Klöckner & Co - Roadshow Presentation October 2009

35
Roadshow DZBank October 20, 2009 Klöckner & Co SE The Leading Independent Multi Metal Distributor Dr. Thilo Theilen Head of Investor Relations

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Transcript of Klöckner & Co - Roadshow Presentation October 2009

Page 1: Klöckner & Co - Roadshow Presentation October 2009

Roadshow DZBankOctober 20, 2009

Klöckner & Co SE

The

Leading

Independent Multi Metal Distributor

Dr. Thilo

Theilen Head of Investor Relations

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Disclaimer

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.

This presentation is not an offer for sale or a solicitation of an offer to purchase any securities of Klöckner & Co SE or any of its affiliates ("Klöckner & Co").

Securities of Klöckner & Co, including, but not limited to, rights, shares and bonds, may not be offered or sold in the United States or to or for the account or benefit of U.S. persons (as such term is defined in Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act")) unless registered under the Securities Act or pursuant to an exemption from such registration.

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Agenda

1. Business Overview

3. Financials

Appendix

2. Strategy

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Distributor in the sweet spot

Local customersGlobal suppliers

Suppliers Sourcing Products and services

Logistics/

Distribution Customers

Global Sourcing in competitive sizesStrategic partnershipsFrame contractsLeverage one supplier against the otherNo speculative trading

One-stop-shop with wide product range of high-quality productsValue added processing services Quality assurance

Efficient inventory managementLocal presenceTailor-made logistics including on-time delivery within 24 hours

~185,000 customersNo customer with more than 1% of salesAverage order size up to €2,000Wide range of industries and marketsService more important than price

Purchase volume p.a. of >5 million tonsDiversified set of worldwide approx. 70 suppliers

Klöckner & Co’s value chain

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Klöckner & Co at a glance

Klöckner & Co

Leading producer-independent steel and metal distributor in the European and North American markets combined

Network with around 250 distribution locations in Europe and North America

Sales split by markets

As of December 2008

Sales split by product

As of December 2008

Sales split by industry

As of December 2008

Eastern Europe; 1%

USA; 19%

The Netherlands; 6%

Spain; 8%

UK; 9%

Switzerland; 13%

France/Belgium; 21%

Germany/Austria; 23%

Construction; 42%

Industrial machinery and equipment;

24%

On-sellers; 10%

Appliances/durable goods manufacturers; 7%

Automotive; 6%

Other; 11%

Tubes; 10%

Quality steel/stainless

steel; 9%

Aluminum; 6%

Other; 12%

Long products/sectional steel;

32%

Flat products; 31%

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High cash flow generation in a downturn market

1 Source: Datastream ² 1999 to 2005 unaudited pro-forma figures, cash flow adjusted for M&A activity

FCF (€m²)

46620165

211

69 112 80147 126 86

147 158

-111999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1 2008 H2 2008 H1 2009

151 220 150 156 140349

197395 371

600321 279

-163

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1 2008 H2 2008 H1 2009Year

HRC Western Europe prices $/ton¹

Sales (€bn²)

EBITDA (€m²)

4.55.3

4.2 4.0 3.8

4.85.0

5.56.3

3.5 3.2

2.1

6.7

0

200

400

600

800

1,000

1,200

1,400

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Prices for carbon and stainless steel products have improved in the US and Europe

Distribution stocking levels at record lows in the US and in Europe, with demand stabilizing

Utilization rates in the US and Europe have increased due to a stronger apparent demand

Steel inventories in the US at all time lows and back to H1 2008 levels in terms of months of sales

Source: SBB

Steel prices are recovering

Source: Metals Service Center Institute

5500

6500

7500

8500

9500

10500

11500

12500

13500

Jan

08

Mar

09

May

08

Jul 0

8

Sep

08

Nov

08

Jan

09

Mar

09

May

09

Jul 0

9

Inve

ntor

ies

(Tto

)1,5

2,0

2,5

3,0

3,5

4,0

Mon

ths

of s

hipm

ents

Inventories Months

200300400500600700800900

100011001200

Jan

06

Apr 0

6

Jul 0

6

Oct

07

Jan

07

Apr 0

7

Jul 0

7

Oct

07

Jan

08

Apr 0

8

July

08

Oct

08

Jan

09

Apr 0

9

Jul 0

9

Oct

09

Stee

l pric

es (€

/t)

HRC-Europe HRC-US

Medium sections-Europe Beams-US

Stee

l pric

es(€

/t fo

rEur

ope;

$/t

forU

S)Stocks on all time lows, prices have picked up in last months

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Agenda

1. Business Overview

3. Financials

Appendix

2. Strategy

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After managing the crisis back on track with Wave 3

Crisis management Managing growth again

Cost cutting

NWC-/ debt-reduction

Safeguard financing

Waves 1 and 2

Wave 3

Efficiency program Continuous improvement

Acquisition strategy

Organic growth

Growth capital

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October 08 Summer 09

Wave 1

Wave 2

Approx. half of targeted €100m net savings in 2009 (incl. STAR) already realized¹ Company estimates

€100m net savings targeted in 2009, thereof €35-40m fixed costs¹

1,500 headcount reduction targeted (15% of total workforce) and almost fully achieved²

Safeguard liquidity / net working capital management: net working capital decreased from €1.7bn (Q3/2008) to €779m (Q2/2009)Safeguard financing: €300m syndicated loan and €505m ABS facilities now without performance covenants

Capex cut < €25m, so far €9.9m as of Q2/2009

Acquisitions suspended

March 09

Wave 3

² As of July 30, 2009

Cost

cutting: Cost

oriented

programs

implemented

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Cost cutting: Structural

improvements will be maintained

Sales

NWC as % of sales

100

100

Volume

Net cost

base

European sourcing and distribution optimization expected to lead to sustained lower inventories

Initiated fixed cost savings expected to be maintained

Sustainable improvements increase competitiveness in next upturn

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€35-40m fixed cost savings in 2009, annualized fixed cost savings of

€50-60m

Cost cutting: Saving target >€100m for 2009

€100m net savings target 2009

Personnel

50%

Shipping

20%

Operating

supplies/ tools

15%

Repair/

maintenance

10%

Other

5%

Reduction of >1,500 jobs or >15% of total workforce

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NWC-/debt-reduction: Fast adaptation to current situation

Destocking

Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009

NWC

€bn

Net debt Stock to shipment

Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009

€bn

0.69

1.07

0.570.32

0.12

0.90

Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009

Stock levels of KCO in million to

0.89

1.32 1.251.011.21

0.75

Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009

Stock to quarterly shipment ratioTurnover in million to

1.07

1.76

1.351.15

1.72

1.05

0.70 0.750.93

0.710.87 0.83

1.401.65

1.01

1.721.41

0.78

-43% -55%

-89%

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SalesSourcing Warehousing / Distribution

Centralization of sourcing functionSupplier concentrationThird country sourcing

Warehouse network optimization (incl. site closure)Concentration of stock in single locationsOptimization of internal and external logistics

Customer segmentation by size and tradeProfitability oriented pricing and service offeringReigniting dormant accounts

Product Portfolio / Service Offering

Product portfolio optimization (profitability / capital requirements)Increasing share of value added services

Sharing of products within GroupEliminating slow/no movers

Processes / IT Systems (Enabler)

Standardizing processesIntroduction of standardized SAP suit and data model (article codes, inventory management, etc.)

Shared servicesActivity based costing (ProDacapo)

Efficiency

program: Ongoing

improvement

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Financial structure

Bank debt Securitized debt

Capital markets debt

AcquisitionsNWC

43%

26%

31%

€325mConvertible Bond 2007

€400mBilateral Facilities

€505mABS

€300mSyndicated

Loan

€98m Convertible Bond 2009

Funds for future growth

> €1,200m predominantly for organic growth

Strong financial power for organic growth

€1,205m

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Summer 09

Wave 3

Pro-active market initiatives to leverage improved competitive position

Market / customer segmentation- Focus on under-penetrated regions / customer segments

- Leverage existing product / service offering and competitive strength

- Increase share of wallet with current accounts

- Improve / adjust sales force management and incentivation

Product portfolio management- Improve product mix by expanding higher margin business

- Drive value added services

Pricing strategy- Adjust pricing to segment / product approach

Wave 2Wave 1

Organic

growth: Driving

market

share

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Financial structure

Bank debt Securitized debt

Capital markets debt

AcquisitionsNWC

43%

26%

31%

€325mConvertible Bond 2007

€400mBilateral Facilities

€505mABS

€300mSyndicated

Loan

€98m Convertible Bond 2009

Funds for future growth

€193mRightsIssue

€938mEquity

pre Rights Issue

> €600m predominantly for growth through acquisitions

€1,131m €616m

Strong financial power for growth through acquisitions

Equity

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Achieve profitable growth

Strengthen purchasing power vs. suppliers for core group products

Strengthen country specific market positions

Expand footprint outside construction industry

Focus on geographical core markets in EU, NA and EEC to leverage existing network

Western Europe

NAFTA

Steel ProducerSteel Distributor

Steel DistributorTop 6 -20

Top 5

65%17%

18%Others

Top 5

31%

69%

Steel ProducerOthers

Top 5

39%

61%

OthersOthersTop 6 -20

Top 5

18%

32%50%

Significant acquisition potential in fragmented markets

Source: Company data, Eurometal, broker research

Consolidation among steel producers is well ahead of highly fragmented distribution sector M&A strategy

Profitability above group averageStrong synergy potential in purchasing, admin and warehousing with low integration riskEV/EBITDA multiple between 4x and 6x EBITDA EPS-accretive from year one

Target selection criteria

Track record of 18 successful acquisitions since IPO shows ability to integrate companies and extract synergies

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Leading producer-independent multi-metal distributor

Source: Public information Note: Average exchange rate $/€ 2008: 0.6831 Includes complete Steel Solutions and Services 2 Mill-tied distributors

Largest independent multi-metal distributor

Independence provides:- Sourcing flexibility- Ability to obtain steel at market prices, even in tight

markets- Better ability to react to changes in supply and

demand, as products are sourced from a variety of suppliers

- Mill-tied distributors competing against customers of the mills

2008 European competitive landscapeEurope: ~3,000 market participants

Sales 2008 in €bn

0

4

8

12

16

AM3S TKM Klöckner& Co

RelianceSteel

Ryerson McJunkinRedman

1,2 2

Mill-tied distributors¹

Other independent distributors²

62%38%

Source: Eurometal (2009), public information, based on turnover in tons 1 Top 3 mill-tied distributors ArcelorMittal/ ThyssenKrupp/ Corus ² Klöckner & Co is largest independent distributor

2008 North American competitive landscapeNorth America: ~1,200 market participants

Mill-tied distributors

Rank Company Mkt. Share

1 Reliance Steel 5.7%

2 Ryerson Inc 3.5%

3 McJunkin Red Man 2.6%

4 Samuel, Son & Co. 2.1% … 10 Klöckner-Namasco 1.2%

11 A.M. Castle & Co 0.9%

Top 15 combined 28.2%

Other independent

distributors

Top 15

28.2%

63.7%

8.1%

Source: Metal Center News (Sept. 2009), Purchasing Magazine (April 2009), based on sales

15.8

10.4

3.66.7 6.0

2.9

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€141m

€567m

€231m

€108m

Acquisitions1 Acquired sales1,2

€5mMultitubesJan 2008

€226mTemtcoMar 2008

€9mLehner & TonossiSep 2007

€231m2 acquisitions2008

€14mInterpipeSep 2007

€7mScanSteelSep 2007

€36mMetalsnabAug 2007

€108m4 acquisitions 2006€567m12 acquisitions2007

€35mTournierJan 2007

€14mTeulingApr 2007

€360mPrimary SteelApr 2007

€17mEdelstahlservice Apr 2007

€15mMax CarlApr 2007

€11mZweygartApr 2007

€23mPremier SteelMay 2007

€26mWestokJun 2007

Sales (FY)²Acquired¹ CompanyCountry

¹ As of announcement ² Figures refer to the latest fiscal years, prior to the acquisitions of the companies

2

4

12

2

2005 2006 2007 2008

Successful

acquisition-led

growth track

record

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We stick to our targets

Roadshow Presentation April

2006

Underlying sales growth

Underlying EBITDA margin

Gearing (Net financial debt/Equity)

> 10% p.a.

> 6%

< 75%

Starting 2010

Starting 2011

Revised

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Agenda

1. Business Overview

3. Financials

Appendix

2. Strategy

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Selected income statement data

Years ended December 31 Six months ended June 30 (€m) 2006 2007 2008 2008 H1 2009 H1 Sales 5,532 6,274 6,750 3,582 2,054

Volume (Ttons) 6,127 6,478 5,974 3,475 2,121

Other operating income 94 97 371 21 25

Change in inventory 1 0 4 11 -3 -11

Cost of materials -4,325 -5,058 -5,394 -2,777 -1,804

Personnel expenses -478 -509 -546 -264 -228

Other operating expenses -428 -438 -592 -238 -199

Income from investments 0 1 0 0 0

EBITDA 395 371 600 321 -163

Depreciation, amortisation and impairments -58 -64 -67 -31 -34

EBIT 337 307 533 290 -197

Financial result -64 -97 -70 -33 -31

Income before taxes 273 210 463 257 -228

Income taxes -38 -54 -79 -79 53

Net income2 235 156 384 178 -175

1 Change in inventory represents the difference in amount of work in progress and finished goods at period end compared to the beginning of the period, adjusted for currency effects. Most of our inventory consists of merchandise, changes of which are not reflected in this item, but included in cost of materials

2 Gross of minority interests

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Organic volume development in North America -37.7%

Includes acquisition-related sales of €8m for Q2/2009 in North America

Comments

Segment performance Q2 2009

(€m) Europe North America

HQ/Consol. Total

Volume

(Ttons)

Q2 2009 815 238 - 1,053Q2 2008 1,223 532 - 1,755

Δ

% -33.3 -55.1 - -39.9Sales

Q2 2009 798 161 - 959Q2 2008 1,523 399 - 1,922

Δ

% -47.6 -59.7 - -50.1EBITDA

Q2 2009 3 -25 -8 -31% margin 0.3 -15.8 - -3.2

Q2 2008 150 67 -5 212% margin 9.9 16.7 - 11.0

Δ

% EBITDA -98.3 -138.2 - -114.6

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690571

322

118

Q3/2008 Q4/2008 Q1/2009 Q2/2009

1.71.4

1.00.8

Q3/2008 Q4/2008 Q1/2009 Q2/2009

Weak operating cash flow in H1 2009 offset by release of working capital

Strong cash flow generation led to fall in net debt to €118m end of June 2009

2006 2007 2008 2008 H1 2009 H1

Operating CF 354 328 386 317 -170

Changes in net working capital -195 -105 -87 -274 639

Others -28 -114 -112 -40 -1

Cash flow from operating activities 132 109 187 3 468

Inflow from disposals of fixed assets/ others

102 38 388 8 6

Outflow from investm ents in fixed assets/ others

-92 -417 -316 -282 -8

Cash flow from investing activities 10 -378 72 -274 -2

Proceeds from capital increase 98 62 0 0 26

Changes in financial liabilities -136 357 -46 296 -149

Net interest paym ents -46 -78 -38 -16 -22

Cash flow from financing activities¹ -90 295 -123 242 -145

Total cash flow 52 25 136 -29 321

Cash flow statement over time (€m)

1 Includes dividend payments

Working capital over time

-18%-29%

€bn

-22%

Net debt over time

-17%

-44%

€m

-63%

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€43m

€227m

€72m

€325m

€26m

€351m

2009 2010 2011 2012 2013 2014

ABS Syndicated loan Convertible 2007¹ Convertible 2009¹ Drawn amount Facility Committed FY 2008 H1 2009

Bilateral Facilities 400 65 66

ABS 505 213 69

Syndicated Loan 300 298 227

Total Senior Debt 1,205 576 362

Convertible 2007¹ 325 280 289

Convertible 2009¹ 98 0 72

Finance leases 11 12 11

Total Debt 1,639 867 733

Cash 297 616

Total Net debt 571 118

Net debt and liquidity overview

Current maturity profile of drawn amountsOverview of net indebtedness (€m)

Additional flexibility through renegotiated covenants, which are now free of performance measures

1 Drawn amount excludes equity component

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Agenda

1. Business Overview

3. Financials

Appendix

2. Strategy

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Contact details Investor Relations

Dr. Thilo Theilen, Head of IR

Phone: +49 203 307 2050

Fax: +49 203 307 5025

E-mail: [email protected]

Internet: www.kloeckner.de

Financial calendar 2009

November 13: Q3 Interim Report

Financial calendar 2009 and contact details

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(€m) Q2 2009

Q1 2009

Q4 2008

Q3

2008

Q22008

Q12008

FY2008

FY2007

FY2006

FY2005*

Volume (Ttons) 1,053 1,068 1,151 1,348 1,755 1,720 5,974 6,478 6,127 5,868Sales 959 1,095 1,394 1.773 1,922 1,660 6,750 6,274 5,532 4,964Gross profit 161 78 173 390 462 340 1,366 1,221 1,208 987% margin 16.8 7.1 12.4 22.0 24.0 20.5 20.2 19.5 21.8 19.9EBITDA -31 -132 -134 413 212 109 600 371 395 197% margin -3.2 -12.0 -9.6 23.3 11.0 6.6 8.9 5.9 7.1 4.0EBIT -48 -149 -152 395 197 93 533 307 337 135Financial result -15 -16 -18 -18 -17 -17 -70 -97 -64 -54Income before taxes -63 -165 -171 378 180 76 463 210 273 81

Income taxes 16 38 29 -30 -55 -24 -79 -54 -39 -29Minority interests -1 -2 -15 -4 3 -2 -14 23 28 16Net income -48 -126 -126 351 122 51 398 133 206 36EPS basic (€) -1.04 -2.70 -2.72 7.56 2.63 1.09 8.56 2.87 4.44 -EPS diluted (€) -0.85 -2.43 -2.44 7.01 2.48 1.06 8.11 2.87 4.44 -

Quarterly results and FY results 2005-2009

* 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).

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Factors impacting EBITDA Q2 2009

Impact Amount (€m) Comments

Windfall losses* -40 to -60

Declining prices affected almost all productsEffect difficult to quantify due to strong dynamics and very limited purchases

Volume losses* -100 to -120 Impact of poor economic environment

Special expense effects* 40 to 50Mainly driven by price related releases of inventory devaluation reserves at quarter end

Acquisitions / divestitures -16 Mainly affected by divestiture of KVT and Canada

One-offs 1 Sale of property in France

Exchange rate effects -2

* Company estimates

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* Net debt / equity

€1,128m

min €500m

max 150%

Q21

Minimum Equity Covenants Maximum Gearing*

Existing

covenants

on Syndicated

Loan

and European ABS

Non performance related covenants leaves us with lots of headroom

Q21:

1 Pro-forma figures after rights issue

Equity ratio currently at 38% Gearing currently at -6.4%

€0 0%

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Selected balance sheet data

Years ended December 31 Six months ended June 30 (€m) 2006 2007 2008¹ 2008 H1 2009 H1 Non-current assets 579 735 812 794 775 Intangible assets 32 198 236 227 222 Property, plant, equipment 501 482 479 473 465 Current assets 1,972 2,231 2,272 2,826 1,983 Inventories 841 956 1,001 1,199 604 Trade receivables 933 930 799 1,236 591 Cash and cash equivalent² 130 154 297 124 616 Total assets 2,552 2,966 3,084 3,620 2,759 Non-current liabilities 744 1,152 1,177 1,377 1,108 Provision for pensions and similar obligations 193 188 180 183 183 Other provisions (including deferred tax liabilities) 126 142 124 142 259 Financial liabilities 416 813 813 1,043 626 Current liabilities 1,009 969 826 1,380 713 Other provisions (including deferred tax liabilities) 186 144 285 168 115 Financial liabilities 65 73 48 151 100 Other liabilities 89 92 82 102 74 Trade payables 639 610 392 858 417 Total liabilities 1,752 2,121 2,002 2,757 1,821 Equity (including minority interests) 799 845 1,081 863 938

¹ Comparative amounts for 2008 restated due to initial application of IFRIC 14² Cash and cash equivalents include cash, cash equivalents and marketable securities and, for the year ended December 31, 2008, EUR 3.1m in restricted cash and, for the six months ended June 30,

2009, EUR 0.7m in restricted cash. In 2007, EUR 3.5m of additional cash, and in the six months ended June 30, 2008, EUR 2.1m of additional cash as held in our Canadian subsidiary Namasco Limited (shown separately as assets held for sale). As of June 30, 2008, additional EUR 5.1m cash was held for sale in our Swiss subsidiary KVT

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Cash flow statement

Years ended December 31 (€m) 2006 2007 2008¹ H1 2008¹ H1 2009 Net income 235 156 384 178 -174 Income taxes (benefit) 38 54 79 79 -54 Financial result 64 97 70 34 31 Depreciation and amortization 57 64 67 31 34 Other non-cash expenses and income -0 -3 63 -1 -4 Gain on disposal of subsidiaries and other non-current assets -40 -40 -277 -3 -4 Operating cash flow 354 328 386 317 -170 Changes in provisions 9 -46 -1 36 -26 Changes in other assets and liabilities

Inventories -160 -71 -6 -224 404 Trade receivables -134 29 143 -297 213 Other assets -1 -18 -43 -73 39 Trade payables 99 -64 -224 247 22 Other liabilities 10 -1 25 38 -24

Income taxes paid -46 -49 -93 -41 10 Cash flow from operating activities 132 109 187 3 468 Proceeds from the sale of non-current assets and assets held for sale 102 38 12 8 6 Proceeds from the disposal of consolidated subsidiaries 0 0 376 0 0 Payments for intangible assets, property, plant and equipment -48 -61 -48 -22 -10 Acquisition of subsidiaries -44 -356 -264 -260 0 Margin deposits for derivative transactions 0 0 -3 0 2 Cash flow from investing activities 10 -378 72 -274 -2 Capital increase 98 62 0 0 26 Dividends 0 -37 -37 -37 0 Minority interest -6 -10 -2 -1 0 Borrowings 222 1,270 425 346 114 Repayment of financial liabilities -358 -913 -471 -50 -263 Interest paid -50 -82 -45 -19 -26 Interest received 4 4 7 3 4 Cash flow from financing activities -90 295 -123 242 -145 Changes in cash and cash equivalents 52 25 136 -29 321

¹ Comparative amounts for 2008 restated due to initial application of IFRIC 14

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Current shareholder structure

Source: Survey Thomson Financial (as of July 2009)

Identified institutional investors account for 64%

UK based investors dominate (Franklin remains Klöckner biggest investor with 8.91% of the total shares outstanding)

Top 10 shareholdings represent around 29%

Retail shareholders represent 28%

100% free float

CommentsGeographical breakdown of identified institutional investors

Germany27%

United Kingdom32%

US

16%

9%

Rest of Europe

4%Switzerland

France 11%1%

Rest of the World

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Our symbol

the earsattentive to customer needs

the eyeslooking forward to new developments

the nosesniffing out opportunities to improve performance

the ballsymbolic of our role to fetch and carry for our customers

the legsalways moving fast to keep up with the demands of the customers