Klöckner & Co- Global Steel Demand Surprises and China�s Challenge -

UBSGlobal Basic Material Conference

London, 6 June 2007

Gisbert Rühl

CFO

2

Agenda

1. Klöckner & Co: Overview, Market and Strategy

Appendix

2. China�s Challenge

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/MechanicalEngineering

Others:� Automotive� Metal products/

goods, installation� Durable goods� etc.

Overview

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

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 Products28%

Steel-long Products 31%Tubes 9%

Special &QualitySteel 10%

Aluminum8%

Other Products 14%

Construction40%

Machinery/Manufacturing 20%

Automotive5%

Other 35%

USA

CAD

USA

CAN

G 25 LocationsF 76 Locations CH 31 LocationsE 48 LocationsUK 24 LocationsIE 1 LocationNL 7 LocationsEastern Europe 4 LocationsCAN 5 LocationsUSA 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

Industry trends supporting Klöckner�s strategyMarket 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

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 centersSize in value: ~�70�90bnCompanies: ~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 + Primaryapprox. 1.4%

Other72.5%

Reliance Steel4.5%

Samuel, Son & Co.2.1%

ThyssenKrupp Materials NA

2.5%

Russel Metals1.8%

Worthington Steel1.3%

Metals USA1.4%

Carpenter Technology 0.9%

PNA Group 1.2%

McJunkin1.3%

O'Neal Steel1.8%

MacSteel1.4%

AM Castle 0.9%

Structure: 50-60% through distribution, service centersSize in value: ~�100bnCompanies: ~1,300 only independent distributors

North America (2006)

Other Mill-Tied Distributors ~15-25%

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 valuationsStrategy

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 employees04/2007: Stahlhandel Zweygart�11 million sales; 22 employees04/2007: Max Carl�15 million sales; 19 employees04/2007: Edelstahlservice�17 million sales; 49 employees04/2007: Primary Steel�360 million sales; 412 employees04/2007: Teuling�14 million sales; 16 employees01/2007: Tournier�35 million sales; 41 employees

9

Agenda

1. Overview, Market and Strategy

Appendix

2. China�s Challenge

10

Major changes of China's steel industryChina�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

China's steel industry - current structure and developmentsChina 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

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

Chinese government continues to monitor and adjust exportsThe 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 forHRC, 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

Target set for the Chinese steel industry remains unchangedThis 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 energySaving resourcesCurbing pollutionReducing excess capacities of semisReducing trade imbalances in general

China�s challenge

15

The export pattern will changeAfter 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

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

17

Agenda

1. Overview, Market and Strategy

Appendix

2. China�s Challenge

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

FY2005*

FY2006

Q12006

Q22006

Q32006

Q42006

Q12007

(�m)

Financials

19

Summary Income Statement Q1 2007Financials

� 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

2006Q1

2007(�m)

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

4771,299

2,841

-

838

1,244

435

756

841

2,84165

72

1,136

1,002

566

March 312007

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. 312006

(�m)

2,552Total equity and liabilities

365Net financial debt1,135Net Working Capital

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 activities271Inflow 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

7592Operating result before balance sheet changes

44-58Total Cash Flow-1548Cash flow from financing activities

--Dividends

-3-3Net interest payments

Q12006

Q12007

(�m)

22

Challenging financial targets throughout the cycle

Financials

Target ActualQ1 2007

Financial Targets

Underlying sales growth

Underlying EBITDA margin

Leverage (Net financial debt/EBITDA LTM)

Gearing (Net financial debt/Equity)

> 10% p.a

> 6%

< 3.0x

< 150%

17.1%

5.8%

1.1x

57%

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

Financial Calendar 2007 and Contact Details

Contact Details Investor Relations

Claudia Nickolaus, Head of IR

Phone: +49 (0) 203 307 2050Fax: +49 (0) 203 307 5025E-mail: claudia.nickolaus@kloeckner.deInternet: 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

25

Symbol

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 climateand 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