ANNUAL REPORT ARCELOR 2003 - paperJam

Group purchasing performanceIn addition to the synergies still to be achieved, andclosely related to trends in the supplier markets, theadditional leverage gained particularly from partnershipsand new supply sources is designed to consolidatevalue creation and help achieve the ambitious goalsestablished for 2006.The efficiency of the process is based on:- the internationalisation and specialisation of buyers intheir markets;- the potential for planning and innovation on the part ofthe buyers and suppliers for the benefit of the end user;- control over the operational implementation of thecontracts;- optimisation of activities and responsibilities amongthe various players involved in the process;- the deployment of e-purchasing;- performance benchmarking for suppliers.The goals for 2004 detail these various approaches in astructured development plan that is translated intopersonal goals and objectives so as to ensure that theresults will be achieved.Insurance and risk coverageIt is Arcelor’s policy to contract worldwide insurance tocover catastrophic risks for the Group with insurershaving the highest liquidity rating, and local coverage forthose risks that must be covered by law. The amountsof the insurance coverage are a function of the financialrisks as defined by the various disaster scenarios andthe products offered by the insurance market.With regard to property damage and consequentialoperating losses, the Group is:- conducting, through outside entities, engineering auditsregarding fire protection and equipment breakdownrisks for all facilities for which the insured value exceeds50 million euros. 75% of the facilities in question wereaudited in 2003;- studying major loss scenarios, estimating the potentialconsequences for people, the environment and the facilities;- strengthening the resources available to limit the likelyoccurrence of such catastrophic losses and their consequences;- formalising the recovery resources existing withinthe Group to limit consequential operating losses;- transferring the residual catastrophic risks to theinsurance market, for the portion exceeding 20 millioneuros per event; insured amounts are in line with industrypractices and the insurance products available on themarket.With respect to civil liability, and because the maximumfinancial risk cannot be estimated empirically, theamounts insured are in line with the products available onthe market and the insurance coverage purchased byindustrial groups of comparable size and activity. In orderto reduce its liability risk, the Group is implementing inhousetraining to raise awareness and educate everyoneinvolved.In terms of product shipment, when a customer entruststhe Group with organising product shipment, the vesselsto be used must meet the following criteria:- classified by a classification society that is a member ofthe International Association of Classification Societies(IACS);- covered by a “P&I Club” (Mutual Protection and IndemnityAssociation) having the highest liquidity rating;- an International Safety Management (ISM) certificatevalid for the duration of the voyage;- less than 20 years old.Two additional criteria are applied if Arcelor charters thevessel:- knowledge of the results of the most recent inspectionsperformed by port authorities;- awareness of the existence or non-existence of a majorevent affecting the vessel during the last 12 months.The full insured amount corresponds to the maximumpotential risk per event.With regard to all insurable risks, the Group gives preferenceto self-insurance for low frequency risks that eachentity can cover. This results in an excess tailored to thefinancial resources of each entity for better awareness ofrisk prevention by all participants.Self-insurance with recourse to the reinsurance marketis used for medium-frequency risks in order to optimiseand smooth insurance costs at Group level. The riskexposure is limited through the protection provided bythe reinsurance market.Arcelor’s policy for the protection of its industrial installations,highlighted by the decision to allocate anadditional 17.4 million euros over the next 12 months, inaddition to the regular accident prevention investmentbudgets of the entities, to improving the safety of itsfacilities has been welcomed by the insurance market,which is giving the Group a substantial discount on thepremiums to be paid in 2004 for damage and consequentialoperating loss cover.86ANNUAL REPORT ARCELOR 2003