increased by €84,070 thousandcomparedtoDecember2005,whichreflectsmostlytheeffectofhighercopperprices.
Based on metal prices and currency exchange ratesprevailing at the closing date, the value of metalinventorieswouldbeabout€289millionhigherthanthecurrentbookvalue.However,mostoftheseinventoriescannotberealizedastheyaretiedupinmanufacturingandcommercialoperations.
Inventoriesperinventorytypearewrittendowntotheexpectednetrealizablevalue(estimatedsellingpriceless
theestimatedcostsofcompletionandtheestimatedcostnecessarytomakethesale).Theactualsellingpricesandthecostsstilltobeincurredmayhoweverdifferfromtheexpectedamounts.
The IAS 39 bookings resulted in a reduction of €225thousandofthevalueofhedgedmetalinventorieswhichisreportedasawrite-down.
Therearenopledgeson,orrestrictionsto,thetitleoninventories.
20. trade and other reCeiVaBles
Current
(€ thousand) Notes 31/12/06 31/12/05
Tradereceivables 190666 136665
Otherreceivables 41356 43131
Interestreceivable 461 8
Fairvaluegainsonderivativefinancialinstruments 30 33004 6718
Deferredchargesandaccruedincome 6308 1288
Total 271 795 187 810
Trade and other receivables increased compared tothe previous year reflecting also higher copper prices.A securitization programme, compliant with the new
IFRS requirements, is in place since December 2005.Thenotionalamountsandthefairvaluesofall financialinstrumentsaredisclosedinnote30.
18. FinanCial assets
Available-for- Long-term loans Total sale financial granted (€ thousand) assets
At the end of the previous year 20 13 763 13 783
.disposals (53) (53)
At the end of the current financial year 20 13 710 13 730
21. deFerred taX assets and liaBilities
(€ thousand) 2006 2005
Currenttaxassets 413 582
Deferredtaxassets 3122 2692
Currenttaxliabilities (5157) (1356)
Deferredtaxliabilities (3563)
Assets Liabilities 2006 2005 2006 2005 2006 2005
Property,plant,andequipment 107 4 (4298) (757) (4191) (753)
Goodwillandintangibleassets 12 23 (210) (370) (198) (347)
Inventories 1432 835 (10) (14) 1422 821
Provisionsforpensions 81 (898) (169) (898) (88)
Otheradjustments 205 (259) (1857) (259) (1652)
Deductioninrespectofinvestmentincentive 549 287 549 287
Taxlossesandotherunusedtaxcredits 1451 1276 1451 1276
Nondeductibleprovisions 583 581 (112) 583 469
Amortization/depreciation/writeoffdisallowance 485 485
Deferredtaxrecognizeddirectlyintoequity 1399 2239 (299) (44) 1099 2195
Totaltaxassets/liabilities 5534 6016 (5975) (3323) (441) 2692
Compensationofassets&liabilitieswithinthesameentity (2412) (3323) 2412 3323
Net 3122 2692 (3563) 0 (441) 2692
Net tax assets/liabilities (441) 2 692
Deferredtaxassetsareonlyrecognizedtotheextentthattheirutilizationisprobable,i.e.,ifataxbenefitisexpectedinfutureperiods.Theactualtaxresultsin
futureperiodsmayhoweverdifferfromtheestimatemadeatthetimethedeferredtaxesarerecognized.
22. Cash and Cash eQUiValents
(€ thousand) 31/12/06 31/12/05
Shortterminvestments:banktermdeposits 32114 55701
Banksandcashinhand 37809 35466
Total cash and cash equivalents 69 923 91 167
Bankoverdrafts(includedincurrentfinancialdebtintheB/S) (80) (30)
Net cash and cash equivalents at the end of the current year 69 843 91 137
Allcashandcashequivalentsarewithoutrestrictionavailabletothecompany.
Deferred tax in respect of each type of temporary difference
74
24. share Capital
The subscribed capital of Cumerio amounts to€181,220,362.Theauthorized,notsubscribedcapitalofCumerioamountsto€18million.Cumeriohas25,702,075outstandingordinaryshares.Oftheseoutstandingshares
244,000treasurysharesareheldbytheCompany.Eachsharehasacalculatedparvalueof€7.05.Allissuedsharesarefullypaid.
23. Consolidated statement oF ChanGes in shareholders’ eQUitY
Notes Share Share Treasury Retained Fair value Minority Total capital premiums shares (-) earnings & other interests (€ thousand) reserves
Balance at 1 January 2005 181 220 31 282 80 086 4 337 234 297 159
Changeinaccountingpolicies 3 (93) (93)
Balance at 1 January 2005 181 220 31 282 80 086 4 244 234 297 066
Profitfortheperiod 42645 84 42 729
Share-basedpayments-valueofservicesrendered 692 692
Actuarialgainsandlossesrecognizedinequity (2266) (2 266)
Fairvaluegainsandlossesrecognizedinequity (8004) (7) (8 011)
Fairvaluegainsandlossesreleasedfromequity (4693) 3 (4 690)
Deferredtaxesdirectlyrecognizedintoequity 2370 1 2 371
Deferredtaxesreleasedfromequity 1466 1 466
Currencytranslation 17489 30 17 519
Total income (expenses) recognized in equity 42 645 7 054 111 49 810
Dividends (7710) (7 710)
Balance at 31 December 2005 181 220 31 282 115 021 11 298 345 339 166
Balance at 1 January 2006 181 220 31 282 115 021 11 298 345 339 166
Profitfortheperiod 72499 (185) 72 314
Share-basedpayments-valueofservicesrendered 38 656 694
Actuarialgainsandlossesrecognizedinequity 27 (775) (775)
Fairvaluegainsandlossesrecognizedinequity 1994 6 2 000
Fairvaluegainsandlossesreleasedfromequity 6910 10 6 920
Deferredtaxesdirectlyrecognizedintoequity 188 (1) 187
Deferredtaxesreleasedfromequity (1283) (1) (1 284)
Currencytranslation (11) (2) (13)
Total income (expenses) recognized in equity 0 0 72 537 7 679 (173) 80 043
Changeinscope 412 412
Acquisitionoftreasurystocks (4978) (4 978)
Disposaloftreasurystocks 434 434
Dividends (15421) (15) (15 436)
Balance at 31 December 2006 181 220 31 282 (4 544) 172 137 18 977 569 399 641
25. FinanCial deBts
Non-current
Subordinated Long-term bank Total (€ thousand) loans loans
At the end of the previous year 76 145 76 145
.acquisitionsthroughbusinesscombinations 1907 4578 6 485
.increase 124735 124 735
.repayment (76242) (76 242)
.translationadjustments (40) (40)
.changeinfairvalue (193) (193)
At the end of the current financial year 1 867 129 023 130 890
a. moVements oF the period
B. analYsis BY matUritY date
(€ thousand) 2007 2008 2009 After 2009 Total
Long-termbankloans 1494 1494 1494 126408 130890
Financial debts (non current) 1 494 1 494 1 494 126 408 130 890
C. analYsis BY CUrrenCY
€ USD GBP Other Total European (€ thousand) currency
Subordinatedloans 1867 1867
Long-termbankloans 124542 4481 129023
Subtotal non-current financial debts 124 542 6 348 130 890
Bankloans 55961 55 961
Bankoverdrafts 81 81
Otherloans 633 6211 8063 14 907
Subtotal current financial debts 56 042 633 6 211 8 063 70 949
Financial debts 180 584 633 6 211 14 411 201 839
Thecarryingamountsoftheborrowingsapproximatetheirfairvalue,asthecompany’sfinancialdebtis,exceptforthe7-yearnotes,generallysubjecttofloatinginterestrates.
In July, Cumerio issued 7-year notes for an amount of€125millionintheformofapublicofferinginBelgium.Thenoteshaveacouponof4.875%.Thefundshavebeen
usedtoconsolidatethenetworkingcapitalrequirementsand will provide additional means to finance futureorganic andexternal growthopportunities. Partof theinterestshasbeenswappedintofloating,withaviewtoachievingareasonablebalancebetweenfixedandfloatinginterestrates.
Current
Short-term Bank Other Total(€ thousand) bank loans overdrafts loans
At the end of the previous year 30 333 30 47 412 77 775
.acquisitionsthroughbusinesscombinations 1144 1 144
.increase/decrease 25628 51 (33649) (7 970)
At the end of the current financial year 55 961 81 14 907 70 949
76
Non-current Deferred income from government grants
(€ thousand) 2006 2005
At the end of the previous year 2 797 2 604
.subsidiesgranted 22
.amountsrecognizedinoperatingincome (270) (235)
.translationadjustments (57) 406
At the end of the current financial year 2 470 2 797
Current
(€ thousand) Notes 31/12/06 31/12/05
Tradepayables 266882 226876
Taxespayableotherthanincometax 2303 925
Payrollandsocialsecuritypayables 9266 9705
Dividendspayable 424 232
Othercurrentpayables 23874 16153
Accruedinterestspayable 2980 19
Fairvaluelossesonderivativefinancialinstruments 30 15239 6355
Accruedchargesanddeferredincome 432 76
Total 321 400 260 341
Thenotionalamountsandthefairvaluesofallfinancialinstrumentsaredisclosedinnote30.
27. proVisions For emploYee BeneFits
InBelgium,ItalyandBulgaria,thegrouphasvariouslegalandconstructivedefinedbenefitobligations.InBelgium,thegrouphasalsoapre-retirementscheme.
Notes Post Post Termination Other long Total employment employment benefits early term benefits, benefits & retirement employee pensions other & similar benefits(€ thousand) & similar
At the end of the previous year 5 464 1 675 1 430 752 9 321
.increase/reversal(includedin“Payrollandrelatedbenefits”) 1562 139 374 (483) 1 592
.use(includedin“Payrollandrelatedbenefits”) (2398) (59) (386) (33) (2 877)
.actualization(includedin“NetFinanceCost”) 181 70 55 31 338
.recognizedinequity 23 684 91 775
At the end of the financial year 5 493 1 916 1 474 267 9 149
Movements (€ thousand) 31/12/05 2006 31/12/06
Belgium 5343 (1255) 4088
Bulgaria 1675 241 1916
Italy 2303 842 3145
Total 9 321 (172) 9 149
The 2006 movements include the regular uses andincreasesforallentities.
The following disclosure requirements under IAS 19amended were derived from reports from externalactuariesontheexistingbenefitplans.
26. trade and other paYaBles
(€ thousand) 2006 2005
Change in defined benefit obligations (DBO)
DBO at beginning of the year 13 929 11 058
Currentservicecost 1752 867
Interestcost 585 498
Actuarialgainsandlosses 1092 3177
Benefitspaid (637) (1672)
Curtailments (624)
DBO at the end of the year 16 097 13 928
Change in plan assets
Fair value of plan assets at beginning of year 4 608 2 895
Expectedreturnonassets 247 153
Actuarialgainsand(losses) (146) 953
Contributionsbytheemployer 2877 1373
Benefitspaid (638) (765)
Fair value of plan assets at end of year 6 948 4 609
Actualreturnonassets 101 1106
(€ thousand) 2006 2005
Reconciliation of present value with liability in the BS
Presentvalueofobligationswhollyorpartlyfunded 16097 11747
Fairvalueofplanassetsoffunds (6948) (4609)
Presentvalueofobligationswhollyunfunded 2182
Total funded status 9 149 9 320
Liability in the balance sheet 9 149 9 320
Amounts recognized in the income statement of the year
Servicecost 1752 867
Interestcost 585 498
Expectedreturnonassets (247) (153)
Amortizationofactuariallosses(gains) 464 145
Effectofcurtailmentandsettlements (624)
Total expense 1 930 1 357
The interest cost and expected return on plan assetsare recognized under finance costs in the incomestatement (see note 14). All other elements of theexpense of the year are classified under operatingresults. During the year 2006, Cumerio has set up its
ownpension fund,which required a full funding at thestart up.The benefit pay out structure of some longtermbenefit plans has been cost optimized, leading toaonetimecurtailmentoftheliability.
(€ thousand) 2006 2005
Amount recognized in statement of Recognized income and expense (SoRie)
Actuarialgainsandlossesoftheyear 775 2256
Cumulativeactuarialgainsandlosses 2407 141
Total recognized in SoRie 3 182 2 397
Actuarial assumptions 2006 2005
Discountrates(%) 4.29 4.31
Expectedreturnonplanassets(%) 5.00 5.00
Expectedratesofsalaryincrease(includinginflation)(%) 4.70 4.56
78
At the end of 2006, all provisions are non-currentprovisions,thisreflectsalitigationinItalyandtheestimatedexpensefordemolishinganoldpreciousmetalsplantinBulgaria.
Thecurrentprovisionsattheendof2005wereprovisionsforonerous contracts and arepartof the IAS39noncomplianceimpacts(seechapter2.22.1onTransactionalrisks).
Changes inworkingcapital requirements represent thedifferenceininventories,trade,andotherreceivablesandtradeandotherpayables,wherenecessaryrestatedfor :-Write-downsandprovisionsforbaddebts-Impactofchangesinthescopeofconsolidation-Impactofcurrencytranslationdifferences-Impactofthemark-to-marketofthecashflowhedge
contracts
Comments on the Cash Flow statement
A) Net cash flow generated by operating activitiesThe 2006 operational cash flow is €78,877 thousand
lower than the comparable figure for 2005, reflectinga markedly improved operating performance whichis more than offset by a sharp increase in workingcapital requirements of €98,629. Net working capitalrequirements were impacted during the year by themuchhighermetalpricesandtheincreaseddeliveriesofcopperproducts.
B) Net cash flow used in investing activitiesThe increased net cash requirements from investingactivitiesin2006reflectthecapitalexpendituresinBulgaria.Asplanned,alargeproportionoftheIntegratedPollution,PreventionandControl(IPPC)relatedcapitalexpenditureshasbeenspentin2006.Additionally,worksregardingthe
(€ thousand) 2006 2005
Adjustments for non-cash transactions
Sharebasedpayments 694 692
Depreciation 35702 30321
Write-down(back)onfinancialfixedassets 8478
Inventoriesandbaddebtprovisions 478 383
Depreciationongovernmentgrants (270) (235)
Changeinprovisions (5201) 2482
Total 31 403 42 121
Adjustments for items to disclose separately or under investing and financing cash flows
Taxchargeoftheperiod 10267 15085
Interestincome (2450) (1692)
Interestcharges 14477 8199
(Gain)lossondisposaloffixedassets (168) 49
Total 22 126 21 641
29. notes to the Cash Flow statement
deFinitions
The cash flow statement identifies operating, investingandfinancingactivitiesfortheperiod.
The indirect method was used for the operating cashflows.Thenetprofitandlossisadjustedfor :
-theeffectsofnon-cashtransactionssuchasprovisions,write-downs, etc., and the variance inworking capitalrequirements.
-itemsofincomeorexpenseassociatedwithinvestingorfinancingcashflows.
28. proVisions For other liaBilities and CharGes
Provisions for other(€ thousand) liabilities and charges
At the end of the previous year 5 050
.decrease (4254)
At the end of the financial year 796
30. FinanCial instrUments
Notional amount Fair value(€ thousand) 31/12/06 31/12/05 31/12/06 31/12/05
TotalForwardcommoditiessold 375786 84162 20002 (9161)
TotalForwardcommoditiesbought 375418 129415 (2800) 10213
TotalForwardcurrencycontractssold 225996 113833 (179) (699)
TotalForwardcurrencycontractsbought 8555 31868 10
Currencyoption 75758 910
Interestrateswap 62500 (171)
Total Fair value 17 763 363
Recognizedundertradeandotherreceivables 33004 6718
Recognizedundertradeandotherpayables (15239) (6355)
CumeriousesmetalderivativesquotedontheLondonMetal Exchange and currency derivatives with wellestablishedbrokersandbankstohedgeitsstructuralandtransactionalmetalandcurrencyrisks.
Some of these derivatives qualify as dedicated hedgesof the cash flows from committed or future forecastedtransactions. The fair values of the effective hedginginstruments are recognized in the fair value reserves inequityatthebalancesheetdate(seestatementofincomeandexpenses)andarereleasedtotheincomestatementwhentheunderlyingtransactionsoccur.
Otherderivativesareused tohedge transactional risksformetalsandcurrencies,meaningexistingtransactions
andfirmcommitments.Intheabsenceofhedgeaccountingdocumentation,asdefinedunderIAS39,thesederivativesare measured as if they were held for trading, althoughnone of these instruments is speculative in nature.Thefair value on these derivatives is immediately recognizedintheincomestatementunder“Otheroperatingincome”forcommodityinstrumentsandundernetfinancecostforcurrencyinstruments.
When hedging the interest rate exposure from fixedrate borrowings, the company applies fair value hedgeaccounting.The changes in fair value of interest rateswapsandoffixedrateborrowingsarerecognizedintheincomestatementwithinfinancecosts.
constructionofanewcopperrefineryinPirdop,Bulgaria,havestartedduringthecourseoftheyear.
The Company has purchased a 51.3% interest in SwissAdvancedMaterials(SAM),acompanylocatedinYverdon-les-Bains (Switzerland), involved in the production ofcomplex copper profiles. In addition to the stake, theCompanyhasalsoprovided€1,864thousandbywayofasubordinatedloan.
C) Net cash flow used in financing activitiesIn July, Cumerio issued 7-year notes for an amount of€125millionintheformofapublicofferinginBelgium.Thenoteshaveacouponof4.875%.Thefundshavebeenusedtoconsolidatethenetworkingcapitalrequirementsand will provide additional means to finance futureorganicandexternalgrowthopportunities.
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(€ thousand) 31/12/06 31/12/05
-Guaranteesgivenbythecompanyonbehalfofthirdparties 3719 2603
-Guaranteesreceived 40639 67782
-Goodsandtitlesheldbythirdpartiesintheirownnamesbutatthecompany’srisk 2499 17361
-Physicalcommitmentsforcommoditiespurchased(tobereceived) 94408 60381
-Physicalcommitmentsforcommoditiessold(tobedelivered) 176013 97203
-Goodsandtitlesofthirdpartiesheldbythecompany 30448 37022
347 726 282 352
31. oFF-BalanCe sheet riGhts and Commitments
1. Guarantees given by the company or its subsidiaries on behalf of third parties
Guarantees or irrevocable undertakings given by thecompanyoritssubsidiariesinfavourofthirdparties.
2. Guarantees received
Pledges and guarantees received guaranteeing thesatisfactory discharge of debts and existing andpotentialcommitmentsofthirdpartiestowardsthecompanyor its subsidiaries,with theexceptionofguaranteesandsecurityincash.
3. Goods and titles held by third parties in their own name, but at company’s or its subsidiaries’ risk
Thegoodsand titles forwhich thecompanyor itssubsidiariesbeartheriskandtaketheprofitorloss,butwherethesegoodsandtitlesarenotpresentonthe premises of the company or its subsidiaries. Itconcernsmainlyinventoriesheldunderconsignmentorundertollingagreementbythirdparties.
4. Physical commitments
Commitmentstodelivermetalstocustomersorreceivemetalsfromsuppliersatfixedprices.
5. Goods and titles of third parties held by the company or its subsidiaries
Goodsand titles temporarilyheldby thecompanyor its subsidiaries, but which are not owned bythe company or its subsidiaries. It concerns mainlyinventories held under consignment or tollingagreementswiththirdparties.
32. ContinGenCies
Thegrouphasnopendingfilesthatcanbequalifiedascontingentliabilitiesorcontingentassets,accordingtothedefinitionofIFRS.
34. earninGs per share
(€) 31/12/06 31/12/05
Basicearningspershare 2.84 1.66
Dilutedearningspershare 2.83 1.66
Thefollowingearningsfigureshavebeenusedasthenumeratorinthecalculationofbasicearningspershare:
(€ thousand) 31/12/06 31/12/05
Netconsolidatedprofit,Groupshare 72499 42645
Thefollowingnumbersofshareshavebeenusedasthedenominatorinthecalculationofbasicanddilutedearningspershare:
Forbasicearningspershare: 2006 2005
Numberofoutstandingsharesat1January 25702075 25702075
Numberofoutstandingsharesat31December 25458075 25702075
Weigthedaveragenumberofoutstandingshares 25545663 25702075
Fordilutedearningspershare: 2006
Weigthedaveragenumberofoutstandingshares 25545663
Potentialdilutionduetostockoptionplan 99266
Adjustedweigthedaveragenumberofoutstandingshares 25644929
At31December2006,Cumerioheld244,000treasuryshares.
33. related partY transaCtions
Thetotalgrossamountofdirectorfeesgrantedtonon-executive directors in respect of their 2006 activitiesamounted to €214,000.The total fees in connectionwith the Audit Committee and the Nomination andRemunerationCommitteeamountedto€62,000.
For2006,anaggregategrossamountof€2,589,454hasbeenforeseenforthesevenmembersoftheExecutiveCommittee.
Thestockoptionplan,setupinFebruary2006,relatestotheExecutiveCommitteefor162,000options.
NoloanorguaranteeshavebeengrantedbythecompanytomembersoftheBoardortheExecutiveCommittee.
35. iFrs deVelopments
Following new standards, amendments and interpre-tationstoexistingstandardspublishedthataremandatoryfortheaccountingperiodsbeginningonorafter1January2006havenotbeenearlyadoptedbythegroup:
•IFRS7,financialinstruments:disclosures,•Acomplementaryamendmentto IAS1,presentation
offinancialstatements-capitaldisclosures(effectiveasof1January2007).
82
parent CompanY separate sUmmarized FinanCial statements
TheannualaccountsofCumerionv/saaregivenbelowinsummarizedform.
TheannualaccountsofCumerionv/sa,togetherwiththemanagementreportandthestatutoryauditor’sreportwillbedepositedwiththeNationalBankofBelgium.
Thesedocumentscanalsobeobtainedvia: CUMERIOnv/sa Broekstraat31RueduMarais 1000Brussels(Belgium)
ThestatutoryauditordidnotexpressanyreservationsinrespectoftheannualaccountsofCumerio.
sUmmarized BalanCe sheet
(€ thousand) 31/12/06 31/12/05
Fixed assets 324 877 321 563
II.Intangibleassets 36 34
III.Tangibleassets 161 134
IV.Financialassets 324680 321395
Current assets 11 794 7 049
VII.Amountsreceivablewithinoneyear 4296 6039
VIII.Investedcash 4295
IX.Cashatbankaninhand 455 513
X.Deferredchargesanaccruedincome 2748 497
TOTAL ASSETS 336 671 328 612
Shareholders’ Equity 294 437 298 161
I.Capital 181220 181220
II.Sharepremiums 31282 31282
IV.Reserves 66247 61247
V.Profitcarriedforward 15688 24412
Provisions and deferred taxes 833 248
VII.Provisionsforemployeebenefits 833 248
Creditors 41 401 30 203
IX.Amountspayablewithinoneyear 38684 29716
X.Deferredchargesandaccruedincome 2717 487
TOTAL LIABILITIES 336 671 328 612
sUmmarized inCome statement
(€ thousand) 2006 2005
I.Operatingincome 7670 7827
II.Operatingcharges (11182) (7530)
III. Operating profit (loss) (3 512) 297
IV.Financialincome 17968 1281
V.Financialcharges (3644) (1065)
VI. Current profit (loss) 10 812 513
VII.Extraordinaryincome 3265
VIII.Extraordinaryexpense (7518)
XI. Profit (loss) for the year 14 096 (7 005)
XIII. Profit (loss) for the year 14 096 (7 005)
appropriation aCCoUnt
(€ thousand) 2006 2005
A. Profit (loss) to be appropriated 7 091 47 544
1.Profit(loss)forthefinancialyear 14096 (7005)
2.Profit(loss)carriedforward (7005) 54549
C. Appropriation to equity (5 000)
2.Tothelegalreserve 705
3.Tothereserveforownshares 4295
D. Profit (loss) to be carried forward (15 688) (24 412)
1.Profit(loss)tobecarriedforward (15688) (24412)
F. Profit to be distributed (17 821) (23 132)
1.Dividends 17821 23132
statement oF Capital
(€ thousand) Number of shares
A. Share capital
1. Issued capital
Attheendoftheprecedingfinancialyear 181220 25702075
Attheendofthefinancialyear 181220 25702075
2. Structure of the capital
2.1.Categoriesofshares
Ordinaryshares 181220 25702075
2.2.Registeredsharesorbearershares
Registered 55 7802
Bearer 181165 25694273
C. Treasury shares
1.Heldbytheparentcompany 1720 244000
E. Authorized unissued capital 18000
G. Shareholder base* (€ thousand) Number of shares
LansdownePartners,15DaviesStreet,LondonW1K3AG,UK 6.76 1737024
SchrodersInvestmentManagement,31GreshamStreet,LondonEC2V7QA,UK 3.57 916662
EastSideCapital,Wilmington,Delaware19801USjoinedwith
MargateCapital,GeorgeTown,CaymanIslands 3.01 774791
Others 86.65 22273598
100.00 25702075
ofwhichfreefloat 100% 25702075
Brussels,20February2007 TheBoardofDirectors
* for the declaration date please refer to the section Investor Relations
Corporate GovernanCe
On 9 December 2004, the Belgian Code on Corporate Governance, the so-called “Code
Lippens”, was published. It sets out a series of principles, provisions, and guidelines for
listed Belgian companies in order to reinforce the transparency and accountability of
their management.
In line with these principles, Cume-rio’s charter focuses on how the company applies the Code, the crite-ria for independence of its directors, insider trading, and market manipula-tion. The charter is also considered to be an essential element in Cume-rio’s stated goal of achieving sustain-able development.
Last year, the annual report focused on the implementation of the Cor-porate Governance principles within Cumerio. This year, it primarily deals with key information and events of 2006 as well as new initiatives tak-en to improve compliance with the charter and all prevailing regulations and directives. It was in this context
that the Board of Directors approved the Code of Ethics during 2006. This provides an additional cornerstone for Cumerio to manage its business in a sustainable manner.The complete Corporate Govern-ance charter, including the Code of Ethics can be found on the Cumerio Web site.
Board of directors
composition
At the Cumerio General Share-holders Meeting of 27 April 2006, Thomas Leysen was elected as an additional non-executive member of the Board. More details about Mr. Leysen can be found in the section “Board of Directors”.
The Cumerio Board is now com-posed of eight directors: Karel Vinck, Chairman of the Board; Etienne Davignon, Vice-Chairman; Philippe Delaunois, Etienne Denis, Thomas Leysen, and Remi Vermeiren as non-executive directors and Luc Delagaye and Michel Moser as ex-ecutive directors.All non-executive Board members are independent, in accordance with the criteria established by the Board of Directors.
There are no contractual relation-ships, either directly or indirectly, between the non-executive mem-bers of the Board and Cumerio.
functioning
The Board held five meetings during 2006. In order to comply with the very strict timing of the public offer-ing, in the context of the notes issue in July 2006, the Board also adopted two circular resolutions.
Attendance by Board members has reached a rate of 92.14%.
During the period under review, no decision or transaction has given rise to a possible conflict of interest, with the exception of the decision on the 2006 stock option plan. Executive directors Mr. Delagaye and Mr. Moser were among the managers to which options have been granted. They did not participate in the voting with regard to this topic.
Board committees
In accordance with their charter, cer-tain specific duties are entrusted to an Audit Committee and a Nomina-tion and Remuneration Committee respectively.
audit committee
The Audit Committee consists of three members, all non-execu-tive directors. The Chairman of the Committee is Remi Vermeiren; the other members are Etienne Davignon and Philippe Delaunois.
The Chairman receives €6,000 per meeting attended, a member €4,000.
The Audit Committee held three meetings in the course of the year. Besides its usual activities in the con-text of the review of the accounts, the committee has conducted - in close collaboration with management and external consultants - a risk manage-ment review including an in-depth risk mapping. This resulted in an action plan aimed at improving the handling of risks within the group.
The detailed charter for the Audit Committee can be consulted on the Cumerio Web site.
nomination and remuneration committee
The Nomination and Remunera-tion Committee consists of three members, all non-executive direc-tors. It is chaired by the Chairman of the Board, Karel Vinck; the other members are Etienne Davignon and Philippe Delaunois.
The Chairman receives €4,000 per meeting attended, a member €3,000.
A detailed description of the mission can be found on the Cumerio Web site.
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€ CEO OtherExecutiveCommitteemembersBasic remuneration 281 699 1 053 263Variable remuneration 243 564 425 227Pension schemes and insurance 119 122 466 579
The Committee held two meetings in 2006. It reviewed the performance of the Executive Committee and the Board of Directors.
compensation
The total gross amount of direc-tor fees granted to non-executive directors in respect of their 2006
activities for the company amounted to €214,000. Of this, €62,000 of the total fee was in connection with the Audit Committee and the Nomina-tion and Remuneration Committee activities.
Executive directors are not granted director fees. No variable or other compensation
element is associated with director-ship. No loan or guarantees have been granted by the company to members of the Board.
Name Attended Attended Total Sharesheld Boardmeetings Committeemeetings remuneration(€) at31/12/06Karel Vinck 5 2 64 000 20 000Etienne Davignon 5 5 46 000 1 050Luc Delagaye 5 - - -Philippe Delaunois 4 5 44 000 315Etienne Denis 5 - - 9 000Thomas Leysen* 3 - 18 000 25 000Michel Moser 5 - - -Remi Vermeiren 3 3 42 000 -* joined the Board as per 28 April 2006
the executive committee
composition and functioning
The function of Chief Executive Officer (CEO) is entrusted to Luc Delagaye. His role is essentially to steer the strategic direction of the company in the long-term. The CEO also chairs the Executive Committee. The latter provides assistance to the CEO in the management of Cumerio.
Since 1 April 2006, Patricio Barrios, a Spanish national, has been a member of the Executive Committee and has assumed the duties of Vice-President Operations.
As of 31 December 2006, the Exec-utive Committee consisted of seven members.
The Executive Committee met a total of 24 times during the year and held two executive seminars. Besi-des the operational management, the meetings focused mainly on organ-
izing the company to prepare it for future challenges in terms of strate-gic developments and investments.
compensation
For 2006, an aggregate gross amount of €2,589,454 has been granted to the seven members of the Execu-tive Committee, of which €644,385 went to the CEO as remuneration and other benefits.
The variable remuneration cov-ers a bonus scheme and a variable pension contribution. It ranges from zero to 92.4% of the fixed component in case all target results are exceeded at a maximum. Targets are linked to individual performance and to the overall group’s Return on Capital Em-ployed.
The CEO and the members of the Executive Committee benefit from an extra-legal pension package complemented with a death, dis-ability, and hospitalization coverage at the expense of the company.
A stock option plan has been set up this year for the company’s sen-ior management. In total, 162,000 stock options were granted to the Executive Committee, of which 94,500 were to the CEO. The ex-ercise price is €18.24 and the options can be exercized until 20 February 2013.
general assemBlies
Two general assemblies, an ordinary and an extraordinary, took place on 27 April 2006. During the Extraor-dinary General Assembly, Cumerio received the authorization to pur-chase up to 10% of its own shares.The total number of sharehold-ers attending or represented at the Ordinary General Assembly was 33. They represented 3.27% of the outstanding shares. At the Ex-traordinary General Assembly, 27 shareholders or 9.43% of the out-standing shares, attended or were represented.
The General Assembly is considered a key moment in the corporate communication with shareholders. In that regard, this year’s assembly spent some time on the strate-gic developments within Cumerio (presented by Mr. Delagaye), as well as on the specific role of the Audit Committee (outlined by Mr. Ver-meiren).
supervision and compliance
regulatory supervision
Cumerio falls under the listing re-quirements of Euronext Brussels. Furthermore, it is also subject to supervision by the Belgian Banking, Finance, and Insurance Commission.
Compliancewiththe“Insiderdealingandmarketmanipulation”DirectiveCumerio has adjusted its rules reg-ulating any transaction in Cumerio shares or related financial instru-ments, in accordance with the new requirements of the Belgian leg-islation, specifically in the context of reporting transactions to the Belgian Banking, Finance, and Insur-ance Commission.
More information on Cumerio’s policy is available on the Web site.
The secretary of the Board of Di-rectors acts as Compliance Officer. All directors and members of the Executive Committee shall report every six months on any Cumerio shares and financial instruments relating to Cumerio shares acquired or disposed of during that period.
CompliancewiththeCodeofEthicsA decision to enact a Code of Eth-ics was taken at the Board meeting of 23 November 2006. It describes the values that Cumerio adheres in a view of conducting its business in a sustainable way.The Code deals among others with the following principles: • Personal conduct and equal opportu-
nities for all employees at Cumerio• Potential conflicts of interest in-
cluding the issue of bribes, gifts, and favours
• Relationships with competitors, suppliers, or any other business as-sociate
• Compliance with laws and regula-tions.
The complete Code of Ethics can be found on the Cumerio Web site. It is applicable to all employees, managers.
StatutoryauditorThe appointment of Pricewaterhouse Coopers as statutory auditor was approved at the Ordinary General Assembly of 22 June 2005. This ap-pointment shall last for three years, ending at the General Assembly that approves the 2007 accounts.
Cumerio has applied strict princi-ples regarding the independence of the company auditor. This policy outlines the duties and responsibili-ties of the company and the auditor regarding independence, the exclu-sion of certain non-audit services, and the monitoring of the auditor’s remuneration.
The fees paid to Pricewaterhouse-Coopers with respect to the statu-tory audit of Cumerio nv/sa, its subsidiaries and the consolidation of the Cumerio group amounted to €352,098 for 2006 of wich €77,600 relates to activities in the context of the 2005 accounts.
The Audit Committee has granted a specific mission to Pricewaterhouse Coopers regarding the re-engineer-ing of the treasury management of the company. The remuneration for this project is in line with the new provisions in the company code. A fee amounting to €105,407 has been granted in the context of this mission.
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Content
Message to the shareholders 2
Key figures 4
Strategy 6
Key profitability drivers 8
Copper market 10
Copper Refining 12
Copper Products 16
Sustainability 20
Investor relations 32
Executive Committee 36
Board of Directors 38
Financial review 40
Glossary financial definitions 42
Financial statements 44
Corporate governance 85
DIVIDENDS
If the appropriation of profit pro-posed is approved, a gross dividend of €0.70 per share will be paid for the financial year 2006 representing:
• a net dividend of €0.525 after de-duction of a 25% withholding tax on presentation of coupon n° 3
• a net dividend of €0.595 after deduction of a 15% withholding tax on presentation of coupon and VVPR strip n°3.
From 27 April 2007 on, payment of dividends on presentation of coupon n°3, and VVPR strip if applicable, at the registered offices and branches of the following institutions :
• Fortis Bank • ING • Bank Degroof • Dexia Bank • KBC Bank • Petercam
ADDITIONAL INFORMATION
LISTINg
Eurolist on Euronext Brussels
ANNuAL REpORT
This English version is the basic version. This report is also available in French and Dutch.
INTERNET
The full report can be downloaded on www.cumerio.com
REgISTERED OFFIcE
CumerioBroekstraat 31 Rue du Marais1000 Brussels - BelgiumT : +32 2 227 12 22F : +32 2 227 12 [email protected] Number: 0401574852VAT nr: 873.533.993
pubLIShER RESpONSIbLE AT LAw
CumerioMedia & Investor RelationsFrank Vandenborre
REALIzATION, cONcEpT AND LAy-OuT
The CrewCentral Gate 7th floorCantersteen 471000 Brussels - BelgiumT : +32 2 504 00 00F : +32 2 657 30 [email protected]
EDITINg
Forte cvbaEffective Industrial MarketingVoskenslaan 97d9000 Gent - BelgiumT : +32 9 244 76 76F : +32 9 244 76 75 phOTOgRAphS
Benny De Grovewww.benny-degrove.com
Courtesy of LME
pRINTINg
JNP Printing
LOOKINGFORWARD
ANNuALREPORT2006
CumerioBroekstraat31RueduMarais1000Brussels,Belgium
T:+3222271222F:[email protected]
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