ANNUAL REPORT ARCELOR 2003 - paperJam

Message from the Chairman ofthe Board of DirectorsAs the precursor of the necessary global consolidationmovement in the steel industry, Arcelor has kept itscommitments, both economic and financial – where wehave surpassed our announced objectives for synergiesand balance sheet – and to our stakeholders throughthe deployment of our Sustainable Development policy.Dear Shareholders,The 2003 financial year, which we are reviewing in thisannual report, was characterised by rising geopoliticaltensions, a new wave of financial scandals implicatingmajor economic players, and continued weak economicgrowth in Europe, in sharp contrast to the dynamism seenin other areas around the world.With respect to our business, the steel market in theEuropean Union, which represents 75% of our sales, wasnot very favourable. Steel consumption declined by nearly1% as a result of the depressed world economy and thelistless demand prevailing in the steel-using industries. Theyear 2003 again saw an increase in steel imports from thirdcountries including, paradoxically, the United States.Global crude steel production increased by 6.7% over2002, marking the sixth consecutive year of growth andreaching the record number of 964 million tonnes. Thisperformance is primarily on account of China, whose steelproduction went from 182 million tonnes in 2002 to around220 million tonnes in 2003. China alone now accounts foralmost one quarter of world steel production!It is against this background of flagging economic growth inEurope, compounded by stakeholders’ legitimate questionsconcerning corporate governance, and an acceleratingreconfiguration of the world steel market, that Arcelor hasbeen conducting its business.The judicious management of our assets allowed us toimplement strategic realignments in the Flat CarbonSteels and Stainless Steels sectors as well as disposalsof activities that were not considered part of our corebusiness.Our improved operating performance and rigorous controlof our working capital requirements and investmentexpenses allowed us to reduce our net financialdebt/equity ratio from 0.75 at the end of December 2002to 0.55 by December 31, 2003, freeing up the cashflownecessary for the growth of the Group.Our gross operating result of nearly 2.2 billion euros in 2003was clearly an improvement over 2002 (+13%) in spite ofa slight decline of 2.5% in revenues to 25.9 billion. Thisdevelopment can be attributed to our desire, from the veryoutset, to conduct a policy favouring margins over volume.Due to this conscious choice, recognised by the marketsas the “Arcelor effect”, our prices for the first time remainedstable during a downturn in the European Union, while ourexport prices suffered a slight decline attributable to theevolution of the euro/dollar exchange rate.Net result (Group share) rose to 257 million euros aftertaking into account non-recurring exceptional items of540 million euros.This result allowed us to recommend to the General Shareholders’Meeting a gross dividend of 0.40 euro per share,an increase of 5% over the previous year.Given the difficult economic context in which we operated,our performance improved satisfactorily. Our goal must beto accelerate this momentum in order to give our Groupover the long term the resources necessary for externalgrowth and a return on the capital invested by our shareholders.To improve our profitability, we must continue toslash costs and expand our products and services byanticipating the needs and demands of our customers,both locally and internationally. To do so, innovation in thebroadest sense must become our top priority. It includesall areas of the business, from R&D and the quality ofcustomer service to our managerial culture. In this way,we will transform Arcelor.2ANNUAL REPORT ARCELOR 2003