3. 3
Klöckner & Co at a glance
Klöckner & Co highlights
• Leading producer-independent steel and
metal distributor in the European and
North American markets combined
• Distribution network with approx. 240
warehouses in Europe and
North America
• About 10,000 employees
• Key financials FY 2006
- Sales: €5,532 million
- EBITDA: €395 million
DistributorProducer Customer
Products:
Services:
Construction:
• Structural
Steelwork
• Building and civil
engineering
Machinery/
Mechanical
Engineering
Others:
• Automotive
• Metal products/
goods, installation
• Durable goods
• etc.
Overview
4. 4
Local customersGlobal suppliers
Distributor in the sweet spot
Suppliers Sourcing
Products
and services
Logistics/
Distribution
Customers
• Global Sourcing
in competitive
sizes
• Strategic
partnerships
• Frame contracts
• Leverage one
supplier against
the other
• No speculative
trading
• One-stop-shop
with wide
product range of
high-quality
products
• Value added
processing
services
• Quality
assurance
• Efficient
inventory
management
• Local presence
• Tailor-made
logistics
including on-
time delivery
within 24 hours
• > 200,000
customers
• No customer
with more than
1% of sales
• Average order
size of €2,000
• Wide range of
industries and
markets
• Service more
important than
price
• Purchase
volume p.a. of
6 million tones
• Diversified set
of worldwide
ca. 70 suppliers
• Examples:
Klöckner & Co’s value chain
Overview
5. 5
Global reach with broad product and customer diversification
Germany/
Austria 23%
France/
Belgium
21%
Switzerland 15%
Spain 10%
UK 9%
Nether-
lands 6%
Eastern
Europe 1%
USA 10% (incl. Primary 17%)
Canada 5%
Steel-flat
Products
28%
Steel-long
Products 31%Tubes 9%
Special &
Quality
Steel 10%
Aluminum
8%
Other Products 14%
Construction
40%
Machinery/
Manufacturing 20%
Automotive
5%
Other 35%
USA
CAD
USA
CAN
G 25 Locations
F 76 Locations
CH 31 Locations
E 48 Locations
UK 24 Locations
IE 1 Location
NL 7 Locations
Eastern Europe 4 Locations
CAN 5 Locations
USA 17 Locations
Total 238 Locations
Locations (Dec. 31, 2006)
Country headquarters
Sales split by markets (2006)
Sales split by product (2006)
Sales split by industry (2006)
IE
Overview
6. 6
Industry trends supporting Klöckner’s strategy
Market and Strategy
Globalization
and
consolidation
Higher raw-
material costs
• Flattened global steel cost curve in favour of developed-market steel producers
Stable global
demand growth
• Far quicker destocking
• High capacity utilisation of steel mills
• Large costs savings
• Higher and more flexible capacity utilization
• Much better supply discipline and higher pricing power creates better
balance between supply and demand
• On-going consolidation favouring large scale distributors
• Higher prices with much shorter downturns support more
stable earnings and cash flows for distributors
Impact on
distribution
industry
7. 7
Market and Strategy
Klöckner as a leading consolidator
Europe (2006)
Arcelor Mittal AM3S 11%
(Sales Distribution approx. 5%)
ThyssenKrupp 8%
Corus 6.5%
Klöckner & Co 5.9%
Other
Independents
~45-55%
Klöckner & Co 7%
Corus 4%
Structure: 67% through distribution, service centers
Size in value: ~€70–90bn
Companies: ~3,000 few mill-tied, most independent
Only
independent in
top tier
Source: EuroMetal, Company reports, Klöckner & Co estimates
Namasco
(Klöckner & Co) 1.0%
Ryerson 4.7%
Olympic Steel 0.8%
Source: Purchasing Magazine (May 2007)
Namasco + Primary
approx. 1.4%
Other
72.5%
Reliance
Steel
4.5%
Samuel, Son & Co.
2.1%
ThyssenKrupp
Materials NA
2.5%
Russel Metals
1.8%
Worthington Steel
1.3%
Metals USA
1.4%
Carpenter Technology 0.9%
PNA Group 1.2%
McJunkin
1.3%
O'Neal Steel
1.8%
MacSteel
1.4%
AM Castle 0.9%
Structure: 50-60% through distribution, service centers
Size in value: ~€100bn
Companies: ~1,300 only independent distributors
North America (2006)
Other Mill-Tied
Distributors
~15-25%
8. 8
Acquisitions driving market consolidation
Next steps
Further acquisitions in core markets at attractive
valuations:
• Leverage existing structure with 10 to 12
smaller (local) bolt on acquisitions in 2007
• Medium and large scale acquisitions when
appropriate
• Include attractive industries, e.g. oil and gas
Focus on targets in key markets
at attractive valuations
Strategy
Benefits
Significant synergy opportunities
• Streamlining operations,
processes and sales force
• Integration of STAR
Economies of scale
• Stronger purchasing power
Market and Strategy
Acquisitions
• 2005: 2 acquisitions with total sales of €141m
• 2006: 4 acquisitions with total sales of €108m
• 2007: 7 acquisitions with total sales of €475m
so far
05/2007: Premier Steel
€23 million sales; 34 employees
04/2007: Stahlhandel Zweygart
€11 million sales; 22 employees
04/2007: Max Carl
€15 million sales; 19 employees
04/2007: Edelstahlservice
€17 million sales; 49 employees
04/2007: Primary Steel
€360 million sales; 412 employees
04/2007: Teuling
€14 million sales; 16 employees
01/2007: Tournier
€35 million sales; 41 employees
10. 10
Major changes of China's steel industry
China’s challenge
What has happened in the last few years:
• Just 4 years ago, in 2003, China was the largest steel importing country, importing 43
million tons, while exporting 5 million tons. One year later, China was still a net importer of
steel (exports 20 million tons, imports 33 million tons). In 2005, China for the first time
exported a little more steel than it imported: 27 million tons export vs. 26.5 million tons of
imports. Last year, in only the second year of being a net exporter, China became the largest
steel exporter world-wide, shipping 52 million tons (and still importing 19 million tons).
• On average, however, only 10 to 15% of Chinese mills' output went into exports. Of much
greater importance to mills was the booming domestic economy, growing at around 10%
every year, with ever expanding construction/automotive/shipbuilding industries. Rapid growth
created supply bottlenecks and caused prices for raw materials and energy/oil/coal to rise
sharply, not only in China, but globally.
• At this stage, China's steel industry has the capacity to produce about 470 million tons per
year, apparent consumption is around 380 million tons per year, or about 300 kgs per head.
Though overall capacity is still increasing (70 million tons of capacity are under construction),
the Chinese government has adopted a number of measures to balance production and
consumption and prevent a further surge in exports. Naturally, this is not an easy job.
11. 11
China's steel industry - current structure and developments
China is suffering from having too many steel plants:
• There are around 850 steel plants, most of them are small mills, established with local funds,
producing just slabs/billets or pig iron, using outdated equipment, wasting energy and water
resources, and heavily pollute the environment
• Only 9 mills operate capacities above 10 million tons per year, but this number will increase
this year
• In 2005, the top 10 producers represented about one third of total steel production
The Chinese government intends to change this picture dramatically
Chinese economy is not a market economy, but a polit-economy:
• State organizations direct developments. The 12th 5-year-plan is being implemented right
now.
• Most of the larger steel mills in China are state-owned
Therefore you could say, the largest steel producer on earth is not
Arcelor Mittal, but the Chinese government
China’s challenge
12. 12
Reform tools for China's steel industry
• Chinese government is actively encouraging the construction of 4 to 5 new
large mills in coastal areas each with a capacity 10 to 20 tons per year
• Chinese government targets to establish at least 3 conglomerates with
capacities over 30 million tons per year by 2010
• Top 10 producers are planned to represent a 50% share of total output in 2010
and 70% by 2020
• To achieve this sort of market consolidation, the leading mills are requested to
merge with suitable partners wherever possible
• Subscale facilities (There are more than 1000 blast furnaces in China, many of them with coke
rates of 700 up to 1100 kgs low quality coke per ton pig iron) are ordered to close down,
eliminating 55 million tons per year capacity nation-wide this year alone
• In 2007, blast furnaces below 300 cubic meters and EAF's below 20 cubic
meters volume will be shut down and destroyed – at least, that is the plan
• Chinese government monitors and adjusts exports through the cutting of VAT
rebates and the implementation of export licenses and duties
China’s challenge
Mega Mills
Mergers
Closures
Export
Strategies
13. 13
Chinese government continues to monitor and adjust exports
The Chinese government will continue monitoring and adjusting export volumes. Latest measures
are:
• The cutting of VAT rebates as announced April 10. The existing 8% rebate was cancelled for
HRC, HR plate, HR narrow strip, wire rods, bars, sections; these products accounted for about
60% of finished steel exports in 2006. The rebate was reduced to 5% for CRC, HDG, tinplate
and colour-coated; these products represent about 12% of finished steel exports in 2006. A
13% VAT rebate remains in place for tubes/pipes/hollow sections.
• The implementation of export licenses for 83 grades of steel effective May 20.
• The decision to impose export duties on 80 steel products. Most heavily targeted were
exports of
- Coke (China meanwhile is importing more coking coal than exporting)
- Ferro-alloys
- Pig iron
- Slabs/blooms/billets
- Aluminum semis
with export tax adjusted to 15%. Low-value added steel products incl. carbon steel long
products, HRC, sheets/plates are now carrying export tax rates of 5 - 10%.
China’s challenge
14. 14
Target set for the Chinese steel industry remains unchanged
This policy is serving two purposes:
• Externally, the export volume of low value added products is significantly affected, easing
the risks of escalating trade frictions and the rise of trade protectionism.
• Internally, it enhances the targeted national growth pattern, which is seeking to eliminate
resources- and energy-wasting low-end production and to encourage higher value-adding
production in less polluting, resources- and energy-efficient environments.
Summarized, the targets set for the Chinese steel industry are unchanged:
Saving energy
Saving resources
Curbing pollution
Reducing excess capacities of semis
Reducing trade imbalances in general
China’s challenge
15. 15
The export pattern will change
After implementing these measures the export pattern will change:
• The focus for the bulk volume is on developing and expanding new markets, targeting
especially Russia, South Asia, and the Middle East, but also so far largely undeveloped
export markets in South America and Africa
• Exports to traditional markets in Europe and North America will focus on higher value
added products plus an overall reduction of export quantities.
What can we predict for the future?
Q1/2007 shows that despite the long-term targets of the Chinese government short-
term deviations are always possible
• According to China Customs, about 14.1 million tons of steel products were exported
during Q1/2007, an increase of 33% over Q1/2006
Mid- and long-term Chinese steel industry will not harm world steel markets
• In total we predict that the situation will stabilize at 2006 levels. The annual export
volume will represent about 10% of total production. Production in 2007 is estimated
to increase by roughly 50 million tons, from about 420 m tons in 2006 to 470 m tons.
China’s challenge
16. 16
How will Klöckner benefit from the developments in China?
• Klöckner opened a representative office in Beijing last year. Primary target
was at first to establish firsthand relationships with the main Chinese mills to
enable direct imports from China. We increased our direct imports from
nearly 0 to 15,000 tons in 2006. Target for 2007 are 30,000 tons.
• Klöckner will take advantage of being a distributor with strong relationship
to Chinese mills. Last month Klöckner organized a trip for 5 German
shipyards to several mills in China with the purpose to verify the possibility to
source plates and profiles direct from Chinese mills.
• Klöckner considers to enter the Chinese markets also as a distributor.
However due to the different distribution system (more than 750 steel
“markets” that are, in effect, stocking depots) the focus will be on the
distribution to European and US companies with production plants in China.
China’s challenge
Sourcing
Klöckner will take advantage on the sourcing and most probably also on the supply side:
Supply
18. 18
Quarterly Results and FY Results 2006/2005
* Pro-forma consolidated figures for FY 2005, without release of negative goodwill of €139 million and without
transaction costs of €39 million, without restructuring expenses of €17 million (incurred Q4) and without activity
disposal of €1,9 million (incurred Q4).
-4.44-0.971.641.150.86Earnings per Share in €
352063145765440Net income
172869856Minority interests
-29-39-13-22-2016-22Income taxes
8127350751054368Income before taxes
-54-64-14-14-24-12-10Financial result
13533765891285578EBIT
4.07.16.07.310.35.05.9% margin
197395791041437092EBITDA
19.921.821.622.322.521.019.8% margin
9871,208285316313294307Gross profit
4,9645,5321,3231,4181,3941,3981,550Sales
FY
2005*
FY
2006
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Q1
2007
(€m)
Financials
19. 19
Summary Income Statement Q1 2007
Financials
• Strong sales increase
mainly driven by further
steel price increases
and acquisitions
• Significant increase of
EBITDA driven by
favourable steel price
level and STAR
program
• Rise in adjusted
EBITDA (w/o one-offs)
even higher because of
strong operational
performance
Comments
--0.86Earnings per Share in €
-3140Net income
-66Minority interests
--13-22Income taxes
-5068Income before taxes
--14-10Financial result
+ 21.46578EBIT
-5.65.8% margin adjusted
+ 23.07491EBITDA adjusted
-6.05.9% margin
+ 16.17992EBITDA
-21.619.8% margin
+ 7.6285307Gross profit
+17.11,3231,550Sales
Ä %
Q1
2006
Q1
2007
(€m)
20. 20
Comments
Balance Sheet Q1 2007
Financial debt as of March 31, 2007:
• Nominal value of HYB: €170 million
• ABS: €175 million
• Bilateral credit facilities: €173 million
• Increased net financial debt mainly due to
higher NWC
Equity:
• Increase driven by strong results
• Equity ratio of about 30% almost stable
(as of December 31, 2006: 31%)
Net Working Capital:
• Increase in line with the additional sales
Rating:
• Moody’s increased rating to “Ba2” with stable
outlook
Financials
477
1,299
2,841
-
838
1,244
435
756
841
2,841
65
72
1,136
1,002
566
March 31
2007
933Trade receivables
841Inventories
579Long-term assets
130Cash & Cash equivalents
69Other assets
639- thereof trade payables
-Other liabilities
1,009Total short-term liabilities
744Total long-term liabilities
799Equity
2,552Total assets
416- thereof financial liabilities
Dec. 31
2006
(€m)
2,552Total equity and liabilities
365Net financial debt
1,135Net Working Capital
21. 21
Statement of Cash Flow
• Strong business
development reflected in
positive cash flow deriving
from operational activities
and increased NWC
requirements
• Investing cash flow in Q1
2007 mainly impacted by
cash outflow due to the
acquisition of Tournier
Comments
Financials
-2-16Others
40-88Cash Flow from operating activities
271Inflow from disposals of fixed assets/others
-9-18Outflow from investments in fixed assets
18-17Cash flow from investing activities
-33-164Changes in net working capital
-1251Changes in financial liabilities
7592
Operating result before balance sheet
changes
44-58Total Cash Flow
-1548Cash flow from financing activities
--Dividends
-3-3Net interest payments
Q1
2006
Q1
2007
(€m)
23. 23
Outlook / Guidance 2007
Basic Assumptions for 2007
• Positive prospects for the steel
industry
• Economic growth in relevant
markets of about 1.8% -5% in 2007
• Stable and increasing demand
especially in the construction and
machinery industries
• Price development stable or better
– Price rise in H1
Outlook
Guidance
• At least 15% top line growth mainly
driven by acquisitions
• EBITDA approximately on reported
2006 level
• Dividend continuity: 30% payout
ratio after deduction of
extraordinary income
Again strong
results in 2007
24. 24
Financial Calendar 2007 and Contact Details
Contact Details Investor Relations
Claudia Nickolaus, Head of IR
Phone: +49 (0) 203 307 2050
Fax: +49 (0) 203 307 5025
E-mail: claudia.nickolaus@kloeckner.de
Internet: www.kloeckner.de
Contact
Financial Calendar 2007
June 20: General Shareholders’ Meeting
August 15: Q2 Interim Report
September 19: Analysts’ and Investors’ Meeting
November 14: Q3 Interim Report
26. 26
This presentation contains forward-looking statements. These statements use words like
"believes, "assumes," "expects" or similar formulations. Various known and unknown risks,
uncertainties and other factors could lead to material differences between the actual future
results, financial situation, development or performance of our company and those either
expressed or implied by these statements. These factors include, among other things:
Downturns in the business cycle of the industries in which we compete;
Increases in the prices of our raw materials, especially if we are unable to pass these
costs along to customers;
Fluctuation in international currency exchange rates as well as changes in the general
economic climate
and other factors identified in this presentation.
In view of these uncertainties, we caution you not to place undue reliance on these forward-
looking statements. We assume no liability whatsoever to update these forward-looking
statements or to conform them to future events or developments.
Disclaimer
