Chairman's
word

Crisis and opportunities

For an entrepreneur, crisis may generate opportunities

A deteriorated economy set the stage for 2008, especially for the end of the year, when the trough of our business cycle coincided with an unprecedented world recession. Continuing a trend that had begun nearly two years earlier, metals prices fell further, which, in addition to low volume, put the entire sector in the extremely difficult situation that has defined the first half of 2009. And while the unpredictability of the current crisis’ intensity may be blamed, we would be forgetting the very nature of metals markets if we were surprised at their recent downward trend, which began their decline in 2007. Our industry is intrinsically cyclical. Resisting the temptation to focus on its exceptional results in 2006 and 2007, JACQUET Metals anticipated a weaker market and we issued our first warning in August 2007.

How could we follow up on 2007, a year in which the price of nickel reached an absurd $54,000/ton, three times its historic high? Similarly, the decline in sales of JACQUET Metals, from €302 million in 2007 to €238 million in 2008, should be interpreted with the same cautious intelligence used to analyze the records of the two previous years. Two-thirds of this decline can be attributed to trading in Quarto plates, whose prices are always very volatile, and which the Group trades aggressively during expanding cycles. The core business of JACQUET Metals, the distribution of cut plates, grew 3% in volume.

This performance was boosted by sales in China and the United States, where operations now account for more than 15% of Group business only two years after the first operations were launched, thereby establishing JACQUET on three continents. Given that we gained market share in these new regions in a contracting cycle, we are confident that operating income will follow. Growing new markets takes time, but these encouraging performances justify the JACQUET Metals strategy, which in 2008 included the opening of a fourth distribution center in the United States, a second center in Italy, and three commercial branches in China. Because of our confidence in the future, we have concrete plans to open additional distribution centers not only in China and the United States, but also in Europe, Japan, Canada, and Brazil.

Despite the poor business climate, JACQUET Metals had cash flow of €29 million in 2008. The corporate outlook for a challenging 2009 is one of strictness and calm. The relevance of actions taken with a longterm perspective should not be distorted by circumstances that, quite naturally, call for self-restraint. For instance, JACQUET Metals did not hesitate to take a conservative approach, even at the cost of headline growth, with write-downs of €12 million for Group inventory and €2.4 million for deferred tax assets.

This conservative approach is not passive. We remain resolutely on course, and the goal is unchanged: to grow JACQUET Metals market share from 10% to 20% within its specialty, stainless steel Quarto plates. However, the financial crisis has generated opportunities and JACQUET Metals initiated the acquisition of a stake in IMS during the second half of 2008.

The acquisition of 23% of IMS Group at the end of 2008 was consistent with my entrepreneurial vision, developed over my 20 years in metals distribution; consistent with the vision of my teams, who have patiently nurtured this project; and carried out with the help of our banks. JSA, the main shareholder of JACQUET Metals, also acquired 10% of IMS, a European leader specialized in the distribution of special steels, with sales of €1.4 billion in 2008. Like JACQUET Metals, IMS works in niche markets, and its business approach offers significant synergies (suppliers, purchasing platforms, alloy management, added-value services, etc.). Cooperation between the two French leaders can only be beneficial.

The management structure of the Group has been strengthened since the beginning of 2008, mainly by the development of an operational division whose mission is the daily management of the JACQUET brand. Thus, I was able to focus on the increase of participation in IMS. More than ever, the times call for selflessness and hard work, values upheld by every entrepreneur.

> Eric JACQUET / President

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