Multi Metal Distribution The journal of the Klöckner & Co Group 2009 At a glance: Our product portfolio Interview: Synergies through Group-wide processes Service special: Processing for every need Behind the scenes: From the order to the delivery
On track, thanks to As a producer-independent distributor, we have broad procurement leeway extending around the world.
Editorial Dear Readers, flexibility Steel and metal distribution at companies like Klöckner & Co is just as interesting as it is challenging. Klöckner & Co SE also offers numerous services to complement its global sourcing of more than 200,000 steel and metal products and their regional distribution through 260 warehouse locations in Europe and North America. These services include logistics concepts tailored specifically to meet customer needs, the completion of individual processing steps and the assumption of the complete initial manufacturing stage. For companies like ours, countless opportunities and chances are created, particularly in the area of transnational steel and metal distribution. With this journal, we would like to give you some deeper insights into the world of Klöckner & Co, and introduce you to our business model and our work. I hope you enjoy this edition. Dr. Thomas Ludwig Chairman of the Management Board of Klöckner & Co SE 3 The Annual Report 2008 You will find the latest figures, interesting facts and comprehensive information about the Klöckner & Co Group in the Annual Report 2008. Order it now at: telephone: +49 203 307-2123 fax: +49 203 307-5025 e-mail: ir@kloeckner.de
When you say steel, you mean Klöckner & Co A product line that meets all needs. At 260 locations in Europe and North America, Klöckner & Co offers around 200,000 steel and metal products to more than 185,000 customers. Annual sales volume totals 6 million tons. The most important members of this product range include long steel, flat steel, pipes, quality and stainless steel as well as aluminum. We primarily supply small and mid-sized companies located in the regions near our locations with an average order volume of less than A 2,000. International companies also regularly use our products and services (for more information, see the article Washing, cutting, laying on page 10). 4 The two most important industrial branches for Klöckner & Co are the construction industry as well as mechanical engineering and plant construction. Other customers are involved in branches such as automotive, household appliances, shipbuilding and energy provision, etc. The construction industry is broken down into the main segments of structural construction as well as civil engineering and underground structures. Structural construction primarily employs long products, including beams, hollow steel sections and steel bars. These products are used to erect load-bearing structures, such as roofs, the stories of buildings, walls and bridges. The extent of the delivery is based on the size of the customer. It can range from a single steel beam to pre-manu-
factured items for a major construction site. In the area of civil engineering and underground structures, reinforcing products are used in addition to the products already mentioned. In some countries, products are also provided to special segments of the construction industry including heating, ventilation, air conditioning, plumbing, roof and wall erection as well as water supply. The product line is particularly extensive, encompassing tens of thousands of items. in the form of round material, are the focal point of the product line. Our customers also need flat and long stainless steel products, flat and heavy plates, aluminum and pipes. The product range of Klöckner & Co is also especially broad in mechanical engineering and plant construction. Quality and stainless steels, usually Round material is used in such areas as the production of shafts and gears. Flat products are primarily utilized in casing parts and coverings. Heavy plates are used to make special-purpose vehicles and cranes. Long products are employed in beam structures. Because different products are demanded in the various countries and regions where we do business, we have adapted our offerings to meet the particular customer structure. In taking this approach, we ensure that we have exactly the right products in the warehouse to meet local needs. 5
Tomorrow s profits lie in International Product Management Synergies from Group-wide processes. On January 1, 2009, Klöckner & Co SE created the new section for International Product Management and placed it under the umbrella of the holding company. The idea to introduce International Product Management at the company arose from the performance program STAR. Ulrich Becker, the Management Board member who is responsible for the segment Europe and purchasing, is overseeing the introduction of this change. Oliver Bosse, the former CEO of the Spanish country operation, is leading the new section. International Product Management (IPM) will be primarily responsible for Group-wide product and purchasing strategies. The IPM section is broken down into five core areas: 3. Sales-volume and product strategy 4. Warehousing and logistics strategy 5. Import management The top priority at the moment is developing the global purchasing and supplier strategy. To carry out this work, special teams of purchasing specialists from a variety of subsidiaries were formed on the cross-national level. These specialists are reviewing a number of suppliers on the product level according to defined criteria. Their job is to classify suppliers and decide with whom Klöckner & Co will work in the future and to what extent. The aim is to reduce the number of core suppliers in order to bundle purchasing quantities and, by doing so, to optimize price and payment conditions. 1. Purchasing and supplier strategy 2. Inventory management Interview Ulrich Becker, Member of the Management Board at Klöckner & Co SE What are the responsibilities of the newly created International Product Section? The primary responsibility will be to develop crossnational product and sourcing strategies. The new aspect is that this is happening on the Group level As a result of the current market situation, our current point is global purchasing and supplier management. 6 for the first time. Up to now, the individual country operations have been responsible for working out their own strategies.
As a result of the current market situation, our current point is global purchasing and supplier management. By bundling purchasing quantities here, synergies can be generated in the fastest possible way. At the same time, international inventory management is being set up. Subsequently, a European logistics concept will be prepared, and, finally, a Group-wide product strategy will be implemented. Are there any other benefits? Certainly. Just consider the increased transparency through various levels: An improved overview of supplier conditions and faster recognition of undesirable developments in inventories. In particu- Ulrich Becker is a member of the Management Board of Klöckner & Co SE with operational responsibility for the segment of Europe and functional responsibility for purchasing, logistics and process management. Before joining Klöckner, he worked for a number of companies, including Krupp Stahl AG, Mannesmann Handel AG, Benteler Handel GmbH and Benteler Automobiltechnik GmbH. lar, inventory reporting will make a decisive contribution to the systematic refinement of our products and logistics strategies. Why is International Product Management so important for the Group? We need concepts that have a Group-wide impact. The operational areas of purchasing, inventory management, product development, logistics and import management have tremendous potential that must be exploited. As a result of international purchasing management, for instance, our purchasing power will be bundled. And thanks to international inventory management and an intelligent logistics concept, we can optimize our inventories and use them more efficiently and we can do so across national borders. When will the integration phase be completed? International Product Management is scheduled to be implemented across Europe by the end of 2010. The work is a little more difficult in the US. As a result of the geographic distance and fundamentally different structures in comparison with Europe, we will be unable to completely integrate the United States into our process procedures. One exception is supplier management. In this area, the United States is scheduled to be gradually integrated into the overall concept. Initially, though, we will concentrate completely on the European region because we can take advantage of synergy effects more rapidly here. 7
With the help of International Product Management, we will be able to implement strategies throughout the Group more rapidly. What impact will International Product Management have on the future strategy of the Group? With the help of International Product Management, we will be able to implement strategies throughout the Group more rapidly. For this reason, IPM will be systematically integrated into future decisions, including those to determine which acquisitions would make sense for Klöckner & Co and which would not. In the future, we will have to pay closer attention to the question of whether our acquisitions will have a positive effect on the entire Group and not just on individual country operations. As a result, International Product Management has overarching importance. Interview Oliver Bosse, Head of International Product Management decisions about our future core suppliers have already been made, and most of the negotiations have been successfully completed. The next step is to actively introduce the system into each country operation and, accordingly, to set up international inventory management. Up to a certain point, though, we are dependent on SAP implementation here because all of our country operations are not yet connected to SAP. The implementation is scheduled to be completed by mid-2010. You became Head of International Product Management at the beginning of the year. What are you planning to do in the next few months? A top priority is the rapid implementation of the international purchasing and supplier strategy. The The team of International Product Management is to be completed by the end of the first quarter in 2009. Klöckner Global Sourcing (KGS) which will be part of IPM in the future is another important part of the strategy and will focus on expanding third-country imports and international projects. 8
What impact will the introduction of International Product Management have on work procedures? Decision-making processes will change. In the past, decisions about supplier selection, inventories, product strategy or logistics were made on the country level. Beginning right now, cross-national teams made up of procurers, sales specialists and logistics experts are responsible for individual product groups. These teams are led by the European product managers. International Product Management makes its decisions on the basis of the information collected by the teams. Purchasing itself remains a country issue. How will the new purchasing strategy change the relationship with suppliers? Which criteria will be used to make the selections? We are striving to use a one-face-to-the-supplier concept. Our suppliers will work with only one contact person from International Product Management. By reducing the number of suppliers, we will strengthen our position as buyers and achieve better conditions as a result. Suppliers, at least our core suppliers, will benefit from the fact that we will purchase large quantities from them. Aside from price and payment conditions, service quality and reliability will remain the most important selection criteria. We do not plan to make any compromises here in the future. What impact will the introduction of International Product Management have on the Group and its structure? In the future, the focal point will be centered more on the individual product groups and less on the individual country organization. To ensure that By reducing the number of suppliers, we will strengthen our position as buyers and achieve better conditions as a result. International Product Management works successfully, we need to have a smooth flow of communications. Both communications between the individual countries and communications with the holding company will gain particular significance. Our aim is to make the Group more international. In these terms, I think we are definitely on the right path. Oliver Bosse Oliver Bosse is Head of International Product Management. He has held various positions at Klöckner & Co since 1994 including the position of CFO at the Dutch country operation in Rotterdam. Most recently, he served as CEO of the Spanish country operation in Madrid for five years. 9
The range of services offered by Klöckner & Co includes not only warehousing and delivery of multi metal products, but also professional prefabrication. As the specialist for complete solutions, we process the material exactly to the customer s specifications before it is delivered. In other words: We take over a complete manufacturing step for the customer and he can focus completely on his own work. Our customers can also set up far-reaching partnerships with us. In such a relationship, we act as an integrated value-creation partner who is responsible for the prefabrication and finishing processes of the first and second manufacturing steps. This work employs heavy-duty production equipment like CNC lathe and milling machines, automatic saws and flame-cutting units. Washing, cutting, laying. Material just the way the customer needs it. At our 260 locations, we offer all sorts of processing and services designed to meet the exact needs of local customers. The most important services are: Cutting to length Sawing Flame cutting Bending Lathing Decoiling Slitting Shot-blasting Coating 10
The close relationship between Klöckner & Co and the shipbuilder Meyer Werft in Papenburg exemplifies such a partnership. The responsible branch operates a so-called consignment warehouse containing ship sheets that is located right next to the shipyard. This markedly accelerates handling speed while reducing inventories and capital lockup. For its exceptional work, the branch was selected Partner of the Year 2008 and presented with the innovation award by Meyer Werft. International customers that have production sites in various countries can rely on a very special service. We assign an individual customer-service assistant to these companies. With the help of these assistants, the customers can order all products and services offered by Klöckner & Co to be sent to each of their individual factories. The services we provide in supply-chain management include: Customer-driven procurement of raw materials Warehousing and stockpiling Thanks to our far-reaching network of locations, we can supply a single customer s various factories just in time. We can also manage consignment warehouses. Using country-specific as-is analyses, we determine a customer s need for such a warehouse in a process that examines material consumption, work procedures and logistics. We then conduct a business-process analysis that reveals ways to raise efficiency and lower costs. A national supply concept is compiled on the basis of these results. Processing, order picking and labeling Delivery to the factories Disposal and recycling concepts 11
Here today, there tomorrow. 24 hours from the order to the delivery. One of the greatest strengths of Klöckner & Co is its just-in-time delivery. As a producer-independent multi metal distributor, we ensure that our customers receive steel and other metals in exactly the right form and at exactly the right time. The following example shows how a typical order is handled at Klöckner & Co. Start 08:00 a.m. The telephone rings. Mr. Müller, a procurement employee at a mechanical engineering company in the region, calls his customer-service assistant to place an order for 15 steel tubes that he wants to have delivered on the following morning to his facility located 80 kilometers away. 12 At Klöckner & Co, long-term customer relationships are the rule. Both our customers and our employees place great value on personal contact and a cooperative working relationship. Our customers branches and our own warehouse sites are usually located in the same region.
08:15 a.m. Mr. Müller places the order. Ten long, seamless steel pipes measuring 60.3 x 5.0 mm, conforming to EN 10220, in pre-sawn, fixed stock lengths of 5,500 mm and five lengths of welded square tubes measuring 40.0 x 2.0 mm, conforming to EN 10310-5, in fixed stock lengths of about 6,000 mm, direct delivery to the site at 8 a.m. on the following day. 08:16 a.m. The customer-service employee enters the order into the system. The individual branches are connected with one another by an SAP platform. Two processes are automatically put into motion: 1. A requisition form is sent to the warehouse. The requisition order contains all information needed to process the order: Material, amount, dimensions, processing, packaging. 2. A scheduling form is sent to the dispatcher. The scheduling form contains the name, address, delivery time and delivery size. 08:01 a.m. Mr. Müller receives assistance. The customer-service employee can inform him right away about the number and dimensions of tubes in the warehouse. Mr. Müller is also told about prefabrication and stock lengths. The customer-service employee can see at once in the system where the ordered product is stored, in what amount and in which dimensions. Our customer-service employees are organized by product group. Each of them is considered to be a proven specialist in his or her area of responsibility. As a result, we assure that our customers receive professional assistance every time they place an order. 13
08:45 a.m. The tubes are picked. They are arranged in the correct number, processed to the correct length and then prepared for transport. 14 In modern, computer-managed high-bay warehouses, the material is automatically removed from the corresponding bay and processed if necessary. The entire process lasts several hours depending on the size of the delivery and the type of processing. 08:46 a.m. The order is scheduled. Subsequently, the dispatcher schedules the routes for the next day based on weight, extent and route. 10:00 p.m. The trucks are loaded on the basis of the delivery lists. 06:00 a.m. The trucks pull out of the warehouse. Our branches are distributed in such a way that every warehouse in Europe has a delivery radius of only 150 kilometers. In North America, the radius is 250 kilometers. 08:00 a.m. Mr. Müller receives his 15 steel tubes right on time. Goal
Klöckner & Co Group Key Figures Income Statement 2008 2007 2006 Sales A million 6,750 6,274 5,532 Earnings before interest, taxes, depreciation and amortization (EBITDA) A million 600 371 395 Earnings before interest and taxes (EBIT) A million 533 307 337 Earnings before taxes (EBT) A million 463 210 273 Earnings after taxes (EAT) A million 384 156 235 Earnings per share (basic) A 8.56 2.87 4.44 Earnings per share (diluted) A 8.11 2.87 4.44 Cash Flow Statement 2008 2007 2006 Cash flow from operating activities A million 187 109 132 Cash flow from investing activities A million 72 378 10 Balance Sheet Dec. 31, Dec. 31, Dec. 31, 2008 2008 2008 Working capital*) A million 1,407 1,323**) 1,135 Net cash indebtedness A million 571 746 365 Equity A million 1,074 845 799 Balance sheet total A million 3,075 2,966 2,552 Key Figures 2008 2007 2006 Sales volume to 000 5,974 6,478 6,127 Employees at end of period (Dec. 31) 10,282 10,581 9,688 *) Working capital = inventories plus trade receivables less trade payables **) 2007: including Namasco Ltd. and KVT AG Imprint Publisher: Klöckner & Co SE Am Silberpalais 1 D-47057 Duisburg Telephone +49 203 307-0 Fax +49 203 307-5000 Editorial Office: Corporate Communications/Investor Relations E-mail info@kloeckner.de Design: EGGERT GROUP GmbH & Co. KG Benrather Straße 18 20 D-40213 Düsseldorf Print: Druckstudio GmbH Professor-Oehler-Straße 10 D-40589 Düsseldorf 15
Klöckner & Co SE Am Silberpalais 1 D-47057 Duisburg Telephone +49 203 307-0 Fax +49 203 307-5000 info@kloeckner.de www.kloeckner.de