LETTER FROM THE CEO

Josu Calvo

Gonvarri Steel Services CEO

Dear friend,

Following our commitment of 2014 to inform our stakeholders about our economic, social and environmental performance, it is my pleasure to present the 2017 Sustainability Report of Gonvarri Steel Services.

We have ended a year in an environment that saw a strengthening global economy and an increasing global output. From the second semester of 2016, the steel prices have bounced back, thanks to cuts in production and installed capacity primarily in China and to the better global outlook. This has facilitated an increase in the demand of crude steel by 5.3% against last year, with China continuing as the first producer, followed from a distance by Japan, India and the United States.

In this global framework, our results show a volume of business of 3,038 million euros and a gross operating profit (EBITDA) of 210 million euros. This allows us to go beyond and help enhance the value of the communities in which we are present, through paying taxes, our expenditure in local providers and personnel, among others, reaching a total distributed economic value of 3,019 million euros.

The improvement of the group’s results, following the shareholders philosophy, has been reinvested to speed up the internalization and diversification process through which we aim to consolidate the growth and the future of our company and its workers. To this goal, they have earmarked 109 million euros that become reinforce with very important new investments in 2018 as the culmination of our Strategic Plan 2016-18.

The investments have mainly focused on Gonvvama China, where the plants of Shenyang, Changshu and Chongqing have begun operating. In Europe, the new plants “Laser Automotive Valencia” and “Steel & Alloy Popes Lane” stand out, which will begin operating at the beginning of 2018, principally for the auto business line.

Regarding the solar structures business line, we have inaugurated a new plant in Mexico, ¨Gonvarri Baja California¨ and we have acquired the Spanish engineering  company ¨Suports Desarollo y Soluciones¨, which specializes in solar housing structures lighter and with greater application, with which to advance in the way green housing in the near future.

At the beginning of 2018, we closed the acquisition of the Constructor Group, with which we amplify the storage and logistics business line, which will operate under the ¨Gonvarri Material Handling¨ society.

We are also reinforcing and expanding the Gonvauto South Carolina and Gonvarri Czech plants, and the plants of Gonvauto Puebla and Gonvarri Poland are in the enlargement process. This will allow us to increase our production and to diversify our product portfolio all around the world.

Regarding our strategy and business model, this year we have consolidated our Management Model ¨Drive¨, which is scalable and sustainable long-term, around which this Report revolves. For its proper development and transversal implementation in all the group, we have developed an ambitious national and international communication plan in all our plants.

Overall, we have met objectives and reached our expectations which shows the strength of our business model, and which allows us to keep growing and diversifying, and to keep contributing to the development and progress of the countries we are active in.

This growth is also reflected in employment. We have around 500 professionals more than last year, and although this growth has been generated from almost all our plants, China stands out the most due to the new facilities being launched.

In health and safety, it has been a very negative year, which we have to regret the loss of an employee in Germany. After this incident we have tightened preventive measures, communication, sensitization and controls that allow us to advance towards a safer work environment for all.

Regarding the ¨Compliance Model¨ launched in 2016 via the Internal Audit area, we have made notable advances. The approval of the new Code of Ethics and Conduct by the Board of Directors stands out for its importance, as well as the Statute of the Compliance Committee and the Compliance Policy, the Rule Zero, the functions and responsibilities of Internal Audit and Compliance, just as the antifraud and corruption Policy and the Compliance Model supervision plan.

In 2018, an ambitious global communication and training plan for the new Code of Ethics and Conduct is in the pipeline. Additionally, the new complaint channels and the restructuration of the Ethics Channel is operational and available for all stakeholders.

We are currently immersed in new challenges such as the digital revolution and sustainable mobility. Gonvarri cannot ignore these changes and challenges. For this reason, we have defined a new more agile and flexible innovation model, which allows us to adapt our culture and business to today´s market and its new way of working, to develop more efficient and sustainable products that help to differentiate and to improve our climate. This endeavor is reflected in our R&D investment that reached 1.5 million euros.

A clear example of this commitment is the Gonvarri 4.0 project, through which we develop technological solutions that bring productivity, quality and safety (key issues for the Group), and that improve the way of working of the professionals at Gonvarri. For its implementation, we have started a successful pilot project in the Gonvauto Galicia plant for its high operational efficiency, for which a multidisciplinary team was selected, led by the Innovation area, in collaboration with various technological providers.

Finally, we have reinforced our commitment to the Sustainability Development Goals (SDG), in the Management Model “Drive”, in 4 focal points. In the Report, we describe the main principles which were developed in training and employment (SDG 4.4), the project “Emotional Driving” (SDG 3.6), efficiency and innovation (SDG 9.4) and energy efficiency and climate change (SDG 7.3).

With that being said, our future vision is optimistic and responsible being conscious of the difficulty of the coming challenges.

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