DERICHEBOURG - Universal registration document 2018-2019

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Group management report Significant events during the fiscal year

Significant events during the fiscal year 3.1

lower energy consumption per ton produced; p locally available resources and preservation of local jobs; p lower investment. p Moreover, the Group’s management principles should help it weather this difficult period: low inventory levels to avoid exposure to price fluctuations, and p search for satisfactory unit margins; dense coverage across France, ensuring the cost effectiveness of p specialized sorting lines, and vertical integration that generates added value. Available outlets for shredder residues 3.1.2 During the past fiscal year, at some of the recycling centers equipped with metal waste shredders, the Group’s Recycling business was faced with difficulties in finding outlets for its final waste, i.e. the shredder residues (10-15% of a shredder’s inflows). This situation was due to the impact of the French law relating to the transition towards green growth, which provides for a 50% reduction of the intake capacities of landfill sites by 2025 compared with 2010. The final waste from the recycling of waste from economic activities – which includes shredder residues – only accounts for 4% of the volumes sent to landfill, while landfill sites take in large amounts of waste that has not necessarily gone through any upstream sorting or recovery process. Recycling firms have been the first companies to be faced with this difficulty. With the professional organization Federec, the Group raised the awareness of public authorities concerning these difficulties, which resulted in the temporary stoppage of two shredders in the winter of 2018/2019. The draft law relative to the fight against food wastage and to the circular economy – currently under review – should examine this issue and lay down strict rules on the acceptance of recyclable waste in landfill sites, in order to ensure that the final waste from sorting and recycling facilities can be accepted as a priority. The options to be examined include the creation of a legal basis enabling prefects to increase storage capacity quotas and deviate from regional waste prevention and management plans (“PRPGD”) whenever their implementation results in non-compliance with the principle of proximity. In parallel, the concept of territorial compartmentalization must also be examined, as the logic of recycling is not tied to administrative boundaries, but to geographic and economic areas. At the same time, the Group is conducting initiatives aimed at promoting the use of shredder residues as a source of energy in cement production, and in furnaces using solid recovered fuel.

Drop in volumes and prices in the 3.1.1 recycling business Since the Trump administration’s decision of mid-2018 to impose tariffs on imports of steel (25%) and aluminum (10%), followed a few weeks later by China’s retaliatory tariffs on imports of non-ferrous metals from the United States and political tensions between the United Sates and Turkey in the summer of 2018, the economic conditions under which the Group’s Recycling business operates have gradually deteriorated: China’s retaliatory measures (tariffs imposed on imports of p non-ferrous metals from the United Sates) resulted in the collapse of trade flows that had been stable for 20 years, as most of America’s non-ferrous metal waste had been exported to China. American recyclers sought to place those products elsewhere in the world, which resulted in a sudden influx of goods, particularly aluminum (the most widely used metal after iron), in Southeast Asia and Europe. This caused market imbalances, as local demand remained stable, resulting in a sustained fall in prices. In the case of stainless steel waste, another phenomenon took place: Indonesian exports of cheap ore made recycled stainless steel less competitive, resulting in a fall in volumes and prices; concerning the ferrous scrap metal market, tensions between the p United States and Turkey, which arose in August 2018 following the detention of an American pastor on allegations that he had ties with an opponent to Turkey’s current regime, resulted in a sudden devaluation of the Turkish lira, an increase in interest rates, and an abrupt economic crisis in the country. Steel production, along with purchases of Turkish ferrous scrap metal, dropped by around 10% over the first 9 months of the 2019 fiscal year, putting downward pressure on ferrous scrap metal prices (down by around $70/t between spring and fall 2019, i.e. -25%), as Turkey is the world’s largest importer. At the same time, Turkey’s domestic steel market receded by around 30%, which means that the 20-point difference between the drop in production and Turkish domestic consumption was exported to the Middle East and Europe, where those volumes competed with those produced by the Group’s domestic customers, resulting in a drop in their ferrous scrap metal needs. However, the unfavorable economic trend that has affected the recycling business over recent months does not negate the long-term benefits of steel from electric steel mills and recycled non-ferrous metals: much lower CO 2 emissions than primary production, equivalent to a p ratio of 1 to 2.3 for steel;

DERICHEBOURG p 2018/2019 Universal Registration Document 87