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History

The history of FESIL began with Lilleby

Metall in the city of Trondheim; here

production of FeSi was started as early as

1927. The owner, Ila og Lilleby Smelte-

verker AS, was registered as a joint stock

company December 5th, 1936. The com-

pany's name remained unchanged till

1995 when it was changed to FESIL

ASA. FESIL ASA has been listed on the

Oslo Stock Exchange since June 1995.

FESIL ASA has its head office in the city

of Oslo.

Sales and marketing

FESIL's wholly owned sales company

FESIL Sales AS handles all marketing

and sales of FeSi and SiMetal. The com-

pany is represented in every important

market by either subsidiaries or agents.

FESIL Sales AS is also the sales agent of

the FeSi produced at the Norwegian

plant Finnfjord Smelteverk AS. The

world's leading steel works; foundries

and chemical groups are to be found

among FESIL's customers.

Environment

The Norwegian authorities have imposed

the most restrictive environmental regu-

lations on the country's ferroalloy indus-

try. FESIL' plants do not release any-

thing to the sea other than cooling water

and sanitary effluents. The smoke is

cleansed of dust. The dust, microsilica,

has become a valuable additive to a

number of products, among them conc-

rete. FESIL's production is solely powe-

red by clean and renewable hydroelectric

power.

Ownership

FESIL ASA's 7,999,500 shares are listed

and traded on the Oslo Stock Exchange.

The biggest shareholders are the Ameri-

can company Globe Metallurgical Inc.

(39.25 %) and the British group Tennsil/

Tennant (39.99 %). The remaining shares

are spread out among 340 other share-

holders.

The FESIL

Group is a major producer of ferrosili-

con (FeSi) and silicon metal (SiMetal).

The Group has three melting plants, all

of them in Norway: Holla Metall, Lilleby

Metall and Rana Metall. Special pro-

ducts, including granulated and refi-

ned qualities, make up the bulk of the

production. FESIL also owns FESIL-

Brikettfabrikken that makes briquettes

from FeSi and silicon carbide (SiC). All

plants are certified as conforming to

ISO 9000. A further presentation of

each plant is given on page 49.

T H I S I S F E S I L

FESIL ANNUAL REPORT 1999 1

Turnover per market 1999

EU, 85 %

USA, 6 %

Far East, 6 %

Norway + others, 3 %

Strategy

FESIL's objective is to maintain and fur-

ther develop its international position as

a leading producer and marketer of sili-

con alloys and related by-products.

A primary objective is to give the

shareholders a return on invested capital

that over time at least equals the return

on investments carrying a comparable

risk. Since the markets for ferroalloys are

strongly cyclical, the return must be eva-

luated over a period of time.

In order to reduce exposure to cycli-

cal fluctuations, FESIL is endeavouring

to shift its production away from stan-

dard products to products that require

greater experience and technological

know-how. Efforts to ensure that the pro-

ducts are of a stable and high quality are

given high priority.

FESIL is continuously working to

reduce costs through, among other, chea-

per procurement, rationalisation, process

improvements and greater efficiency in

furnace operation. The lowest possible

costs is a precondition for long-term sur-

vival and profitability. Production of FeSi

and SiMetal is very energy intensive, and

long-term power contracts at competitive

prices and terms are consequently cru-

cial. The company is therefore constantly

focused on the question of power con-

tracts.

Stable and long-term relationships

with its customers form the basis of

FESIL's marketing strategy. The marke-

ting organisation is, as far as possible,

integrated with the rest of FESIL's orga-

nisation. This market orientation of the

Group is designed to ensure a rapid

response to market information.

FESIL ANNUAL REPORT 19992 T H I S I S F E S I L

SiMetal production 1999

Chemical, 86 %

High Purity, 11 %

Standard, 3 %

FeSi production 1999

Low AL/C, 38 %

High Purity, 18 %

Standard, 8 %

Granules, 36 %

M A I N F I N A N C I A L F I G U R E S


Earnings per share (after tax) (in NOK)

Group Profit & Loss Statement(in NOK mill.)

1999 1998 1997 1996 1995Operating income 1 711 2 037 2 107 2 133 2 231Operating expenses 1 616 1 929 2 049 1 927 1 957Ordinary depreciation 49 48 70 69 68Operating result 46 60 (11) 137 206

Share of results in other companies 11 9 11 10 9Net financial items (28) (24) (27) (39) (65)Profit before taxes 29 46 (27) 109 150

Taxes (9) (16) 9 (9) 14Profit/loss for the year 20 30 (18) 100 165

Group Balance Sheet(in NOK mill.)

1999 1998 1997 1996 1995Fixed Assets 414 427 346 440 465Current Assets 701 757 736 786 832Total Assets 1 115 1 184 1 082 1 226 1 297

Equity 466 446 415 433 369Long-term Debt 265 284 276 349 384Short-term Debt 384 454 391 444 544Total equity and liabilities 1 115 1 184 1 082 1 226 1 297

Key figures balance sheet(in NOK mill.)

1999 1998 1997 1996 1995Equity ratio 42% 38% 38% 35% 28%Interest bearing debt 371 406 387 483 522Investments 41 126 47 80 16

-505

10152025

19991998199719961995

Share price vs. Oslo Børs stock index

0306090

120150

TOTEX

FESIL

21.Jun. 951.Jan. 96

1.Jan. 971.Jan. 98

1.Jan. 99

31.Dec. 99

1999 – a year with challenges

1999 turned out to be a year that posed

great challenges to FESIL, especially in

the area of silicon metal (SiMetal).

Considerable over-capacity world wide

due to increased production capacity and

reduced demand, caused the prices to fall

to very low levels. To reduce stocks, and

as a contribution to stabilise the markets,

FESIL decided to temporarily reduce

production through closing down three

out of five SiMetal furnaces. One regret-

table consequence of this was that

employees had to be laid off. At the

most, as many as 120 out of a total of

about 440 employees were therefore

temporarily laid off. The prices for ferro

silicon were also lower in 1999 than in

the previous year, however this reduction

was not as big as for SiMetal. The FESIL

Group’s operating result in 1999 was

NOK 46 million (1998: NOK 60 million)

and the result after taxes was NOK 20

million (1998: NOK 30 million).

Considering the problems mentioned

above, it would not be unreasonable to

expect even poorer results for 1999. The

main reasons this did not happen were

higher efficiency and specialisation, areas

that have very much been in FESIL’s

focus throughout 1999.

Efficiency, full capacity, power

and environment

FESIL is operating in very cyclical and

international markets. For several years

the strategy has been through increasing

specialisation to move away from the

most cyclical products. For the first time,

in 1999 almost the entire production was

specialised products. At the same time,

the flexibility is being maintained in order

that standard grades may still be produ-

ced. It is FESIL’s opinion that long-term

profitability can only be achieved through

the combination of specialisation and effi-

cient operations. To increase efficiency is

an ongoing process that never ends. This

will be one of FESIL’s principal focuses

also in 2000, through strict cost control

and improvements in every part of the

process. Even though FESIL’s power situ-

ation is satisfactory the next five years, the

power market is changing fast. During

2000 FESIL will continue working to

secure long-term power prices at accept-

able and competitive terms. On entering

year 2000 the market for SiMetal shows

clear signs of improvement. It is one of

FESIL’s targets to have all five SiMetal

furnaces back in production before the

end of the year. For that to happen, the

market improvement we now see must be

considered stable. Both FESIL and the

other ferro alloy industry in Norway are

subject to the world’s most restrictive

environmental requirements. The compa-

ny’s engagement in environmental mat-

ters is considerable. During 2000 FESIL

will continue to work for future environ-

mental requirements to be made interna-

tional in order that our competitiveness

will not be further reduced and the

advantage given of our much more pollu-

ting competitors in Eastern Europe, Asia

and South America.

FESIL ANNUAL REPORT 19994

H I G H L I G H T S 1 9 9 9

T A S K S A N D O B J E C T I V E S F O R 2 0 0 0

The year 1999

For FESIL, 1999 turned out to be a year

that posed big challenges. In the begin-

ning it was the considerable effects of the

financial crisis in parts of Asia, and there

were few signs of an economic recovery

within the European Union (EU). The

most important demand indicators for

FESIL’s main products, ferrosilicon (FeSi)

and silicon metal (SiMetal), were therefore

still pointing downwards. For this reason,

FESIL intensified in 1999 its efficiency

programs even further, between other in

close co-operation with one of its main

shareholders, Globe Metallurgical Inc.

Ferrosilicon is used mainly as a small,

but important additive in the steel and

foundry industry. Since the need for FeSi

is closely tied to steel production, the

world consumption and production of

steel are important indicators for the

development of the FeSi industry. Since

March 1998 the world’s total steel pro-

duction has decreased. The total producti-

on was in 1998 2.3 % lower than in 1997.

This decrease continued into 1999 but

bottomed out during 1st quarter. From

then on the production increased through

the rest of 1999. Total steel production for

1999 ended 1.4 % above the 1998 level.

In Asia the production was 3.5 % higher

in 1999, while it was 2.5 % lower in EU.

The FeSi prices, which had been falling

throughout 1998, stabilised during the 1st

half of 1999. In the 2nd half they started

to increase. The basic economic outlook

signaled increased steel production, and

therefore higher FeSi consumption and

consequently increased prices. But then

something unexpected happened. In the

3rd quarter the US authorities lifted all


Board of Directors'Report

anti-dumping duties on FeSi imported into

USA. There was an immediate major

drop in the US prices, and the uncertainty

spread to Europe, thus undermining the

European price increase. So even if the

consumption of FeSi increased during

1999, we did not get a similar increase in

prices. Efficient and stable operations at

the plants are, in addition to market

development, very important for FESIL’s

financial results. Since FESIL’s operati-

ons were satisfactory in 1999, the ear-

nings from FESIL's FeSi activities turned

out as expected.

Silicon metal (SiMetal) is used by

the chemical, aluminium and electronics

industry. FESIL has concentrated on sup-

plying the chemical industry. The use of

SiMetal by the chemical sector had incre-

ased steadily for many years, but in 1998,

as a consequence of the slowdown that

began in Asia, this trend was broken.

The demand for SiMetal in fact fell

while, at the same time, world product-

ion capacity had been increased. A sur-

plus of SiMetal developed, resulting in a

considerable fall in prices. The price ero-

sion continued throughout most of 1999.

Because FESIL did not want to sell at the

very low spot prices, but concentrating

on supplying its long-term contracts, an

increase in stocks was unavoidable.

FESIL therefore decided to cut back

temporarily its production of SiMetal to

contribute to stabilising a falling market.

One SiMetal furnace at FESIL’s Lilleby

Metall plant was closed down on March

16th. Another two SiMetal furnaces were

closed down at the Holla Metall plant on

April 27th. These furnaces have a total

production capacity of 25,000 metric tons

per year. As long as they were kept out

of production, FESIL operated on 50 %

of its production capacity for SiMetal.

Unfortunately, one consequence of such

market driven shut downs is that employ-

ees are laid off temporarily. For a while

as many as 120 out of FESIL’s total of

440 employees were laid off. The prices

stabilised towards the end of the 3rd

quarter. At that time FESIL’s stocks were

considerably reduced. This allowed Fesil

to put one of the closed down furnaces

back into production, only to supply

against existing contracts. The furnace,

with an annual capacity of 8,500 metric

tons, resumed full production in week

no. 49. During the 4th quarter the market

improved, confirming that the bottom

appears to have passed for now.

Unavoidably, FESIL’s return on its

SiMetal activities in 2000 was not as

good as expected.

FESIL ANNUAL REPORT 19996 B O A R D O F D I R E C T O R S ' R E P O R T

Profit/loss after tax (in NOK mill.)

-50

0

50

100

150

200

19991998199719961995

Result and dividend

The pre-tax result of the FESIL group in

1999 was a profit of NOK 29 million.

The corresponding figure for 1998 was a

profit of NOK 45 million. The group's

operating income fell 16 % in 1999 to

NOK 1,711 million (1998: NOK 2,037

million). The operating profit came to

NOK 46 million in 1999 (1998: NOK 60

million).

The reduction in operating income

from 1998 to 1999, was due to reduced

sales of FeSi, lower prices on both FeSi

and SiMetal, as well as reduced trading

activity. The reason for the lower FeSi

sales in 1999 was the conversion of fur-

nace 4 at Holla Metall from FeSi to

SiMetal in 1998.

The reduced operating result in 1999

compared to 1998 was, in addition to

lower prices, due to temporary shut

downs of three SiMetal furnaces during

major parts of 1999, as well as a planned

stop at Lilleby Metall for 30 days in the

3rd quarter of 1999.

Net financial items amounted to net

costs of NOK 17 million in 1999 (1998:

net costs of NOK 15 million). Net interest

costs were NOK 30 million (1998: NOK

22 million). The higher interest was due

to a combination of higher interest rates

in 1999 compared to 1998, as well as a

higher level of interest bearing debt.

Financing the conversion of furnace 4 at

Holla Metall in 1998 caused the increase

in interest bearing debt from 1998 to

1999.

The cash flow from operations was

NOK 61 million in 1999 (1998: NOK

102 million). The Group's taxes amoun-

ted to NOK 9 million in 1999 (1998:

NOK 16 million), of which NOK 3 milli-

on (1998: NOK 11 million) were taxes

payable.

The result for the year after tax was a

profit of NOK 20 million (1998: Profit of

NOK 30 million). Earnings per share

were NOK 2.45 (1998: NOK 3.69).

Since the prices for FESIL's products

are now at a relatively low level, and in

order to maintain a strong financial posi-

tion, the Board will propose to the

Annual General Meeting that no divi-

dend will be paid for 1999 (dividend in

1998: NOK 0). The Annual General

Meeting will take place on May 11th,

2000.

The results for 1999 are presented

given the assumption of a «going con-

cern».


Interest bearing debt vs. equity (in NOK mill.)

300350400450500550600

19991998199719961995

Debt

Equity

B O A R D O F D I R E C T O R S ' R E P O R T

Capital developments, financing

and investments

FESIL's financial position has been signi-

ficantly strengthened over the past five

years. Whilst the Group's equity capital

at the end of 1994 amounted to NOK 60

million, it had by the end of 1999 reach-

ed NOK 466 million. The book value of

FESIL's assets has over the same period

decreased by NOK 82 million, to 1,115

million as of 31.12.99. This means that

the equity to assets ratio, during this peri-

od, has increased from 5 % to 42 %.

The Group's net interest-bearing

debt amounted to NOK 371 million at

the end of 1999 compared to NOK 406

million at the end of 1998. 16 % of the

net interest bearing debt was as of Dec-

ember 31st, 1999 denominated in Euros

(EUR), the rest in Norwegian kroner

(NOK). 62 % of the net interest-bearing

debt was tied to floating interest rates or

a rate fixed for less than 12 months. At

the end of 1999 not utilised drawing

rights amounted to NOK 258 million.

The Group's investments in fixed

assets in 1999 totalled NOK 41 million.

Shareholder structure

During 1997 and 1998 the American

metal producer Globe Metallurgical Inc.

(Globe) bought 39.25 % of the FESIL

shares. Globe is the world's largest pro-

ducer of special alloys for the foundry

industry and the world's second largest

producer of SiMetal. In 1999, the Swiss

metals trading company Gurta AG

bought a large number of FESIL shares.

The shares purchased by Gurta are

maintained in a company called Tennsil

Ltd. Together with Tennant Nordic Ltd.

and Tennant Midgley Group, Tennsil

Ltd. owns 39.98 % of the shares in

FESIL. It is the intention that the shares

owned by the Tennant companies and by

Tennsil are joined. As of 31.12.99 foreign

interests hold 79.8 % of the company's

shares.

During 1999 the price of FESIL sha-

res fluctuated between NOK 27-51. As of

31.12.99 the share price was NOK 36.00,

compared with NOK 30.00 at the end of

1998.

As of 31.12.99 FESIL had 345 share-

holders. The number of shares issued

was 7,999,500, all with voting rights.

The company's share capital is NOK

79,995,000. At the end of 1999, FESIL’s

market value was NOK 288 million.

Environment

Norwegian authorities have imposed the

strictest licence requirements in the world

upon the ferroalloy industry in Norway.

FESIL has complied with these require-

ments.

At Holla Metall, SFT (the Norwegian

authority for pollutionary matters) made

a thorough investigation in 1999. Six

deviations were registered as well as six


FESIL's financial position has been significantly strength-

ened over the past five years. Whilst the Group's equity

capital at the end of 1994 amounted to NOK 60 million, it

had by the end of 1999 reached NOK 466 million.

remarks. Holla has investigated the situa-

tion with respect to the sea condition

close to the plant, associated with the dis-

charge limits for quartz mud from the

washing process. Holla has also been

working with Hemne Næringsforum on a

project in order to utilise the waste heat.

No conclusions have yet been drawn in

respect of further work on the project.

Lilleby Metall sold 63,7 Gwh of re-

cycled energy in the form of heated water

to the city of Trondheim. This amount of

energy equals the amount of energy nee-

ded to heat 7,500 apartments in Trond-

heim. The reduction from 88 Gwh in

1998 is because furnace no. 10 at Lilleby

did not operate since March 16th, 1999.

At full operation in 1999, Lilleby would

have been able to deliver 99 Gwh in

1999. Lilleby has been able to reduce the

discharge of SO2 by converting to car-

bon materials with 1,0 % sulphur versus

1,5 % in 1998 and up to 2,8 % in 1997.

Rana Metall takes part in a joint local

project called «Air monitoring in Rana».

The report from this project is not yet finis-

hed. The project is concerned with measu-

ring the level of dust debris, floating dust,

sulphur dioxide, as well as registration of

weather data. Additionally, the content of

iron, sink, chrome and lead are measured

in the dust debris. Rana Metall recovered

43 Gwh from smoke gases in 1999. A new

shed for preparation of ladles as well as a

new mechanic workshop was built.

In the summer of 1999 it became appar-

ent that some ferroalloy plants were

found to have higher discharge of mercu-

ry than the authorities were aware of.

This was not the case for plants produ-

cing ferrosilicon and silicon metal, but

even so these plants were required to

report discharge of six different heavy

metals. This requirement came towards

the end of the year, thus the results are

not ready until March 1st, 2000. The

plants that produce either ferrosilicon or

silicon metal do not expect these

measurements to reveal any environmen-

tal problems. Similar measurements in

the past have not revealed anything of

the kind for our type of industry.

In 1998 the parliament decided that

emissions of sulphur dioxide, from the

use of coal, coke and petrol coke should

as of 01.01.1999 be taxed. The tax is

NOK 3.00 per kilo SO2. Normally this

would mean a cost to FESIL at NOK

7–8 millions, but because sulphur in coal

and coke in inventory at hand, and also

because of the somewhat reduced pro-

duction, the cost to FESIL in 1999 was

NOK 4.4 millions. In December 1999 an

international agreement was signed

where Norway is obliged to reduce its

level of SO2 and NOx emissions by year

2010. If this reduction is to be made cost

effective in a national economic perspec-

tive, it will require the building of bag

houses at a few plants.

Det Norske Veritas (DNV) has repor-

ted measurements from 1997–1999 of

SO2 and NOx, as well as from floating

dust and dust debris, in the areas around

both Holla and Lilleby. All the monthly

and daily average values were well below

the authorities’ required minimum level

FESIL ANNUAL REPORT 1999 9B O A R D O F D I R E C T O R S ' R E P O R T

Lilleby Metall sold 63,7 Gwh of recycled energy in the

form of heated water to the city of Trondheim. This

amount of energy equals the amount of energy needed

to heat 7,500 apartments in Trondheim.

of discharge allowed, with the exception

for one average daily value of floating

dust at Holla and two average daily valu-

es at Lilleby. They were both above the

required minimum.

The measurements of SO2 from

DNV shows that building bag houses for

SO2 at FESIL’s plants will have a minor

effect on the environment. However,

building such bag houses might come

about in order to minimise the costs asso-

ciated with reaching the 2010 goals.

Today’s SO2 tax does not solve any envi-

ronmental problems, and FESIL is wor-

king through PIL (The Confederation of

Process Industry) in order for the authori-

ties to replace it with a system where the

industry uses what it takes in order to

comply with the 2010 targets.

The government’s quota commission

on CO2 presented their work at the end

of 1999. A very important issue is that

the commission does not recommend

that a broad quota system with quota

obligations be imposed until 2008. Any

consequences of such a system appear

therefore to be some years in the future.

FESIL has, for several years, been wor-

king to reduce the emissions from fossil

CO2 by replacing it with biological CO2,

since the emissions of CO2 arising from

the use of wood (biological CO2) is not

taken into the climate balance. An

important event in 1999 was that FESIL

through a 50 % owned company bought

10 charcoal ovens from a closed down

plant in Holland. One of the ovens will

be placed at Lilleby for FESIL and SIN-

TEF to jointly develop the technology

further. The next step is to place the

other nine ovens near by the Baltic for

production of charcoal. For FESIL it is

strategically important to gain knowledge

about the use of modern technology in

the production of charcoal. This could be

part of the solution for limiting the emis-

sions of fossil CO2. The problems in

connection with CO2 are further descri-

bed in an article elsewhere in this

Annual Report.

Year 2000

The entering into the year 2000 did not

reveal any surprises to FESIL. This fact

seems to confirm that all the precautions

taken in advance were successful.


FESIL has, for several years, been working to reduce

the emissions from fossil CO2 by replacing it with biolo-

gical CO2.

Personnel and the working

environment

At the end of 1999 FESIL had 423

employees (1998: 442). Of these, 22 were

employed at FESIL’s companies outside

Norway. Due to marketing adjustments

FESIL had during 1999 reduced produc-

tion and instituted temporary redundan-

cies at two of its plants. At the end of the

year part of the working staff was laid off.

Absenteeism due to illness has

shown a positive trend, from 8.2 % in the

1st quarter to 6.9 % at the end of the year

(1998: 7.7 %). After several years with

increasing absenteeism, we have in 1999

been able to reverse the trend.

The number of injuries with absence

beyond the day of injury was 18 in 1999

against 42 in 1998. This gave an H-value

of 26 in 1999 against 52 the preceding

year. (H-value is the number of injuries

resulting in time off work beyond the day

of injury / number of working hours x

1 000 000). Half the registered injuries

with absence were related to fire damage.

One eye injury has been registered, and

compared to preceding years this is a

marked improvement. The reason is that

compulsory use of protective goggles

was introduced at all plants. No serious

injuries have been registered during the

course of the year.

The injury development through the

year showed a positive trend. Of the 18

injuries causing absence during 1999,

only six were registered in the 2nd half of

the year. At all the FESIL plants, there is

always a strong focus on safety, health

and environment. In addition, the com-

pany’s system auditor has carried out

internal audits. An important element in

risk prevention is the reporting of dange-

rous conditions and signs of such and the

handling of them. This is helping to pre-

vent dangerous conditions and signs of

such to lead to injuries with absenteeism.

The action programme set up at the

HES (health, environment and safety)

-conference in the autumn of 1998 focu-

sed especially on tidiness and cleaning,

alternative work for employees with

reduced working ability and also on

taking care of oneself and others. 1999

was declared a HES-year, and it is grati-

fying to see that this work throughout the

year has given positive results. A follow

-up conference on HES has been schedu-

led to take place during the autumn of

2000.

At the ordinary general meeting

06.05.99, Mr. Knut Øversjøen resigned

as a board member. Mr. Giovanni Luigi

Ghezzi was elected as new board mem-

ber. The Board wishes to thank the mem-

ber who left for his effort on behalf of the

company.

Details of the shares in the company

held by elected officers and the manage-

ment are given on page 37.


At all the FESIL plants, there is always a strong focus

on safety, health and environment. The number of inju-

ries with absence beyond the day of injury decreased

from 42 in 1998 to 18 in 1999.

Prospects

On entering a new millennium, the basic

picture for FESIL’s products is promis-

ing. The world’s total steel production is

on a high level and increasing. The need

for ferrosilicon (FeSi) is large and also on

the increase. However, due to the fact

that the US anti dumping duties were lif-

ted and also because EU is reconsidering

its anti dumping duties, it is more uncer-

tain how the FeSi prices will develop. It is

hard to predict the consequences of reduc-

ed EU duties, in part because available

statistics indicate that the system of anti-

dumping duties is being evaded to a

large extent. Also with respect to silicon

metal (SiMetal), the market is now firming

up. There is reason to expect increased

prices in 2000, even though idle produc-

tion capacity will gradually be put back

into production as the market picks up.

On entering year 2000, FESIL still has

two furnaces closed down. These furna-

ces have a total production capacity of

17,000 metric tons per year. The Board

considers it likely that one or both of

these will be restarted during the year.

It is the opinion of the Board that

FESIL is both financially and operation-

ally well prepared for the new millen-

nium. In the longer run there are reasons

for optimism. The need for improved

infrastructure in many countries and the

generally increasing welfare will increase

the demand for FESIL’s products.

As a whole, FESIL's power supply is

satisfactory in 2000 and will, to a large

degree, remain satisfactory up to year

2005. However, the Board is not satisfied

with the decisions taken by the

Norwegian Parliament in 1999 regarding

the future power regime for the

Norwegian power intensive industry. As

a consequence it is likely that this indus-

try will buy much more of the power it

needs in the future on the open electrici-

ty market as this is being liberalised. Still,

the Board considers it important that the

Norwegian energy policy provides that

the country's most important natural re-

source, hydroelectric power, is processed

further in Norway.

Norwegian ferrosilicon and silicon

metal industry is among the cleanest in

the world, and the engagement in envi-

ronmental matters is large. The permits

that the industry operates under, given

and implemented by the Norwegian

authorities, are the strictest in the world.

The Board is therefore both worried and

surprised when learning that some politi-

cians unilaterally want to impose further

Norwegian environment taxes. One con-

sequence will be that the competitiveness

of the Norwegian industry is further

reduced, to the advantage of its much

more polluting competitors in Eastern

Europe, Asia and South America. It will

be expensive for a small country such as

Norway is, always to strive for being

«best in class». It is the opinion of the

Board that the environmental policy

must be dealt with internationally, and

that actions should be coordinated across

borders so that they are implemented

where they have the most effects.


It is the opinion of the Board that the environmental

policy must be dealt with internationally, and that acti-

ons should be coordinated across borders so that they

are implemented where they have the most effects.

Allocation of result

FESIL ASA's result for the year 1999 was

NOK 4,431,000, while free equity as of

31.12.99 is 146,082,000. The Board pro-

poses the result to be allocated as follows:

• To other equity: NOK 4,431,000

The Board of Directors of FESIL ASA

Oslo, February 16th, 2000

Jonathan O. Lee Giovanni L. Ghezzi Rune Larsen

Chairman

Hans Tormod Hansen John F. Lalley Åge Sakariassen

Arden C. Sims Johannes Lien Arne Byrkjeflot

Observer

Odd Samstad

President and CEO


From left: President and CEO, Odd Samstad, Johannes Lien, Rune Larsen, Jonathan O. Lee, Arden C. Sims, Arne Byrkjeflot, Hans Tormod Hansen,John F. Lalley, Åge Sakariassen. Giovanni L. Ghezzi was not present whenthe picture was taken.

PARENT COMPANY (AMOUNTS IN NOK 000S) GROUP

1997

843 048

20 221

863 269

555 027

24 559

141 021

30 927

172 949

924 483

-61 214

14 994

7 410

17 749

4 655

-56 559

16 135

-40 424

1998

627 024

12 241

639 265

418 138

-16 248

122 300

22 738

72 595

619 523

19 742

3 694

7 425

19 003

-7 884

11 858

-2 475

9 383

1999

533 443

13 359

546 802

333 261

21 599

97 960

25 223

57 153

535 196

11 606

15 609

8 360

23 642

327

11 933

-7 502

4 431

Operating income

Revenue

Other operating income

Total operating income

Operating expenses

Raw materials

Change in stocks

Salaries and other personnel expenses

Ordinary depreciation

Other operating expenses

Total operating expenses

Operating result

Financial items

Share of results in other companies

Financial income

Financial expenses

Total financial items

Profit before tax

Taxes

Result for the year

Earnings per share (NOK)

Note

5

6

7,8

10

9

4

4

4

19

1997

2 086 573

20 469

2 107 042

1 424 161

29 713

207 648

69 519

387 271

2 118 312

-11 270

10 871

8 613

35 567

-16 083

-27 353

9 055

-18 298

-2,29

1998

2 024 094

12 654

2 036 748

1 475 170

-22 933

186 584

47 525

290 116

1 976 462

60 286

8 938

12 550

36 274

-14 786

45 500

-15 979

29 521

3,69

1999

1 700 048

11 201

1 711 249

1 151 862

32 305

169 050

48 678

263 216

1 665 111

46 138

10 639

12 830

40 825

-17 356

28 782

-9 204

19 578

2,45


P R O F I T A N D L O S S A C C O U N T 1 9 9 9


1997

18 068

18 068

59 758

79 139

6 277

145 174

94 157

120

3 122

15 506

112 905

276 147

102 716

17 238

227 960

18 228

263 426

6 588

372 730

648 877

1998

15 592

15 592

59 743

137 471

9 287

206 501

83 239

120

3 462

1 105

22 056

109 982

332 075

126 751

6 326

211 391

11 432

229 149

7 010

362 910

694 985

1999

8 091

8 091

64 895

135 461

7 417

207 773

91 295

120

366

22 826

114 607

330 471

92 646

2 870

242 804

5 365

251 039

42 574

386 259

716 730

ASSETS

Fixed assets

Intangible fixed assets

Deferred tax assets

Goodwill

Total intangible fixed assets

Tangible fixed assets

Land, buildings and other property

Machinery and plant

Fixtures and fittings, tools, office machines etc.

Total tangible fixed assets

Financial fixed assets

Investments in subsidiaries

Investments in associates

Investments in other companies

Pension funds

Other long-term receivables

Total financial fixed assets

Total fixed assets

Current assets

Stocks

Debtors

Accounts receivable

Group receivables

Other short-term receivables

Total debtors

Bank deposits, cash in hand etc.

Total current assets

Total assets

Note

11

19

10

12

12

13

8

14,18

6

18

16

1997

10 327

2 261

12 588

60 468

178 872

19 254

258 594

55 945

3 123

15 546

74 614

345 796

385 443

292 025

49 793

341 818

8 555

735 816

1 081 612

1998

5 525

5 525

60 453

251 682

20 455

332 590

61 194

3 463

2 436

22 070

89 163

427 278

419 279

290 062

38 286

328 348

9 296

756 923

1 184 201

1999

0

66 553

238 822

17 204

322 579

67 669

367

22 983

91 019

413 598

399 749

240 427

50 157

290 584

11 190

701 523

1 115 121

B A L A N C E S H E E T 1 9 9 9 , A S S E T S




1997

79 995

119 057

199 052

140 360

140 360

339 412

508

508

164 060

44 111

59 419

13 667

27 700

144 897

648 877

1998

79 995

119 057

199 052

149 741

149 741

348 793

0

189 841

60 905

63 802

14 339

17 305

156 351

694 985

1999

79 995

119 057

199 052

154 172

154 172

353 224

2 630

2 630

176 235

97 369

44 190

14 817

28 265

184 641

716 730

EQUITY AND LIABILITIES

Equity

Paid-up capital

Share capital

Share premium reserve

Total paid-up capital

Retained earnings

Other equity

Total retained earnings

Total equity

Liabilities

Provisions

Pension obligations

Deferred tax liabilities

Total provisions

Total liabilities to financial institutions

Short-term liabilities

Drawn on overdraft facility

Trade creditors

Taxes payable

Public duties payable

Other short-term liabilities

Total short-term liabilities

Total equity and liabilities

Note

21

20

20

8

19

15

18

4,18

1997

79 995

119 057

199 052

216 320

216 320

415 372

951

951

274 748

5 097

205 680

446

21 187

158 131

390 541

1 081 612

1998

79 995

119 057

199 052

247 283

247 283

446 335

0

283 596

2 290

263 289

1 883

23 665

163 143

454 270

1 184 201

1999

79 995

119 057

199 052

266 861

266 861

465 913

2 464

253

2 717

262 019

195 762

637

28 694

159 379

384 472

1 115 121

The Board of Directors of FESIL ASA


Jonathan O. Lee Giovanni L. Ghezzi Rune Larsen

Chairman

Hans Tormod Hansen John F. Lalley Åge Sakariassen

Arden C. Sims Johannes Lien Arne Byrkjeflot

Observer

Odd Samstad

President and CEO

B A L A N C E S H E E T 1 9 9 9 , E Q U I T Y A N D L I A B I L I T I E S

C A S H F L O W S T A T E M E N T



1997

-56 559

60 143

30 927

40 960

-6 473

1 398

10 509

-223

-3 153

-14 994

62 535

101 000

-108 974

-7 093

42 406

-65 150

-37 811

23 701

-46

-35 830

-12 000

-24 175

549

6 039

6 588

1998

11 858

192

22 738

-24 035

10 912

4 383

-2 926

-121

-1 613

-3 694

17 694

85

-83 556

-6 550

13 606

16 568

-59 847

16 794

25 781

42 575

422

6 588

7 010

1999

11 933

-1 378

25 223

34 105

3 456

-9 612

7 503

-1

3 736

-11 750

63 215

-26 495

-770

8 168

-31 412

-50 509

36 464

-13 606

22 858

35 564

7 010

42 574

Cash flow from operations

Ordinary result before tax

Taxes paid in period

Loss (gain) on sale of fixed assets

Ordinary depreciation

Changes in stocks

Changes in accounts receivable

Changes in due to trade creditors

Changes in other accruals

Effect of changes in foreign exchange rates

Changes in pension liabilities

Change in result of associated companies

(equity method)

Net cash flow from operations

Cash flow from investments

Income from sale of fixed assets

Payment for fixed assets purchased

Received on long-term loans made

Received on other investments

Payments on short-term loans to Group

Net cash flow from investments

Cash flow from financing

Net change overdraft facility

Received on taking up new short-term debt

Received on taking up new long-term debt

Repayment of short-term debt

Repayment of long-term debt

Payment of dividend

Net cash flow from financing

Net cash flow for the period

Cash and cash equivalents

at beginning of period

Cash and cash equivalents at end of period

Note

Note

10

6

8

16

1997

-27 353

-3 147

60 143

69 519

74 041

-13 603

-12 586

-3 445

1 385

-887

-10 871

133 196

26 113

-46 427

-6 349

1 500

-25 163

-50 541

7 296

-52 827

-12 000

-108 072

-39

8 594

8 555

1998

45 499

-11 177

146

47 525

-33 836

1 962

57 609

8 619

-1 063

-3 387

-8 938

102 959

552

-118 494

-6 523

3 028

-121 437

-2 807

13 178

8 848

19 219

741

8 555

9 296

1999

28 782

-3 776

-1 378

48 678

19 530

49 636

-67 527

-6 853

-1

4 900

-10 639

61 352

6

-38 673

-914

8 608

-30 973

-2 290

-4 618

-21 577

-28 485

1 894

9 296

11 190

Accounting principles

General

The annual financial statements have

been prepared in compliance with The

Norwegian Accounting Act of 1998 and

Norwegian Generally Accepted

Accounting Principles (NGAAP). All

amounts are in NOK 000s, unless other-

wise stated. The accounting principles

used have been changed to comply with

the Accounting Act 1998. The changes

are described below. The effects of imple-

menting the new principles are shown in

note 1.

Consolidation principles

Subsidiaries

The Group accounts include the parent

company and all companies in which the

parent company directly or indirectly

exercises dominant influence. These com-

panies (subsidiaries) are listed in note 12.

All subsidiaries are fully consolidated.

There are no minority interests in any of

the subsidiaries included in the Group

accounts.

In the Group accounts, inter-company

receivables and payables, and transactions

between group companies are eliminated.

Shares in subsidiaries are eliminated in

accordance with the purchase method of

consolidation. This means that the cost of

the shares to the parent company is set off

against the equity of the subsidiary at the

time of acquisition. Assets and liabilities

are analysed and included at current

value. Any remaining added value is

included in the balance sheet as goodwill,

which is amortised over its useful econo-

mic life. In calculating the deferred

tax/deferred tax asset relating to revaluati-

ons, the nominal tax rate is used.

Subsidiaries acquired during the year

are included in the group financial state-

ments from the date of acquisition to the

year-end. Companies which are sold

during the period are included up to the

date of disposal.

Conversion of foreign subsidiaries' accounts

The profit and loss accounts of foreign

subsidiaries are converted to Norwegian

kroner at the average exchange rate for

the year, while the balance sheet figures

are converted at the exchange rate on the

balance sheet date. Any conversion differ-

ences are recorded directly against equity.

Associated companies

Companies in which the group owns bet-

ween 20 % and 50 % and exercised signi-

ficant influence, are considered associa-

ted companies and are included in the

group's accounts using the equity method

of accounting. In the parent company,

the investment is recorded at cost.

The group share of the profit in asso-

ciated companies is based on profits after

tax, reduced by any amortisation of

goodwill resulting from the cost of the

shares being higher than the acquired

share of the company's equity. In the pro-

fit and loss account the share of the profit

of associated companies is classified as

financial income.

Other shares/parts

Other shares and minor investments where

FESIL have no significant influence are

recorded at historic cost. If the real value

is lower than historic cost, and this dimi-

nution in value is not considered to be

temporary, the item is written down. Any

dividends distributed by the companies

are included in financial income.


A C C O U N T I N G P R I N C I P L E S

Valuation and classification

principles

Current assets and short-term liabilities

include items which fall due within one

year of the end of the financial year, as

well as other items relating to the opera-

ting cycle. Other items are classified as

fixed assets / long-term liabilities.

Fixed assets are recorded at cost or

valuation and are depreciated over the

estimated useful economic life of the asset.

Land is not depreciated. Long-term liabili-

ties are valued at the nominal amount at

the time of the initial establishment. First

year's instalments on long-term loans are

classified as long-term liabilities.

Current assets are valued at the lower

of cost and net realisable value (the lower

of cost and market value). Short-term lia-

bilities are valued at the nominal amount

at the time of the initial establishment.

Intangible assets

All costs in connection with research and

development projects are expensed when

the costs are incurred. A deferred tax

asset is recognised in order to comply

with the Norwegian Accounting Act 1998.

The implementation effect is taken to

reserves.

Fixed assets

Fixed assets are valued at cost or valuat-

ion and are depreciated on a straight-line

basis over the estimated useful economic

life of the asset. Depreciation is normally

straight-line over the expected lifetime.

Normal maintenance and repair costs are

recorded as an expense when the cost is

incurred. Costs relating to periodical

maintenance that occur every 2–5 year

are accrued over the relevant period.

Costs relating to major replacements and

renewals that substantially increase the

useful economic life of the asset are capi-

talised. Fixed assets that are replaced are

expensed when the costs are incurred.

Leasing agreements

Leasing agreements where the risks and

rewards associated with owning the asset

are transferred to the lessee are conside-

red finance leases, and the asset is inclu-

ded in the lessee's balance sheet. Any

other leasing agreements are considered

operational, and no asset is recognised in

the accounts of the lessee.

Stocks

Stocks are valued at the lower of acquisit-

ion cost and estimated market value after

deducting sales costs. The acquisition cost

of goods for resale is the purchase price.

The acquisition cost of work in progress

and finished goods is their production cost.

Accounts receivables

Trade debtors and other accounts receiv-

able are recorded at their nominal value

reduced by a provision for bad debts.

The provision is made based on an indi-

vidual assessment of each balance.

Additionally, an unspecified provision is

made to cover expected losses.

Foreign exchange

Monetary assets and liabilities in foreign

currencies are converted to NOK at the

exchange rate on the balance sheet date.

Assets and revenue flows in foreign cur-

rencies are hedged in part through borrow-

ing in foreign currencies and in part

through various off-balance sheet financi-

al instruments. FESIL ASA mainly

employs forward contracts in its hedging

activities. Hedged balance sheet items are

recorded at the contracted rates. Gains

and losses on such contracts are included

in net income when the transactions are

settled. The company does not utilise

these derivative financial instruments for

speculative purposes. Starting from 1999,

currency gains or losses on operating

cash flow are included in operating in-

come. Profit and loss account for 1998

and 1997 are reclassified accordingly.

Currency conversion differences and

hedging of currency related to fixed

assets and long-term liabilities are both

recorded under financial items.

FESIL ANNUAL REPORT 1999 19A C C O U N T I N G P R I N C I P L E S

Pensions and pension obligations

Most of the group companies have pensi-

on plans that provide the employees with

a right to defined future pension benefits

(a defined benefit pension plan), where the

benefits are based on the number of pensi-

on earning years of service and the salary

at the time of reaching pensionable age.

The pension benefits are in part financed

by FESIL's pension fund (secured

schemes) and partly over the company's

profit and loss account (unsecured sche-

mes). Pensions are recorded in accordance

with the draft Norwegian Accounting

Standard for Pension Costs. The pension

cost for the year is included in «Salaries

and other personnel expenses». This com-

prises benefits earned in the period, inte-

rest cost on projected pension obligations,

estimated return on pension plan assets,

the effect of changes in the estimates and

terms and conditions of the pension plans,

and the effect of differences between the

actual and expected return on pension

plan assets. The net projected obligation is

the difference between the present value

of the projected benefit obligations and

the market value of the pension plan

assets. Changes in the projected benefit

obligations as a consequence of changes in

estimates as well as deviations between

actual and expected return on pension

plan assets, are recorded in the accounts

when the deviation exceeds 10 % of gross

pension obligations or pension plan assets

for the individual scheme, whichever is

the higher. See note 8.

Taxes

The tax charge in the profit and loss

account includes both the current tax

payable and the change in deferred tax.

The change in deferred tax reflects future

taxes payable as a result of the activities

in the year. Deferred tax is the tax liabili-

ty related to the accumulated profits and

losses, which fall due in future periods.

Deferred tax is estimated based on the

net of positive and negative temporary

differences between taxation and accoun-

ting values, as well as losses carried for-

ward. Consideration is given to deferred

tax in connection with acquisitions and in

profits according to the equity method of

accounting. This is in accordance with

the rules in the revised «Draft Norwegian

Accounting Standard for the Treatment of

Tax». The tax is divided in tax on ordina-

ry result and tax on extraordinary result

according to the basis for taxation. The

net deferred tax asset or liability is shown

in the balance sheet. See note 19.

Operating income and expenses

Operating income is recorded when ear-

ned. Sales of goods are recorded at the

time of delivery. Operating expenses are

matched with the corresponding opera-

ting income. The cost of freight and insu-

rance is included in other operating costs.

Power costs

Power costs are charged in the period in

which the power is used. Long-term con-

tracts are recorded at the agreed fixed

price, while spot purchases of power are

recorded at the spot rate. Part of the need

for spot power is hedged using forward

contracts, which are expensed on expiry.

Extraordinary income and expenses

Extraordinary income and expenses are

defined as items that are significant in size,

of an unusual character compared with

ordinary operations, and which cannot be

expected to occur regularly. Gains and

losses on sale of fixed assets and amounts

written down on these are recorded as

ordinary income/expenses if the transacti-

on does not satisfy all the above criteria.

Contingent liabilities

Contingent liabilities which are probable,

are provided for in the accounts.

Contingent liabilities which are possible,

but not probable, are not provided for,

but information is given in a note to the

accounts. Contingent income is not inclu-

ded in the accounts.

FESIL ANNUAL REPORT 199920 A C C O U N T I N G P R I N C I P L E S

As from January 1st, 1999 FESIL has

introduced new accounting principles

according to new Norwegian accounting

legislation. The effect of new accounting

principles on equity per 1.1.1999 and profit

and loss account for 1999 is shown below:

Comparable figures

Comparable figures are revised according

to new principles. In the 1999 accounts

currency gains or losses on operating

cash flow are included in operating

income. The 1998 and 1997 figures are

reclassified accordingly.

Outstanding currency hedging contracts (forward/options) as of 31.12.99 (in millions in the actual currency):

All contracts have been made in order to hedge the cash flow in the year 2000.

1. Effect of change in accounting principles

The company uses different types of

financial instruments in order to manage

financial risk.

Interest rate risk

Interest rate risk occurs in the short and

medium term perspective when part of

the company's debt has a floating interest

rate. The maximum share of floating inte-

rest is continously reviewed. The loan

portfolio as of 31.12.99 comprises a combi-

nation of fixed and floating interest rates.

The company's interest rate sensitivity is at

a desired level by the use of fixed interest

rate at some long-term loans, as well as by

use of interest rate swaps and FRA's

(Future Rate Agreement). A 1 % change in

the market interest rate will mean a

change in the company's interest cost at

+/- NOK 2.2–2.4 mill.

Currency risk

The development in currency rates impli-

es a direct as well as an indirect financial

risk to the company. Hedging of both cur-

rency cash flows and assets in currency is

done partly by using forward contracts

and options and partly by actual «on

balance sheet» positions.

2. Financial market risk

N O T E S T O T H E A C C O U N T S


PARENT COMPANY GROUP

EQ 1.1.99

15 592

P & L 99

-7 502 Deferred tax assets, not previously recognised

P & L 99

-5 778

EQ 1.1.99

5 525

Currency Sold

USD

EUR

GBP

SEK

8

65

7

8

(All amounts in NOK 000s unless otherwise specified)

FESIL ANNUAL REPORT 199922 N O T E S T O T H E A C C O U N T S

3. Agreements with partners

FESIL has made the following agreements with its partners:

GLOBE Metallurgical Inc. Technological services and management consulting agreement

Tennant Ltd. (G. Ghezzi partner) Distribution agreement, covering Great Britain

Sineco (G. Ghezzi partner) Logistic and storing agreement, covering Italy

All agreements listed above are made on strict business terms (arm's length basis).

4. Combination of items


1997

14 994

14 994

5 491

25

1 894

7 410

17 146

603

17 749

1 547

15 136

11 017

27 700

1998

3 694

3 694

7 293

132

7 425

18 016

430

557

19 003

1 575

11 442

4 288

17 305

1999

3 859

11 750

15 609

5 902

1 795

663

8 360

23 395

247

23 642

969

9 756

17 540

28 265

Share of results in other companies

Share of result in associated companies (see note 12)

Group contribution

Share of result in Rana Metall KS

TOTAL

Financial income

Interest income

Foreign exchange gain

Other financial income

TOTAL

Financial expenses

Interest expenses

Foreign exchange losses

Other financial expenses

TOTAL


Accrued interest expenses

Allocations etc.

Currency loan


TOTAL

1997

10 871

10 871

8 286

327

8 613

33 715

1 852

35 567

2 880

24 391

107 457

23 403

158 131

1998

8 938

8 938

11 973

577

12 550

34 024

430

1 820

36 274

3 174

25 777

120 635

13 557

163 143

1999

10 639

10 639

9 754

1 946

1 130

12 830

39 599

1 226

40 825

3 000

18 730

115 960

21 689

159 379

FESIL ANNUAL REPORT 1999 23N O T E S T O T H E A C C O U N T S

All of the parent company's income comes from their own products. All sales from the

plants are distributed through the Group's sales company FESIL Sales AS.

5. Segment information

6. Stocks

GROUP (AMOUNTS IN NOK MILL.)

Operating Operating Operating Operating Operating Operating

Operating income and result income result income result income result

by business area 1999 1998 1997

Own products 1 019,7 34,1 1 156,1 44,5 1 467,9 43,3

Trading products 691,5 12,0 880,6 15,8 639,1 9,2

TOTAL 1 711,2 46,1 2 036,7 60,3 2 107,0 52,5

Operating income by geographic area Norway EU USA Far East Other TOTAL

Own products 1999 51,5 854,8 14,7 96,8 1,9 1 019,7


TOTAL 57,4 1 438,8 105,8 107,3 2,0 1 711,2

Own products 1998 58,1 914,4 87,0 94,0 2,6 1 156,1


TOTAL 75,0 1 678,5 152,3 125,6 5,4 2 036,7

Own products 1997 64,8 1 153,1 134,5 102,6 12,9 1 467,9


TOTAL 72,6 1 684,3 199,6 136,9 13,6 2 107,0

Loss and other costs regarding the sale of Hafslund Metall totalling NOK 63.9 million

are not included in the operating result for 1997.

See note 17 concerning securities in stock.


1997

45 685

57 031

102 716

1998

55 737

69 947

1 067

126 751

1999

43 231

49 415

92 646

Raw materials and process materials

Self-produced finished goods

Goods purchased for resale

TOTAL

1997

86 204

216 397

82 842

385 443

1998

93 818

201 729

123 732

419 279

1999

66 131

195 754

137 864

399 749


7. Payroll expenses


1997

119 052

17 111

-2 241

7 099

141 021

278

1998

99 041

13 478

2 944

6 837

122 300

301

1999

76 109

10 136

4 727

6 988

97 960

277

Salaries

National insurance contribution

Pension costs

Other payments

TOTAL

Average no. of employees

1997

162 283

20 778

891

23 696

207 648

425

1998

155 166

18 606

3 361

9 451

186 584

449

1999

134 782

15 542

7 511

11 215

169 050

433

Remuneration to executives in 1999 (NOK)

Salaries/fees

Pension costs

Other remuneration

Board members

770 000

President CEO

1 194 509

39 571

107 403

The president/CEO is entitled to one

year's salary if dismissed by the company.

There are no obligations attached to sub-

scription rights, options and similar rights

which give employees or representatives

right to subscribe to, buy or sell shares or

primary capital certificates.

Auditor

Total remuneration to the company's

auditor for 1999 is expensed at NOK

407,000 for auditing and NOK 234,000

for other services.


8. Pension costs and pension obligations


1997

2 095

3 287

-4 168

2 214

3 428

-5 669

-2 241

51 993

-57 381

194

-5 194

5 702

5 702

508

1998

2 906

4 407

-4 042

701

3 972

-1 028

2 944

64 650

-62 709

-9 524

-7 583

18 727

-11 616

-633

6 478

-1 105

1999

2 409

4 520

-3 604

1 402

4 727

4 727

65 195

-54 058

-16 220

-5 083

15 533

-10 923

3 103

7 713

2 630

The year's pension expenses

Present value of the year's pensionable earnings

Interest charge on accrued pension liabilities

Expected return on pension funds

Net amortisation etc.

Net pension expenses

Funds secured schemes not previously taken into account

Booked pension expenses

Pension liabilities 31.12.99

Estimated accrued pension liabilities, funded schemes

Estimated value of pension fund, funded schemes

Not recorded variance on basis of calculation

Net pension liability funded schemes

Capitalised value unsecured schemes incl. employment tax

Deferred liability due to change of schemes

Deferred liability forecast gain/(loss)

Net pension liabilities unsecured schemes incl. employment tax

Net pension liabilities secured/unsecured schemes

1997

3 062

4 338

-5 748

2 304

3 956

-3 065

891

68 896

-75 822

-9

-6 935

7 886

7 886

951

1998

4 120

5 887

-5 563

1 925

6 369

-3 008

3 361

89 205

-86 055

-15 305

-12 155

25 563

-15 194

-650

9 719

-2 436

1999

3 692

6 205

-5 507

3 121

7 511

7 511

91 647

-83 262

-18 445

-10 060

23 315

-14 275

3 484

12 524

2 464

Information on members Funded schemes Unsecured schemes

Parent company: No. of working members 282 282

No. of pensioners 133 16

Group: No. of working members 393 411

No. of pensioners 156 19

Actuarial assumptions:

Yield on pension funds 7,0 %

Discount rate 6,0 % 6,0 %

Annual wage growth 3,5 % 3,5 %

Expected growth in National Insurance basis amount 3,0 % 3,0 %

Annual pension growth 2,5 % 2,5 %

Expected retirement at age 62 under Early Retirement Scheme (AFP) 25,0 %


9. Other operating expenses


1997

13 585

22 736

63 866

72 762

172 949

1998

4 879

23 889

43 827

72 595

1999

3 163

15 945

38 045

57 153

Freight and insurance

Maintenance

Commission on sales

Loss and other costs re. sale of Hafslund Metall

Other operating expenses

TOTAL

1997

138 989

39 651

19 413

63 866

125 352

387 271

1998

152 597

42 506

18 814

76 199

290 116

1999

141 139

33 387

17 416

71 274

263 216

10. Fixed assets / leasing

PARENT COMPANY Plant under Land/ Machines/ Fixtures&

construction buildings ind.plants fittings Total

Acquisition costs 01.01. 5 599 1 475 520 763 17 585 545 422

Additions 1999 783 24 258 1 453 26 494

Transferred from plants under construction -1 215 1 215 0

Acquisition costs 31.12.99 5 167 1 475 546 236 19 038 571 916

Revaluation before 01.01.99 58 330 19 871 78 201

Depreciation, write-downs 01.01 62 408 761 8 298 417 121

Accumulated depreciation 31.12.99 77 430 646 11 621 442 344

Net book value 31.12.99 5 167 59 728 135 461 7 417 207 773

This year’s depreciation 15 21 885 3 323 25 223

Estimated useful life 10 years 5–33 years 3–12 years

onwards

Depreciation plan Straight line Straight line Straight line

This year’s leasing cost of non-capitalised items 751 751

Capitalised leasing agreements incl. in acquisition cost 2 357 2 357


GROUP Plant under Land/ Machines/ Fixtures&

construction buildings ind.plants fittings Total

Acquisition costs 01.01. 5 599 2 185 877 042 66 126 950 952

Additions 1999 1 731 32 524 6 846 41 101

Transferred from plants under construction -1 215 1 215 0

Disposals 1999 -1 272 -1 272

Acquisition costs 31.12.99 6 115 2 185 910 781 71 700 990 781

Revaluation before 01.01.99 58 330 19 871 78 201

Depreciation, write-downs 01.01 62 652 352 45 311 697 725

Accumulated depreciation 31.12.99 77 691 830 54 496 746 403

Net book value 31.12.99 6 115 60 438 238 822 17 204 322 579

This year’s depreciation 15 39 478 9 185 48 678

Estimated useful life 10 years 5–33 years 3–12 years

onwards

Depreciation plan Straight line Straight line Straight line

This year’s leasing cost of non-capitalised items 1 061 1 061

Capitalised leasing agreements incl. in acquisition cost 4 391 4 391

The part of «Land and buildings» concer-ning land is not depreciated.

Revaluation of industrial plant is depreci-ated and amounted to KNOK 1,391 in1999, and the book value of the aggrega-

te revaluations at December 31, 1999were KNOK 63,881.

Leased computer equipment is capitali-sed and depreciated over 3 years.Machinery and transport equipment at

the plants are also capitalised. Leasingagreements are normally over 3 years.

All costs in connection with research and

development projects are expensed when

the costs are incurred. FESIL organizes

their R&D activities through Ferro Alloys

Industries Research Association (FFF),

which has established research activities

amounting to NOK 8 mill. annually at

SINTEF, Trondheim. This activity is sup-

ported by The Norwegian Research

Board, and includes basic research as

well as further education of specialists

with doctorates. FESIL's expenses in

connection with these activities are

approximately NOK 2 mill. per year.

Development of products and pro-

cesses is done internally through co-

operation between the head technical

department and personnel at the different

plants, and with the use of expertise from

SINTEF when considered appropriate.

Within the FESIL Group, both real R&D

projects and projects that include parts of

R&D are carried out. The expenses of

these activities are approximately NOK 6

mill. annually, and cover the costs of per-

sonnel, material and external services.

The total future income from the on-

going research and development activities

is expected to equal or exceed total cost.

11. Research and development


12. Subsidiaries and associated companies

Time of Business Ownership Voting

acquisition office share share

Subsidiaries of FESIL ASA

ILAB Ltda. 1986 Brasil 100 % 100 %

Rana Metall AS (general partner) 1989 Mo i Rana 100 % 100 %

FESIL Komplementar AS (general partner) 1974 Oslo 100 % 100 %

FESIL Sales AS 1987 Oslo 90 % 90 % *)

Rana Metall KS 1989 Mo i Rana 90 % 90 % *)

Subsidiaries of FESIL Sales AS:

FESIL-Brikettfabrikken AS 1969 Porsgrunn 82 % 82 % *)

FESIL Legierungshandel GmbH 1973 Duisburg 100 % 100 %

FESIL International AS 1978 Tokyo 100 % 100 %

FESIL Metales S.L. 1992 Madrid 100 % 100 %

FESIL AB 1996 Stockholm 100 % 100 %

Gemalco Rohstoffhandel GmbH 1990 Duisburg 100 % 100 %

*) The Group owns 100 % of FESIL-Brikettfabrikken AS, FESIL Sales AS and Rana Metall KS.


Nor-Kvarts AS 1982 Oslo 33 % 33 %

Norsk Jern Eiendom AS 1989 Mo i Rana 20 % 20 %

FESIL Metalli S.r.l. 1991 La Spezia 50 % 50 %

Gemalco SAH 1985 Lusanne 50 % 50 %

Associated companies Nor-Kvarts Norsk Jern FESIL Gemalco

AS Eiendom AS Metalli S.r.l. SAH Total

Acquisition cost 120 610 244 900 1 874

Book equity when acquired 120 610 244 900 1 874

Balance at 1.1.99 3 293 53 357 1 300 3 244 61 194

Part of this year’s profit and loss account 328 6 298 9 189 6 824

Depreciation goodwill 2 876 2 876

Transfer to/from the company (dividend/group contribution) -3 028 -677 -3 705

Other changes during this year 870 379 -98 -671 480

Balance at 31.12.99 4 491 59 882 534 2 762 67 669

The subsidiaries and associated companies are recorded in the Group accounts using the acquisition method of accounting.

The wholly-owned subsidiary Rana

Metall KS, Mo, owns 20 % of the shares

in Norsk Jern Eiendom AS, Mo. The

shares were acquired free of considerat-

ion in connection with establishment of

the smelting plant in Mo. 0,18 % was pur-

chased by Rana Metall KS in 1998 for

KNOK 231, and 0,28 % for KNOK 379

in 1999. The acquisition was subject to a

number of terms with regard to transfer/

sale of the shares. These lapsed at the

end of 1993. Norsk Jern Eiendom AS has

since then been treated as an associated

company. The equity method has been

used in the Group accounts.

The book equity at the time of the acqui-

sition was MNOK 165. Our share of this

was MNOK 33. The negative goodwill is

being written back over 10 years, 1999 is

the last year.


13. Shares and parts in other companies

The loans which fall due more than 5

years after the end of the financial year are

serial loans. Average interest rate is 6,7 %.

Debt covenants

There are debt covenants tied to the

group's interest bearing long-term debt.

As per Dec 31, 1999 all covenants were

fulfilled with satisfactory margin.


Ownership share Book value

366

366

Eletrosilex S.A.

Other companies

TOTAL

Book value

1

366

367

Ownership share

10 %

14. Debts which fall due more than one year after the end of the financial year


1997

168

173

15 165

15 506

1998

168

5 000

179

16 709

22 056

1999

5 000

133

17 693

22 826

Loans to group companies

Other long-term receivables

Loan to employees

Other loans

TOTAL

1997

270

15 276

15 546

1998

5 000

350

16 720

22 070

1999

5 000

321

17 662

22 983

16. Granted overdraft facilities and other drawing rights and restricted bank deposits

Cash and cash equivalents consist of cash and bank deposits.

15. Liabilities which fall due more than five years after the end of the financial year


1997

164 060

82 027

82 033

1998

189 841

75 200

114 641

1999

176 235

103 850

72 385

1997

274 748

119 986

154 762

1998

283 596

165 394

118 202

1999

262 019

112 850

149 169

Total long-term liabilities

Of this, loans which fall due more than 5 years after the

end of the financial year

Other long-term liabilities


1997

6 501

75 889

40 000

1998

6 953

59 095

933

1999

4 040

22 631

36 741

Restricted bank deposits

Undrawn overdraft facilities

Undrawn other drawing rights

1997

8 426

226 559

57 543

1998

9 226

237 313

5 298

1999

4 272

211 769

45 781


17. Mortgages and securities


1997

209 718

1 000

245 198

102 716

145 174

494 088

1998

252 321

1 000

217 718

126 751

206 501

551 970

1999

274 573

1 000

273 865

92 646

207 773

575 284

Secured debts

Book value of debt secured by mortgages

Book value of mortgaged assets:

Shares

Receivables

Stocks

Operating assets

TOTAL

1997

389 932

192 297

375 658

255 065

823 020

1998

409 691

182 181

413 151

324 961

920 293

1999

380 979

139 917

391 713

316 480

848 110

The Group's subsidiary FESIL Sales AS

and subsidiaries have given guarantees

for a total of KNOK 12,156. These are

guarantees for VAT and discounted bills

of exchange.

The parent company has given guaran-

tees for KNOK 2,847. This includes

guarantee for a loan to Norchar AS of

USD 300,000.

Guarantees

18. Intercompany accounts

The balance due to/from group companies and associates listed below are included in the respective balance sheet accounts.

PARENT COMPANY

Trade debtors Other debtors Trade creditors

1999 1998 1997 1999 1998 1997 1999 1998 1997

Group companies 242 804 211 391 227 960 168 168 12 636 2 629 4 476

Associated companies 7 140 5 061 3 360

TOTAL 242 804 211 391 227 960 7 140 5 229 3 528 12 636 2 629 4 476

GROUP

Trade debtors Other debtors Trade creditors

1999 1998 1997 1999 1998 1997 1999 1998 1997

Associated companies 1 644 1 978 2 008 8 721 7 647 5 890 1 426 1 600 785


19. Taxes


1997

16 135

16 135

-12 258

9 471

-2 530

-585

-509

13 100

-71 219

-64 530

-18 068

1998

2 475

2 475

-12 258

14 314

6 452

-90

1 105

10 480

-75 691

-55 688

-15 592

1999

7 502

7 502

-12 258

11 318

23 280

-121

-2 630

8 384

-56 868

-28 895

-8 091

This year’s tax expenses:

Tax payable in Norway

Tax payable abroad

Change in deferred tax

Total tax expenses

Summary of temporary differences:

Receivables

Stocks

Operating fixed assets

Provisions according to NGAAP

Pensions

Gain/loss account and other accounts


Loss carried forward

Total temporary differences

Deferred tax / Deferred tax asset

1997

1 308

-10 363

-9 055

-13 692

13 384

-25 654

-2 686

-953

13 227

61 581

-82 089

-36 882

-10 327

1998

11 177

4 802

15 979

-13 964

18 695

-12 974

-3 635

2 437

10 481

60 050

-80 823

-19 733

-5 525

1999

86

3 339

5 779

9 204

-13 340

23 018

-8 509

-8 854

-2 463

8 385

62 006

-59 340

903

253

*) Permanent differences include not deductible expenses, i.e. entertainment expenses, and already taxed parts of the result from subsidiaries

and associated companies as well as the effect of higher tax rate in subsidiaries and associated companies abroad.

Explanation of why the tax differs from 28 % of profit/loss before tax:

Specification of loss carried forward


1997

-15 837

132

-430

-16 135

1998

3 320

143

-988

2 475

1999

3 341

122

4 039

7 502

28 % tax of profit/loss before tax

Permanent differences *)

28 % of change in temp. diff. regarding parts in general partnerships

Calculated tax expense

1997

-7 659

-1 396

-9 055

1998

12 740

3 239

15 979

1999

8 059

1 145

9 204


6 407

50 461

56 868

Last year for utilization:

Year 2003

Year 2007

Year 2008

Year 2009

6 407

50 461

312

2 160

59 340


20. Equity

PARENT COMPANY Share Legal Share pre- Retained Other

capital reserve mium fund earnings equity Total

Revised equity per 31.12.98 according to Norwegian

Accounting Act 1998 and this year’s changes.

Equity per 31.12.98 79 995 139 110 114 096 333 201

Transfer from legal reserve to other equity -20 053 -114 096 134 149 0

Transfer from legal reserve to share premium fund -119 057 119 057 0

Deferred tax asset not previously recorded 15 592 15 592

Equity per 31.12.98 (according to new Act 1998) 79 995 0 119 057 0 149 741 348 793

This year’s profit 4 431 4 431

Equity per 31.12.99 79 995 0 119 057 0 154 172 353 224

GROUP

Revised equity per 31.12.98 according to Norwegian

Accounting Act 1998 and this year’s changes.

Equity per 31.12.98 440 762

Conversion differences 48

Deferred tax asset not previously recorded 5 525

Equity per 31.12.98 (according to new Norwegian Accounting Act 1998) 446 335

This year’s profit 19 578

Equity per 31.12.99 465 913

RISK-amount per share (NOK)

per 01.01.00* 0.00

per 01.01.99 0.00

per 01.01.98 0.00

per 01.01.97 -1.50

per 01.01.96 -1.00

*) RISK-amount per 01.01.00 is estimated. The taxation authorities

will determine the final RISK-amount based on FESIL’s tax return

for 1999.

The number of issued shares in the com-

pany at December 31st, 1999 was

7.999.500 at nominal value NOK 10. At

the end of 1999 the share price listed at

the Oslo Stock Exchange was NOK 36

compared to NOK 30 the previous year.

There are no arrangements which

dilute the earnings per share.

21. Share capital and shareholder information


Shareholder structure No. of Ownership Voting

The company's largest shareholders as of 31.12.99 shares share share

Globe Metallurgical Inc. 3 140 097 39.25 % 39.25 %

Tennsil Ltd. 1 825 154 22.81 % 22.81 %

Tennant Nordic Ltd. 1 289 345 16.12 % 16.12 %

KLP Forsikring 350 000 4.37 % 4.37 %

Storebrand livsforsikring, aksjefond 211 600 2.64 % 2.64 %

Tine pensjonskasse 190 000 2.37 % 2.37 %

Fokus Bank ASA 150 000 1.87 % 1.87 %

Den Norske Bank ASA, Marketmaking 131 000 1.63 % 1.63 %

Tennant Midgley Group 85 300 1.06 % 1.06 %

Total largest shareholders 7 372 496 92.12 % 92.12 %

Other shareholders 627 004 7.88 % 7.88 %

Total issued shares 7 999 500 100.00 % 100.00 %

The following shares are held by Board members, Board appointment/ No. of

president/CEO and senior management: position shares

Board members:

Jonathan Lee via Globe Metallurgical3 140 097

Arden C.Sims via Globe Metallurgical

Giovanni Luigi Ghezzi via Tennsil Ltd./Tennant 3 199 799

Arne Byrkjeflot via narrative 100

Åge Sakariassen 100

President/CEO and senior management:

Odd Samstad President/CEO 100

Stein Anderssen Senior Vice President, FeSi/CFO 100

Henrik Brekken Senior Vice President SiMet 67

Svein Johnsen Senior Vice President Personnel/Health and Safety 100

Ragnar Vaksdal Director Marketing and Sales SiMet 400

Petter Synnestvedt Director Business Development 670

In connection with an explosion in 1988

on board a vessel carrying briquettes, the

shipowner's insurance company has

made a claim against FESIL-Brikett-

fabrikken AS (FESIL). The claim for

compensation is approx. NOK 16 mill.

incl. interest expense. FESIL is of the

opinion that the shipowning company is

liable and that the claim is unfounded.

The expected outcome is not likely to

have a material effect on FESIL's

accounts. FESIL will always be involved

in minor civil disputes. Any probable

expenses are provided for.

22. Contingency issues

}

Auditor’s report for 1999 We have audited the annual financial statements of Fesil ASA as of December 31, 1999, sho-

wing a profit of NOK 4,431,000 for the parent company and a profit NOK 19,578 000 for

the group. We have also audited the information in the Board of Directors' report concer-

ning the financial statements, the going concern assumption, and the proposal for the alloca-

tion of the profit. The financial statements comprise the balance sheet, the statements of

income and cash flows, the accompanying notes and the group accounts. These financial sta-

tements are the responsibility of the Company’s Board of Directors and Managing Director.

Our responsibility is to express an opinion on these financial statements and on the other

information according to the requirements of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors

and Norwegian good auditing practice. Good auditing practice requires that we plan and

perform the audit to obtain reasonable assurance about whether the financial statements are

free of material misstatement. An audit includes examining, on a test basis, evidence suppor-

ting the amounts and disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation. To the extent required by law and

good auditing practice an audit also comprises a review of the management of the

Company's financial affairs and its accounting and internal control systems. We believe that

our audit provides a reasonable basis for our opinion.

In our opinion,

• the financial statements are prepared in accordance with the law and regulations and

present the financial position of the Company and the Group as of December 31, 1999,

and the results of its operations and its cash flows for the year then ended, in accordance

with Norwegian good accounting practice

• the company's management has fulfilled its duty to produce a proper and clearly set out

registration and documentation of accounting information in accordance with

Norwegian law and good accounting practice

• the information in the Board of Directors' report concerning the financial statements, the

going concern assumption, and the proposal for the allocation of the profit are consistent

with the financial statements and comply with the law and regulations.


PricewaterhouseCoopers DA

Erling Elsrud

State Authorised Public Accountant (Norway)

Note: This translation from Norwegian has been prepared for information purposes only.


A U D I T O R ’ S R E P O R T


Financial information

Shareholder structure

Production

Market

Logistics


F I N A N C I A L I N F O R M A T I O N

Interest bearing debt vs. equity (in NOK mill.)

300350400450500550600

19991998199719961995

Debt

Equity

Operational investments and depreciation (in NOK mill.)

020406080

100120140

19991998199719961995

Depreciation

Investments

Financial key figures1999 1998 1997 1996 1995 Comment

Operating margin % 2.7 3.0 -0.5 6.4 9.2 Operating result / operating incomeProfit margin % 1.2 1.5 -0.9 4.7 7.4 Profit for the year / operating incomeReturn on assets % 5.0 6.1 0.0 11.7 17.2 Income bef. finance and taxes / avg. tot. assetsReturn on equity % 1.7 2.6 -1.6 7.9 13.2 Profit for the year / avg. equityEquity to assets % 42 % 38 % 38 % 35 % 28 % Equity / total assetsNet interest bearing debt / equity 0.80 0.91 0.93 1.11 1.42Equity / fixed assets 1.13 1.04 1.20 0.98 0.79Current ratio 1.83 1.67 1.88 1.77 1.53 Current assets / short term liabilities

Sensitivities

A 5 per cent change in price on main

products and other key factors will imply

an approximate effect on the operating

result in the range:

Figures in NOK mill. 5 % changeSales FeSi (own production) 23Sales SiMet (own production) 26Purchase of power spot (in 1999) 0Purchase raw materials FeSi (own prod.) 10Purchase raw materials SiMet (own prod.) 13Exchange rate Euro / NOK 38

Note: A price change such as described

above, will not necessarily give an imme-

diate effect, since the pricing is often tied

up to long-term contracts.

S H A R E H O L D E R S T R U C T U R E


Turnover on share capital

19991998199719961995

Number of times the share

capital has been traded

Share-related key figures 1999 1998 1997 1996 1995 CommentEarnings per share 2.5 3.7 -2.3 12.5 24.2 1995: Calculated using avg. no. of shares.Cashflow per share 7.7 12.9 16.7 21.2 16.2 1995: Calculated using avg. no. of shares.Equity per share 58.3 55.7 51.9 54.2 53.9 1995: Calculated using avg. no. of shares.Stock value 31.12. NOK mill. 288.0 240.0 656.0 660.0 476.0P/E-ratio 31.12. 14.4 8.1 N.A. 6.6 2.9Stock value in % of book equity 61.8 53.8 158.1 152.3 129.2RISK-amount per share (per 01.01. the foll.yr.) 0.0 0.0 0.0 -1.5 -1.0 Per 01.01.00: Assumed figure

Shareholder structure No. of Ownership VotingThe company's largest shareholders as of 31.12.99 shares share shareGlobe Metallurgical Inc. 3,140,097 39.25 % 39.25 %Tennsil Ltd. 1,825,154 22.81 % 22.81 %Tennant Nordic Ltd. 1,289,345 16.12 % 16.12 %KLP Forsikring 350,000 4.37 % 4.37 %Storebrand livsforsikring aksjefond 211,600 2.64 % 2.64 %Tine pensjonskasse 190,000 2.37 % 2.37 %Fokus Bank ASA 150,000 1.87 % 1.87 %Den Norske Bank ASA, Marketmaking 131,000 1.63 % 1.63 %Tennant Midgley Group 85,300 1.06 % 1.06 %Total largest shareholders 7,372,496 92.12 % 92.12 %Other shareholders 627,004 7.88 % 7.88 %Total issued shares 7,999,500 100.00 % 100.00 %

The following shares are held by Board Members, Board appointment/ No. ofpresident/CEO and senior management: position sharesBoard members:Jonathan Lee via Globe Metallurgical

3,140,097Arden C.Sims via Globe MetallurgicalGiovanni Luigi Ghezzi via Tennsil Ltd./Tennant 3,199,799Arne Byrkjeflot via narrative 100Åge Sakariassen 100

FESIL ASA's management:Odd Samstad President/CEO 100Stein Anderssen Senior Vice President, FeSi/CFO 100Henrik Brekken Senior Vice President SiMet 67Svein Johnsen Senior Vice President Personnel/Health and Safety 100Ragnar Vaksdal Director Marketing and Sales SiMet 400Petter Synnestvedt Director Business Development 670

2.0

1.5

1.0

0.5

0.0

}

0306090

120150

Share price vs. Oslo Børs stock index

TOTEX

FESIL

21.Jun. 951.Jan. 96

1.Jan. 971.Jan. 98

1.Jan. 99

31.Dec. 99

FESIL is

among the world’s largest producers

of silicon alloys, - and technologically

in the forefront. To an outsider the

production process may seem simple,

but at FESIL’s quality levels the know

-how and equipment required is on par

with any other «high-tech» operation.

Basically, Norwegian hydroelectric power

is used to refine the raw materials - quartz,

iron and coal/coke/charcoal - into metall-

urgical products with precise and constant

chemical and physical properties. The end

product is the result of generations of

development and search for quality.

Today, all plants in the FESIL sys-

tem have obtained accredited ISO 9000

certification. This also applies to FESIL’s

global sales and logistics systems.

It has been a natural choice for

FESIL to make the most out of its tech-

nological expertise by switching ever

more of its production over to specialised

products and qualities. At FESIL’s own

plants, production of standard grade

material will be limited to a minimum.

The FESIL plants were among the

first in the world to collect the previously

polluting microsilica from the furnace

gases and turn it into a commercial

product.

Lilleby Metall was the first plant of its

kind to develop a heat recovery system

that provides industries and institutions

in the neighbourhood with hot water.

Reducing energy consumption to a

minimum and protecting the environ-

ment against undesirable emissions are

now, more than ever, central goals for

the FESIL organisation.


P R O D U C T I O N

FESIL ANNUAL REPORT 1999 39P R O D U C T I O N

Transformers

Microsilica

Tapping

Casting

Crushing/Screening

Bul

k

Pap

er b

ags

Dru

ms

Pal

let

boxe

s

Big

.bag

s

Con

tain

er

Packaging

Granulation

Bulk stock

Gas cleaning

Furnace

Clean smoke

Hydroelectric power

Coal Iron Quartz

1,000 kg FeSi 75 %

1,000 kg SiMetal

Electricity: FeSi: 8,500kWh / SiMetal: 12,000kWh

Quartz: FeSi: 1,900 kgSiMetal: 2,700 kg Iron: FeSi: 300 kg

Coal/coke: FeSi: 1,300 kg / SiMetal: 2,800 kg

FESIL is a major supplier to the inter-

national markets for ferrosilicon and

silicon metal. There are three princi-

pal market regions: EU, USA and

Japan. FESIL participates in all

three regions, but its main effort is in

the EU-market.

More than 70 % of

its FeSi output ends

up here, and 90 % of

its SiMetal. FESIL has

major shares of the mar-

kets in the EU area.

FESIL has six sales outlets in the EU and

one in Japan. Most of the sales, including

the group’s trading, are made through

these companies. Other markets are

covered through agents, or on a direct

basis.

An important element in FESIL’s

sales policy is to reduce the customer’s

risk in and around the product as much

as possible. Considerable efforts have

therefore been invested in developing a

reliable scheduled transport and storage

system. This includes 10 storage facilities

throughout Europe and 5 in USA. "Just-

in-time" deliveries are an integrated part

of the «FESIL» brand.

We expect the same kind of accuracy

from our suppliers of container transport

to other destinations.


M A R K E T / L O G I S T I C S


Organisation structure

Management

Products

C L I M A T E A N D C O 2C H A L L E N G E S

F O R F E S I L

Focus on:

Background

According to many people, the planned

reduction in emission of greenhouse gases

is the most important environmental chal-

lenge in the world. The Kyoto protocol

aims at reducing the total manmade emis-

sion of greenhouse gases from industriali-

sed countries in the period 2008–2012 to

5 % below 1990 levels. Much of this

reduction will be achieved by substituting

gas for coal for generating electricity. This

will reduce the CO2 emission with 50 %

per produced kWh.

Norway’s commitment according to

the Kyoto protocol is a 1 % reduction

from the 1990 level in the period

2008–2012. This is not as low an ambiti-

on as it might seem at first sight. In 1999,

the emissions were already 10 % higher

than in 1990, and if nothing is done, in

2010 the emissions are expected to be 25

% above the 1990 level. Increased pro-

duction and use of oil/gas will be an

important contribution to this.

Svalbard, where hydroelectric power

is not an option, is the only place in

Norway where coal is used for producti-

on of electricity. The extended usage of

hydroelectric power in Norway is a

major benefit for the environment. The

paradox is that this is a contributing fac-

tor to why Norway finds it more difficult

than many other nations to reduce the

emission of greenhouse gases. The conse-

quence is, of course, that Norway has

little potential to substitute more favour-

able energy sources for coal. This is one

of the reasons why CO2 reduction costs

about NOK 125 per ton in Norway, some

3 times the cost in most other industriali-

sed countries.

For the Norwegian process industry

it is therefore important that the imple-

mentation of the Kyoto protocol allows

for international trade in emission quotas

through the following two mechanisms :

• Joint Implementation ( JI), which

includes different forms of trade and

project based co-operation between

industrial nations.

• Clean Development Mechanism

(CDM), which regulates trade and

project based co-operation between

industrial nations and developing

countries.

The quota panel

On December 17th, 1999, a government

appointed panel issued a proposition

about a nation wide quota system based

on the Kyoto protocol. The panel points

out that some business sectors will be hit

hard should they not be given any free

quotas. This applies to exports oriented

sectors with large CO2 emissions where

it will take long time before the competi-

tors will get comparable costs on their

CO2 emissions.

FESIL ANNUAL REPORT 199942 C L I M A T E A N D C O 2 C H A L L E N G E S F O R F E S I L

The extended usage of hydroelectric power in Norway

is a major benefit for the environment. The paradox is

that this is a contributing factor to why Norway finds it

more difficult than many other nations to reduce the

emission of greenhouse gases.

The panel proposes with 6 against 5

votes that no one shall get free quotas,

and that all quotas are to be auctioned.

The Norwegian quotas are based on his-

torical emissions from 1990. A system

based purely on auctions will in principle

mean that the authorities confiscates the

historical emission from 1990, and then

auctions them out to the highest bidder.

Both NHO (The Confederation of

Norwegian Business and Industry) and

PIL (The Confederation of Process

Industry) find this completely unaccept-

able for companies that have competitors

with no costs for their emissions.

The future quota price is assumed to

be approximately NOK 125 per ton CO2.

A comparison of the likely consequences

of such a CO2-price for private car usage

and production of ferrosilicon is as follows:

An additional NOK 125 per ton CO2-

tax on petrol would add NOK 0.40/litre +

VAT. This would give a price increase of

about 5 %. Considering that the petrol

price contributes with about 25 % of the

total cost for private car usage, this would

make it just over 1 % more expensive to

drive a private car. This will hardly reduce

the car usage, especially when taking into

account that future car engines probably

will be some tens of per cents more ener-

gy efficient.

About 3.6 tons CO2 is emitted when

producing 1 ton ferrosilicon. A CO2-tax of

NOK 125 per ton will increase the pro-

duction costs with about NOK 450 per

ton alloy, which is equivalent to about

10 % of the market price for ferrosilicon.

The market will not accept this price

increase since it will take considerable

time before all western producers must

pay similar taxes. The logical consequence

is that the production is taken over by

countries without CO2 taxes. This will not

only move the 3.6 tons of CO2 to another

country, but it is highly likely that the

alloys then will be produced with electrici-

ty from less favourable energy sources. If

electricity generated from coal is used,

then the total emission will be 15 tons

CO2 per ton alloy. The net effect is about

4 times higher CO2 emission.

Establishing an international CO2-

regime will lead to considerable uncer-

tainty for major parts of exposed

Norwegian process industry. It seems

reasonable to assume that this industry

needs at least some free CO2 quotas to

survive. The panel minority voted for

this option, which seems to have a fairly

broad political support.

Both FESIL and the rest of the expo-

sed process industry carefully follow the

further work with the quota issue. The

first milestone is April 1st, 2000, which

marks the deadline for comments to the

panel’s proposal. The panel is of the opi-

nion that the quota system, including also

mechanisms for registration and control,

should be in place during 2005. It also

points out that it is not necessary to

implement the system before 2008.

NHO and PIL expect Norway to

end up with a reasonable system, inclu-

ding some free quotas, and that

Norwegian authorities do not place sub-

stantial obstructions to international trade

FESIL ANNUAL REPORT 1999 43C L I M A T E A N D C O 2 C H A L L E N G E S F O R F E S I L

About 3.6 tons CO2 is emitted when producing 1 ton ferro-

silicon. A CO2-tax of NOK 125 per ton will increase the pro-

duction costs with about NOK 450 per ton alloy, which is

equivalent to about 10 % of the market price for ferrosilicon.

in quotas. This is of fundamental impor-

tance for the exposed process industry in

the critical phase when the Kyoto proto-

col is implemented.

What can be done about the CO2

emissions?

The Norwegian ferroalloy industry has

for more than 11 years worked together

on basic research issues involving the

education of a number of PhD students.

This work has been organised by the

Norwegian Ferroalloy Research

Organisation (Ferrolegeringsindustriens

Forskningsforening – FFF). Current

members are Elkem ASA, Eramet Norge

AS, FESIL ASA, Finnfjord Smelteverk

AS and Tinfos AS.

Knowledge related to environmental

issues has been given even higher priority

within FFF. This has given Norway a lea-

ding international position in respect of

production of ferroalloys with a mini-

mum of negative impact on the environ-

ment. Several EU regulations for the

European ferroalloy industry are based

on FFF projects.

Some metals may be produced using

hydrogen as a reducing agent. This is,

however, not possible for reduction of

quarts (SiO2) where the molecular bonds

are so strong that the oxygen can only be

removed by adding carbon and then hea-

ting the mixture to about 2000 ºC apply-

ing electric energy.

This leaves us with two options to

reduce CO2 emissions. One way is to

reduce the carbon consumption per ton

produced metal. The potential for this is,

however, small since the processes are

now run close to the theoretical mini-

mum carbon consumption. The alternati-

ve is to replace fossil carbon materials

(coal and coke) with wood chips and

charcoal, which is referred to as bio-car-

bon, and which is not attributed any net

greenhouse effect by the UN climate

panel provided that the trees are repla-

ced by replanting. The rationale for this

is that the effect on the climate is consi-

dered to be the same when the trees rot

in the wood as when they are used in

metallurgical processes.

FESIL – what next ?

FESIL emits about 500,000 tons of fossil

CO2 a year. This amounts to a little less

than 1 % of Norway’s total emission of

greenhouse gases. The extra cost would

be about NOK 60 million if FESIL must

buy quotas in a closed domestic CO2-

market at a price of

NOK 125 per ton CO2. The political

mood indicates that the ferroalloy produ-

cers will receive some free quotas and

that they will to some extent be allowed

to participate in international trade in

quotas. It is therefore impossible at this

moment to say anything specific about

the CO2-costs for FESIL from 2008 and

onwards.

Meanwhile, FESIL is working hard

to increase the usage of bio-carbon

(wood chips and charcoal). Although

FESIL ANNUAL REPORT 199944 C L I M A T E A N D C O 2 C H A L L E N G E S F O R F E S I L

The logical consequence is that the production is

taken over by countries without CO2-taxes. This will not

only move the 3.6 tons of CO2 to another country, but it

is highly likely that the alloys then will be produced

with electricity from less favourable energy sources.

much more expensive, these materials

provide process technical advantages,

especially for production of silicon metal.

They can also be used for production of

ferrosilicon.

Wood is the dominating cost when

producing charcoal. A necessary conditi-

on for production of charcoal in Norway

is that wood becomes available at a much

lower price than what the sawmills or

wood-processing industry can afford to

pay. Norway has considerable amounts of

such wood. However, the costs of collec-

ting the wood and transporting it over

long distances, makes it expensive to feed

a normal charcoal production unit with

30–40 000 tons of wood a year. Hence,

large-scale production of charcoal in

Norway looks unrealistic.

FESIL is working to extend its

knowledge of modern technology for

producing charcoal. A number of used

furnaces for such production has been

purchased through Norchar AS of which

FESIL owns 50 %. One of the furnaces

will be erected in Trondheim where the

technology will be developed further in

co-operation with specialists and resear-

chers at SINTEF. The object is to build a

plant in one of the Baltic countries where

large quantities of wood (firewood) are

available at an acceptable price. FESIL

hopes that enough local cheap waste-

wood and wood from demolition can

provide for a small long-term production

also from the furnace in Trondheim.

FESIL continuously works to optimi-

se the furnace processes. An important

goal is to reduce the power consumption

per ton produced alloy. In reality this

means increasing the silicon yield. A one

per cent increase in the yield reduces the

CO2 emission by approximately 0.5 %. It

is positive that this fulfils both FESIL’s

economic and environmental goals.

The future regime for reduction of

CO2-emissions looks like developing into

a major challenge both for FESIL and

other exposed process industries. Some

few per cent of reduction is expected

from the continuous improvements of the

process control, while the largest potential

is to replace coal and coke with wood

chips and charcoal. Economic considerati-

ons make a full conversion to these mate-

rials impossible, but FESIL will be well

prepared to meet new regulations and

costs related to CO2-emissions from 2008

through a rational technology for produc-

tion of charcoal and optimised production

processes. This will make it possible for

FESIL to take maximum advantage of

the positive sides of increasing the

amount of wood chips and charcoal used

in the production of ferroalloys.

FESIL ANNUAL REPORT 1999 45C L I M A T E A N D C O 2 C H A L L E N G E S F O R F E S I L

Meanwhile, FESIL is working hard to increase the usage of bio-carbon

(wood chips and charcoal). Although much more expensive, these

materials provide process technical advantages, especially for producti-

on of silicon metal. They can also be used for production of ferrosilicon.

In such a situation it is natural to ask the

«classical» question: «Is there light in the

tunnel??»

And the answer must be: «Yes there

is .… and it is not the train!!!»

First of all, FESIL has gained financi-

al strength during 1999. Even if our

accounts show that we do not make

enough money «in the bad times», we

have, even in the most difficult year of

the 90’s strengthened our balance sheet

for the fifth year running. This fact shall

of course not serve as a pillow to go to

sleep on, but can be seen as an «acid

test» that proves that the FESIL vessel is

now able to sail in rough seas.

Second, the principal market indica-

tors points upwards.

Demand for FeSi is increasing as a

result of the strong growth in steel pro-

duction. However, an unclear situation

concerning duties in the USA has slowed

the positive price development. But all

indicators tell us that the increase in

demand is so strong that the FeSi prices

will climb in the months to come.

For SiMetal the picture is clearly positive,

with increasing demand in both the che-

mical and aluminium sectors. At the

moment there is not longer a question

whether we shall start up the silicon

metal furnaces. The only uncertainty

now is the timing of the start-up, a questi-

on that demand and price development

will give the answer to.

Consequently the market conditions

look brighter as we enter year 2000.

Then what about our internal conditi-

ons? It is a clear fact that the long-term

price trend for our products is pointing

downwards. In order to remain competiti-

ve it is necessary to continuously improve

productivity. This work has been given

high priority in FESIL, and the fact that

we can come out of a «crisis year» such as

1999 financially stronger than we entered

it, shows that these efforts have born fruit.

There is, however, still much to be done,

and FESIL will continue in the same way

with unchanged tenacity.

The availability and price of electric

power are both decisive factors for the


The last year of the millennium was a

difficult year for FESIL. After the price

decreases seen in 1998 for both fer-

rosilicon (FeSi) and silicon metal

(SiMetal), this negative trend continued

till the end of 1999. At one point the pri-

ces for FeSi and SiMetal were lower than

in the «crisis year» 1992, a year when

FESIL and several competitors literally

were at the threshold of bankruptcy. Due

to low demand for SiMetal we have had

to reduce production. Furnaces have

been stopped and many of our collea-

gues were made redundant for a long

period of time. A very dark situation for

all of us.

P R E S I D E N T A N D C E O

production of silicon-based alloys. The

electricity contracts proposed and adopted

by the authorities do not solve FESIL’s

long-term need to be competitive. The

efforts to secure a long-term energy basis

will therefore be a topic of priority in the

coming months. The possibility for getting

a good result looks better than for a long

time, both in the Nordic and the Euro-

pean continental electricity markets.

The greatest challenge ahead for

FESIL and other process industry is the

environment. It is true that the process

industry in Norway are world leaders in

ecological production, but more and

more often it is argued in public debates

that this is not enough. There is therefore

a great danger of unilateral Norwegian

«pioneer regulations» that may bring

about a situation where we shall have to

bear costs that our competitors in other

countries are not faced with. In the worst

case this will bring about a dismantling of

process industries in Norway, resulting in

a worsening of the global environment.

My wish for the new millennium is

that Norway will direct its self-adopted

international pioneer role towards inter-

national agreements that will give the

same environmental requirements for all

process industry notwithstanding their

location on the globe. Then FESIL and

the Norwegian process industry will alre-

ady have an active competitive advanta-

ge enabling us also in the future to play

an important role in the onshore creation

of wealth in Norway.

Odd Samstad

President and CEO

FESIL ASA

FESIL ANNUAL REPORT 1999 47P R E S I D E N T A N D C E O


O R G A N I S A T I O N

FESIL ASAEnsjøveien 16P.O.Box 6532 EtterstadN-0606 OsloPh.:+47 22 08 90 90Fax:+47 22 08 90 99

Lilleby MetallP.O.Box 5410 LadeN-7442 TrondheimPh.:+47 73 84 25 00Fax:+47 73 84 15 98

Holla MetallP.O.Box 130N-7201 KyrksæterøraPh.:+47 72 45 06 00Fax:+47 72 45 06 01

Rana MetallP.O.Box 500N-8601 Mo i RanaPh.:+47 75 13 55 00Fax:+47 75 13 55 55

Fesil-Brikettfabrikken ASRolighetsveien 7 DN-3933 PorsgrunnPh.:+47 35 57 49 70Fax:+47 35 57 49 80

SwedenFESIL ABVanadisvägen 4SE-113 46 StockholmSwedenPh.:+46 8 32 79 55Fax:+46 8 32 19 85

Great BritainTennant MetallurgicalGroup Ltd.The MountWreakes Lane, DronfieldGB-Sheffield S18 6PNStorbritanniaTlf.:+44 124 6290 464Fax:+44 124 6290 465

France, Belgium,Luxembourg

FESIL Métaux S.A.88, Avenue Charles de GaulleF-92200 Neuilly sur SeineFrancePh.:+33 1 46 414 4800Fax:+33 1 46 424 4796

JapanFESIL International A/SIshikawa Bldg. Rm 703Nihombashi-Kayabacho 2-14-5Chuo-ku,J-Tokyo 103JapanPh.:+81 3 5640 2781Fax:+81 3 5640 1568

Fesil Sales ASEnsjøveien 16P.O.Box 6532 EtterstadN-0606 OsloPh.:+47 22 08 90 90Fax:+47 22 08 90 99

Germany, Netherlands,Austria and Switzerland

FESIL LegierungshandelGmbHWilhelmshöhe 4Postfach 10 04 65D-47004 DuisburgGermanyPh.:+49 203 300 070Fax:+49 203 300 0726

ItalyFESIL Metalli Srl.Via Trieste 5I-19020 Ceparano di FolloLa SpeziaItalyPh.:+39 0187 939 802Fax:+39 0187 939 942

SpainFESIL Metales S.L.Estébanez Calderón 3-6AE-28020 MadridSpainPh.:+34 91 571 5399Fax:+34 91 571 5740

SalesPlants

T H E P L A N T S


Rana Metall

This is FESIL’s newest plant,

established in 1989. Rana

Metall produces ferrosilicon

(FeSi) on two furnaces, with a

total production capacity of

approx. 75,000 metric tons per

year. The plant is equipped

with facilities for granulation

and for refining. These facilities

have the capacity of handling

the entire production at the

plant, reducing the production

of standard grades to a mini-

mum. The plant is certified as

conforming to ISO 9001 and

during year 2000 it will also be

certified according to the envi-

ronmental standard ISO 14001.

Holla Metall

Established in 1964. Holla

Metall produces silicon metal

(SiMetal) on four furnaces,

with a total production capaci-

ty of approx. 46,000 metric

tons per year. The plant is

equipped with facilities for gra-

nulation and for refining.

These facilities have the capa-

city of handling the entire pro-

duction at the plant, reducing

the production of standard gra-

des to a minimum. The plant

is certified as conforming to

ISO 9001 and during year

2000 it will also be certified

according to the environmen-

tal standard ISO 14001.

Lilleby Metall

Established in 1927. Lilleby

Metall produces ferrosilicon

(FeSi) on two furnaces and sili-

con metal (SiMetal) on one fur-

nace, with a total production

capacity of approx. 18,000

metric tons FeSi and 9,000

metric tons SiMetal per year.

The plant is equipped with faci-

lities for refining both FeSi and

SiMetal. Lilleby Metall produ-

ces some of the world’s purest

FeSi, having an important share

of the international market for

High Purity FeSi. The plant has

an energy recovering facility

supplying the city of Trondheim

with heated water equivalent to

30 % of the energy consumed at

the plant. The plant is certified

as conforming to ISO 9001 and




FESIL-Brikettfabrikken

Established in 1958. FESIL-

Brikettfabrikken produces ferro-

alloy briquettes for the foundry

industry using secondary mate-

rial from FeSi/SiMetal and sili-

con carbide (SiC). The briquet-

tes are made in a variety of

shapes, sizes and chemical com-

positions. The customers are

mainly foundries related to the

European automotive industry.

FESIL-Brikettfabrikken has a

production capacity of approx.

30,000 metric tons of briquettes

per year. The plant is certified

as conforming to ISO 9002 and




Rana Metall Holla Metall Lilleby Metall FESIL-Brikettfabrikken

Steel

During 1999 the world economic situati-

on was considerably improved, especially

in the Asian countries. Most experts

maintain that the Asian crises are now

over, at least for this time.

At the end of last year the world’s

steel industry had seen a dramatic increa-

se of demand for steel products. This

high demand has also led to a bettering

of steel prices, for which most steel pro-

ducers have been waiting a long time.

The world crude steel production

increased with 1.4 % in 1999 compared

with the1998 level.

The main reason is increased demand for

steel products, especially in Asia, as a

result of improved economic situation.

The Asian countries alone produced

nearly 40 % of the total world production

last year. There was an increase of 3.5 %

in the Asian steel production compared

with 1998. The increase of 0.7 % in Japan

resulted in a yearly steel production of

94.2 mill. metric tons, nearly 20 mill.

metric tons less than the production in

mainland China for the same period.

The increase in China was 8.0 %. Last

year China was also the world’s largest

steel producing country with a total of

123.3 mill. metric tons.

In EU there has been a strong growth

in the steel production at the end of 1999,

but the total production for the whole year

decreased by 2.9 %. The strong growth

seen during the last half of 1999 is also

expected to continue into 2000.

North America’s steel production

during 1999 resulted in a small increase

of 0.1 %, but there was a very strong

recovery at the end of the year.


It is said that: «Steel is the most used

and the most useful of all materials».

Steel is used in all countries and in

practically all parts of the world.

Probably no other material is used for

so many purposes. Measured in value,

the world consumption of steel is far

beyond that of competing materials,

such as plastics, aluminium, etc.

FESIL is among the world’s principal producers of

FeSi

The improvement world wide for stain-

less steels has been even more promising.

The total production of 17.3 mill. metric

tons represent an increase of 6.1 % from

the 1998 level. Here, as for carbon steel

production, the positive tendency came

at the end of the year. It is therefore

hoped and believed that the trend will

continue through the current year.

Special steels, among them stainless steel,

is one of the most important market seg-

ments for FESIL. For several of the spe-

cial grade steels, refined or granulated

ferrosilicon is required. Today, such gra-

des make up nearly all of FESIL’s output

of ferrosilicon. The granulated ferrosili-

con is especially popular among stainless

steel producers due to better recovery of

chromium as well as silicon during steel-

making. Another benefit of being in this

special steel segment is that the specific

consumption of ferrosilicon is several

times higher than for normal grade steels.

Ferrosilicon

Consumption of ferrosilicon is more or

less directly proportional to production

of steel, and the demand for ferrosilicon

in 1999 in FESIL’s main markets has

therefore been on a high level.

Due to high production activity espe-

cially in stainless steels, the demand for

low aluminium grade and granulated

ferrosilicon has been good.

The demand for ferrosilicon has

been good during the year, but prices

showed a downward trend during the lat-

ter half. The main reason for this drop is

the removal of anti-dumping duties for

Chinese, CIS and Brazilian imports into

USA that was in force from October

1999.

FESIL ANNUAL REPORT 1999 51F E S I

European spot price FeSi 75 % (DEM)

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

1,750

1,500

1,250

1,000

750

At the beginning of 1999 most analysts

believed in a relatively strong improve-

ment in ferrosilicon prices in USA, but

due to the lifting of duties there was a

sharp drop toward the end of the year.

This drop in prices on 75 % standard

FeSi on the import into USA had also an

impact on the price development in

Europe. In the 4th quarter 1999, conside-

rable amounts of Chinese and CIS ferro-

silicon had reportedly been imported

into USA.

Standard ferrosilicon is more sensitive to

fluctuations in price than special grades.

FESIL has therefore not experienced the

same price reductions as standard ferro-

silicon suppliers to USA. As mentioned

previously, the product range of FESIL’s

own plants consist of high purity, semi

high purity and granulated ferrosilicon.

Developments of spot prices for stan-

dard ferrosilicon in the USA and Europe

are shown in graphs.

The Asian market has been the fast-

est growing market for steel production

also during last year. Most of the stan-

dard ferrosilicon is still supplied from

China, but a large quantity is also coming

from the CIS countries. Pricing of stan-

dard ferrosilicon from these countries has

during 1999 been on a level that still

makes the Asian market of limited inte-

rest for western ferrosilicon producers.

FESIL’s strength in the Asian market is

high purity ferrosilicon and other special

grades used for production of grain ori-

ented silicon steel, tyre cord steel, etc.

In the EU, the Commission has for

more than a year been reviewing the

anti-dumping action against CIS, China,

Venezuela and Brazil. A decision is

expected in the first part of year 2000.

The uncertainty attached to this process,

has also contributed to keeping the prices

down in Europe.

FESIL ANNUAL REPORT 199952 F E S I

US import price FeSi 75 % (C/lb)

30

40

50

60

70

World crude steel production 1 000 tons (Accumulated last 12 months)

800,000780,000760,000740,000720,000700,000

Jan. 95Jan. 96

Jan. 97Jan. 98

Jan. 99Dec. 99

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

1999 has been a year characterised by

strong availability of silicon metal and

consequent very low spot prices. In

spite of this market situation FESIL

managed during the year to increase

sales with almost 20 %, mostly to the

chemical industry. Low spot prices was

also the main reason for FESIL’s decisi-

on to shut down three furnaces tempo-

rarily during the year.

Silicon metal

Since we began to produce silicon metal,

FESIL has focused on the chemical indus-

try as its principal customer. The basis for

FESIL’s long-term engagement in this

field is a belief in stronger growth and

more stable prices for this industry. As a

major supplier to the important chemical

industry, our constant focus on specialities

together with increased production capaci-

ty will make us an even more interesting

and important partner for this industry.

FESIL has always focused on custom-

ised production and has made an effort to

become a high quality supplier. This has

ensured that our customers get an optimal

product that fits their own specifications.

About 95 % of FESIL's production of sili-

con metal is now specialised. The produc-

tion of chemical quality silicon metal

accounts for approximately 85 %. The

remainder is refined material mainly sup-

plied to the aluminium industry.

A steady growth in the demand for

customised qualities and supplies requires

a close co-operation between producer

and customer. This makes the selection

of a supplier more dependent on quality

and flexibility and less on price. FESIL

will continue to work hard to satisfy our

customers' requirements, always trying to

be the partner they choose.

Market

No new capacity came on stream in

Europe in 1999, but because of the furnace

conversions carried out in 1998, the pro-

duction volume in Europe increased with

more than 10 %. The total Western world

production was estimated to be around

750,000 tons in 1999, of which the

European production counted for around

300,000 tons. Norwegian production was in

the same period about 140,000 tons.

Even though FESIL had temporary

3 furnaces stopped, our production volu-

me increased by almost 10 % in 1999.

In 1999 there was a growth in con-

sumption in the Asian market of about

7–8 %, compared with a decrease of

2–3 % in 1998. The Asian growth toget-

her with a general increase in consumpti-

on in all other markets gave an upturn in

total demand of about 4–5 %.


SiMetalfor the chemical, aluminium

and electronics industries

For year 2000 all analysis indicate at least

the same growth.

Most aluminium producers have

experienced a good year in 1999 with a

normal growth of 3–4 %. Indications for

year 2000 are also optimistic although

some people fear that the auto producti-

on may slow down somewhat.

Market expectation for the chemical

segment is that the growth will come

back to an average of some 5–6 % in

year 2000. Most of the growth in

demand will come in Europe and to

some extent in Japan.

At present, about 40 % of the total

silicon metal production goes to the che-

mical industry; we still believe, however,

that this percentage will increase to app-

roximately 50 % by 2005.

The main use of silicon metal in the

chemical industry is for production of sili-

cones. The ability of silicones to with-

stand degradation and chemical influence,

and their very stable thermal properties,

make them useful in an increasing num-

ber of products. Principal uses are silicone

oils, silicone rubber, lubricants, sealers,

cosmetics and textiles. Looking at the still

rapid population growth who will have a

general increase in living standards, the

demand for all these products will clearly

increase.

Analysis of the market indicate that

more than 50 % of the silicon metal pro-

duction will still be supplied to the alumi-

nium industry. Here, the metal is used as

an alloying element in many qualities

supplied to the automotive industry.

By adding different percentages of

silicon metal one improves the casting

properties and increases the hardness as

well as strength. Resistance to wear and

corrosion will also be improved. The

additions are normally between 0,5–2,0 %

for the primary aluminium alloys that are

mainly used for sheets, profiles, wires etc.

For the foundry alloys the silicon content

will be in the 10–20 % range. These

alloys are mainly used in the automotive

industry where we have seen a substanti-

al increase during the last years.

During 1999 we saw large quantities

low priced material being offered on the

market, resulting in a sharp reduction in

spot prices. FESIL decided not to sell at

these low prices, but to concentrate on

supplying its long-term contracts. As a

consequence, three out of FESIL’s five

SiMetal furnaces were shut down tempo-

rarily, reducing its production capacity

utilisation with approximately 50 %.

Based on our increased capacity in

silicon metal and the last development in

the industry we are prepared to increase

our supplies both to the chemical and to

the aluminium industry resulting in a lar-

ger market share.

Anti-dumping duties

The markets in both Europe and the

United States are still affected by the anti-

dumping duties. Since the duties on

Brazilian metal were lifted at the beginning

of 1998, we have experienced an increase

in the tonnage offered into the European

market. The duties on Chinese material

seem to continue through year 2000.

FESIL ANNUAL REPORT 199954 S I M E T A L

The main use of silicon metal in the chemical industry

is for production of silicones. The ability of silicones to

withstand degradation and chemical influence, and

their very stable thermal properties, make them useful

in an increasing number of products.

The future

As previously mentioned, the silicon

metal market is expected to revert to a

yearly growth of about 4–5 % for 2000.

With the already existing production capa-

city there will be no need for further con-

versions in year 2000. We believe that al-

though there will still be a surplus capacity

in the market, the supply /demand situati-

on will be much tighter. As has been seen

at the year-end, a tighter supply situation

can give higher spot prices and lead to a

general price increase in the market.

Low spot levels and a very good sup-

ply situation have also had an impact on

contract prices for 2000. This has given an

average price reduction to the chemical

industry that will always have a lag to the

spot price.

We believe that the «devaluation» of

the Real will still make the Brazilians

among our toughest competitors in the

future. Increased production capacity

among European producers will also

affect the supply situation.

As a specialist in silicon metal, FESIL

is one of the world's leading producers of

chemical grade silicon metal. We have

worked with determination to achieve this

position, convinced that know-how will be

the decisive competitive parameter.

Together with one of our principal

shareholders, Globe Metallurgical Inc.,

we are now the world's second largest

producer of silicon metal and a leading

supplier to the chemical industry. We are

looking forward to further develop this

position in the years to come, and we are

convinced that co-operation will be bene-

ficial to all parties.

Looking at the silicon market as a

whole, we are very pleased to say that we

have managed to increase our market

share in 1999, unfortunately with less pro-

fitability. On the other hand, with the pre-

sent demand/supply situation we feel very

much optimistic about the next year both

concerning volumes as well as prices.

FESIL ANNUAL REPORT 1999 55S I M E T A L

Silicon metal spot prices

Dec. 94–Jan. 99

USD/ton

European market

US freemarket

Dec. 94

Jun. 95Dec.

95Jun. 96

Dec. 96Jun. 97

Dec. 97 Jun. 98

Dec. 98

2,2002,0001,8001,6001,4001,2001,000

FESIL ASA / Globe Norge AS have a

production capacity of about 60,000

metric tons microsilica per year.

FeSi and SiMetal have been produ-

ced since the beginning of this century.

Until the 1970’ies the furnace gases were

not cleansed, and the discharge of micro-

silica polluted the environment.

The FESIL plant, Lilleby Metall in

Trondheim, was in 1976 among the first

in the world to install filters for cleansing

of the furnace gases.

All FESIL microsilica are tested accor-

ding to Norsk Standard NS 3045 – Silica

fume for concrete. Definitions and

requirements.

In the beginning, microsilica was

considered a waste product. But through

modern cleansing technology and proces-

sing, microsilica has gradually been deve-

loped as a valuable raw material for high

performance concrete, fibre cement she-

ets and refractory.

Fibre cement sheets are usually cor-

rugated sheets, 2.2 m long, 1.0 m wide

and 6 mm thick. They are mostly used

for roofs on warehouses and industrial

buildings. The sheets were previously

much used in Norway. They are still of

use in Europe and the rest of the world.

The sheets are made of cement, water,

cellulose fibre and microsilica. Earlier,

asbestos fibre was used as reinforcement

in the sheets. Since the 70’ies, asbestos

has been prohibited in Scandinavia. In

the 80-90’ies, use of asbestos was also

prohibited in the rest of Europe.


Microsilica is a by-product from the

production of ferrosilicon and silicon

metal. Microsilica is a grey powder,

which consists of very small spherical

particles of a size equivalent to those in

cigarette smoke. Microsilica is handled

like cement and is supplied in powder

form in bags, in big bags or in bulk as

loose powder. Microsilica is also suppli-

ed as slurry, a mixture of 50 % micro-

silica and 50 % water.

FESIL microsilicaFrom pollution to quality product

As the asbestos could not be used in the

sheets, the industry had to look for other

technical solutions. The solution was use

of silica, cement and cellulose fibre. The

cellulose fibres are shorter and smoother

than the asbestos fibres. The microsilica,

together with cement, gives a good adhe-

sion to the smooth cellulose fibres, and is

a good alternative to the asbestos.

There are presently in Europe some

20 factories that use microsilica in their

fibre cement sheets. In Norway and

Sweden, the prohibition against asbestos

was introduced before the technology

discovered the use of microsilica and cel-

lulose fibre. The factories were closed

down in the late 70’ies. In Denmark, they

managed to keep the fibre cement sheet

industry, and during the last years they

have used microsilica in their sheets.

In the Middle East and Far East

countries, the fibre cement sheet industry

is quite big, however, asbestos is still allo-

wed. It is likely, that in the near future,

asbestos will be prohibited in more and

more countries, and this may result in an

increased need for microsilica to the

industry.

FESIL has during the last 10 years

delivered Microsilica to the European

fibre cement sheet industry, and

Microsilica is to be found as an impor-

tant ingredient of millions of square

metres of roofs in Europe.

FESIL ANNUAL REPORT 1999 57M I C R O S I L I C A

FESIL has during the last 10 years deli-vered several thousand tons of Micro-silica to Dubai, one of The United ArabEmirates at the Arabian Gulf.50 years ago, Dubai was a small com-mercial town. Today it is a modern citywith free trade and tourism. Amongother, they have one of the world’s big-gest gold markets with about hundredjewellers in the same street.The photo shows the new quarter in AbuDhabi Road. All the buildings have beenbuilt during the last 10 years, and mostof them contain Microsilica in the concre-te. For the Emirate Towers alone (infront), about 4,000 metric tons Micro-silica were added to the concrete.

The cyclone dust is almost pure metal

with a high content of Si. The sculls are

contaminated by remains of slag and

have therefore a lower Si-content.

In spite of the relatively high Si-con-

tent the steel and foundry plants cannot

use these off-grade materials as they

come from the melting plants. The idea

behind the establishment of FESIL-Bri-

kettfabrikken was to take care of these Si-

quantities and convert them to a saleable

product. The problem was: How to

agglomerate cyclone dust and crushed

sculls?

The technique chosen for production

of briquettes is taken from the concrete

industry. A mixture of raw materials,

concrete and water is filled in a mould in

the briquetting machine and pressed

together under vibration and high com-

pression.

After the compression the trays of bri-

quettes are put into the hardening cham-

ber. About 24 hours later the briquettes

have a strength that make them resistant

to front loader transportation, packing etc.


When producing ferrosilicon (FeSi),

silicon metal (SiMetal) and silicon car-

bide (SiC), cyclone dust is generated,

as well as fines from the crushing and

screening equipment, and coarser fla-

kes of hardened metal from the ladles.

In the smelting technology this is

known respectively as «fines» and

«sculls» and is called «off-grades».

Previously these «off-grades» were

treated as waste and dumped.

Briquettesfines and sculls

The briquettes are produced in different

sizes, shapes and with different chemical

composition, and are delivered both pac-

ked on pallets and in bulk. The share of

packed briquettes has been considerably

reduced during the last three years.

Because of the pollution in the sculls

and the additive of concrete the briquettes

can only be used in a process working

with slag. Our briquettes are therefore

well suited for melting in a cupola furnace.

The FeSi and SiC-briquettes are

mainly exported to foundries associated

to European car industry. Both qualities

are used as additive in cupola furnaces

for the production of cast iron compo-

nents as engine blocks, brake disks etc.

In the briquetting market FESIL-Brikett-

fabrikken has a reputation for delivering

quality briquettes.

Basically, FESIL is selling briquettes

to Western Europe with Germany as the

dominant market. France, England and

Sweden are other markets for briquettes

from FESIL-Brikettfabrikken.

FESIL ANNUAL REPORT 1999 59B R I Q U E T T E S


M A N A G E M E N T

Management

• Odd Samstad, President and CEO

• Stein Anderssen, Senior Vice

President Ferrosilicon and CFO

• Henrik Brekken, Senior Vice President

Silicon Metal

• Tormod Haug, Senior Vice President

Procurement

• Svein Johnsen, Senior Vice President

Personnel, Health and Safety

• Lars Nygaard, Technical Director

• Sverre Sæther, Director Marketing

and Sales Ferrosilicon

• Ragnar Vaksdal, Director Marketing

and Sales Silicon Metal

• Petter Synnestvedt, Director Business

Development


This is FESIL 1

Main financial figures Group 3

Highlights 1999 4

Tasks and objectives for 2000 4

Board of Director’s report 5

Profit and Loss Account 14

Balance Sheet, assets 15

Balance Sheet, debt and equity 16

Cash Flow Statement 17

Accounting Principles 18

Notes to the Consolidated Accounts 21

Audit Report 34

Financial Information 36

Shareholder Information 37

Production 38

Market/Logistics 40

Climate and CO2 challenges

for FESIL 42

President and CEO 46

Organisation Structure 48

Production Plants 49

Ferrosilicon 50

Silicon metal 53

Microsilica 56

Briquettes 58

Management 60

The ordinary General Meeting will be held onMay 11th, 2000.

The board will not propose any dividend pay-ment for 1999.

Publication of results forJanuary-March: May 12th, 2000January-June: August 18th, 2000January-September: November 17th, 2000

C O N T E N T S

Design: TRB • Photo: FESIL • Print: Lade Offset

AN

NU

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PO

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Ensjøveien 16P.O.box 6532 EtterstadN-0606 Oslo, NorwayTel.: +47 22 08 90 90Fax: +47 22 08 90 99E-mail: [email protected]: www.fesil.com

Annual report 1999«Good times are comin’,but they’re sure comin’ slow"

Neil Young

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