DUFERCO ANNUAL REPORT

We are pleased to present the Annual & Sustainability Report of Duferco Participations Holding S.A. for the financial year 2024 (FY24).

This year has been marked by significant achievements and challenges, reflecting the resilience of the Group’s business model and its expertise in navigating operations with tighter margins, increasingly complex and regulated markets, and rising geopolitical tensions. Despite a notable decrease in net profit to 152.4 million USD from the exceptional 450 million USD in the previous year, our performance remains robust. The Group’s revenue totalled 18.4 billion USD (27.6 billion USD as of September 30, 2023), a decrease primarily due to lower energy and steel prices. Our consolidated balance sheet remains strong, with a net working capital of over 1,060 million USD, healthy liquidity levels, with a volume of cash reserves of almost 695 million USD (867 million USD as of September 30, 2023), and a Group total equity amounting to 1,843 million USD (1,836 million USD as of September 30, 2023).

These financial results are underpinned by a business model that increasingly integrates sustainability across all four divisions: Steel, Energy, Shipping, and Innovation.

The Energy Division is at the forefront of the Group’s commitment to the energy transition. This year, the Division achieved a commendable net profit of approximately 186 million USD. Throughout the year, the Division successfully continued its wholesale and retail activities in energy products, particularly electricity and natural gas, and made significant investments in renewable energy capacity generating over 140 GWh in FY24. Moreover, the Division advanced sustainable mobility initiatives, reaching over 2100 charging points and overseeing a full-electric car-sharing fleet. Although energy trading activities did not replicate the extraordinary performance of the past two years, due to the stabilisation of gas and electricity prices in the 2024 financial year, they still delivered robust results. The stability and strength provided by the trading business enabled the Group to seize opportunities even in unstable market conditions with an ever-growing focus on instruments that incentivise the energy transition and decarbonisation.

The historical core of the Duferco Group, the Steel Division, is set in the context of the European steel sector which is a pioneer of sustainable production. In fact, the economical strains faced in the post-war era led the industry to develop more efficient production systems. By leveraging electric furnaces and connections to the hydroelectric plants of the pre-Alpine valleys, and using the abundant post-war steel waste as raw material, the European electro-siderurgy sector became a beacon of creative invention for decarbonisation and circular economy. This year, the Division experienced a 44.8 million USD loss due to challenging macroeconomic conditions that emerged in 2023. Despite successful monetary policies controlling inflation, ongoing geopolitical crises in Europe and in the Middle East, high energy and raw material costs in Europe, and elevated interest rates hindered investments and global economic growth. Additionally, burdensome sustainability regulations stemming from the Green Deal, such as the ETS and CBAM, pose challenges for the steel sector to meet European decarbonisation targets while maintaining competitiveness against non-EU countries with less strict standards. Nonetheless, our European-based steel production and distribution activities have shown resilience, continually adapting and innovating thanks to considerable investments in new technologies and processes. Notably, the new green SBM rolling mill, which required an investment of 250 million euros and was inaugurated in October 2023, represents a significant milestone in the Italian steel industry landscape, strengthening Duferco’s market-leading position by verticalising production at the San Zeno Naviglio site.

Following a ramp-up phase in FY24, the company proceeded with the production while the plant’s efficiency continued to be optimised. This investment is aimed at enhancing the Group’s industrial capacity and supporting the energy transition and decarbonisation through the development of innovative technologies and use renewable energy sources. It marks a long-term strategic move toward strengthening the company’s position as the best cost producer in Europe for long steel products. Located in a logistically strategic area at the heart of the European market and close to major road and rail networks, the new facility overcomes past logistical bottlenecks, enabling faster and more sustainable distribution. Fully integrated with the existing steel plant, the rolling mill leverages cutting-edge technologies and artificial intelligence to maximize production efficiency, minimize waste, and optimize resource use. This investment not only enhances the group’s industrial competitiveness but also represents a decisive step toward a more circular, digital, and resilient industrial future.

In the current globalised market, in which maritime transportations hold a critical importance in meeting the logistic needs caused by a constantly growing demand for products while offering one of the most viable transport solutions to limit GHG emissions, the Shipping Division enables the Group to operate as a leader in a niche market by offering flexible and customised services, and to leverage its key position for observing international macroeconomic dynamics. The Division contributed 25.2 million USD to the consolidated result which, despite geopolitical challenges, confirms a stable performance. Since January 2024, the EU ETS also includes CO2 emissions from all large ships entering EU ports. This provides additional motivation to the Division, which has been designing and implementing multiple cutting-edge solutions to reduce ship-related emissions for several years already. In 2024, the construction of what is expected to be the world’s largest cement carrier started. This 38,000-ton ship will feature technologies which significantly reduce CO2 emissions, including a propulsion system compatible with diesel and methanol, and a power generation turbine directly supplied by the engine’s exhaust gases.

The diverse business sectors and operations in which Duferco is engaged are closely linked to technological advancements and innovation. Over the years, the Group set up a dedicated Innovation Division to address these emerging challenges, leading projects which improve operational efficiencies and advance energy transition and decarbonisation efforts. In 2024, the Division supported the Group in the installation and completion of the new rolling mill, thereby leveraging the skills of its expert professionals to implement more sustainable and optimised production systems. Furthermore, the Group is actively investing in research and development initiatives aimed at reducing CO2 emissions. These initiatives encompass projects related to green hydrogen production, carbon capture in industrial processes, methanol production, low-emission portal vehicles, as well as agri/photovoltaic and wind power generation.

We extend our sincere gratitude to all our stakeholders for their unwavering support and trust. As we navigate the complexities of the global markets, we remain committed to our core values of excellence, innovation and sustainability. Guided by these principles, we will continue to expand our Energy Division business, with a focus on increasing our renewable capacity and enhancing our services related to energy and carbon markets. Simultaneously, our aim for the Steel Division is to reinforce Duferco’s market-leading position by exemplifying innovative and sustainable steel manufacturing, achieving both decarbonisation and circular economy objectives. Together, we look forward to achieving these new milestones while fostering positive change in the years ahead.

Bruno Bolfo