Bench Marking of Leading European Steel Companies

7/31/2019 Bench Marking of Leading European Steel Companies

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Research on Dufercos PeersIKC Final Deliverable14th July 2008


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ArcelorMittal


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3 2007 Hay Group. All Rights Reserved

ArcelorMittal Business Description

ArcelorMittal is the world's number one steel company, with 310,000 employees in more than 60 countries

The company is a leader in all major global markets, including automotive, construction, household appliances

and packaging. The Group leads in R&D and technology, holds sizeable captive supplies of raw materials andoperates extensive distribution networks

The company operates its business in the six operating segments: Flat Carbon Americas; Flat CarbonEurope; Long Carbon Americas and Europe; Asia, Africa and CIS; Stainless Steel; and ArcelorMittal SteelServices & Solutions

Its industrial presence in Europe, Asia, Africa and America gives the Group exposure to all the key steelmarkets, from emerging to mature

ArcelorMittal is also looking to develop positions in the high-growth Chinese and Indian markets.

The companys key financials for 2007 show revenues of US$ 105.2 billion, with a crude steel production of116 million tonnes, representing around 10% of world steel output

ArcelorMittal is currently listed under the legal entity Mittal Steel NV on the stock exchanges of New York,Amsterdam, Paris, Brussels, Luxembourg and on the Spanish stock exchanges of Barcelona, Bilbao, Madridand Valencia


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ArcelorMittal s Growth Strategy

ArcelorMittal follows a three-dimensional growth strategy. It look for opportunities to expand its business in the three key areas ofgeography, product and value chain. In line with this strategy, the company has been quite actively involved in M&A over the last fewyears. Some of the companys strategic transactions since 2007 include:

Key transactions related to geographical expansion Acquisition of Sicartsa, a long steel producer in Mexico (2.7mt)

Acquisition of minority interests of Arcelor Brasil (33%) and AM Poland (25%)

Acquisition of 28% of China Oriental (4mt) with strategic partnership

Acquisition of the 35% minorities of Acindar resulting in 99.5% ownership

Acquisition of minorities of Acesita (43%) resulting in 97.7% ownership

Acquisition in Costa Rica of Laminadora Costarricense (400kt) and Trefileria Colima

Transactions related to expansion of product categories Merger of laser-welded tailored blanks with Noble International

Acquisition of VPS and VCAC tubes activities from Vallourec, France

Acquisition of Rongcheng in steelcord wire

Acquisition of MT Majdalani in stainless steel distribution

Acquisition of Unicon, a pipe producer in Venezuela (550,000t)

Acquisition of Galvex, a galvanising line in Estonia (190,000t)

Transactions for improving presence at the various stages of value chain Acquisition of remainder of Wabush iron ore mine and pellet plant (3.5mt)

Acquisition of 12.6% of General Moly with off-take agreement in molybdenum

Acquisition of 51% of Rozak in Turkey (450,000t) and diverse European distributors (Italy, Poland, UK)

Completed acquisition of three coal mines and associated assets in Russia for total consideration of $718 mn

Acquisition of OFZ, a Slovak ferro-alloys manufacturer (150,000t)

Acquisition in Q2 of 16% of CoAL and off-take agreement of coking coal under development (5mt)

Acquisition and merger of diverse distributors (Sweden, Austria, Brazil)


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Other Significant Developments

Contracted a joint venture agreement with the Bin Jarallah Group for a seamless tube mill in Saudi Arabia. The mill has acapacity of 500,000 tons per year

Built a new Steel Service Centre in Karkow Poland. (450,000 tons per year)

The company was also granted concessions to develop mining, transportation and logistics activities by the Republic ofSenegal

Announced a 50/50 joint venture with Borusan, one of Turkeys leading steel producers

Started a 50/50 joint venture with Kalagadi Manganese, a South African manganese development company

Signed a partnership agreement with AREVA SA for a EUR 70 million investment aimed at increasing production at the

Industeel steel plant

launched a new steel rolling facility at its Kazakh plant and announced plans to invest $7 billion in the country by 2013. Thenew facility will produce up to 400,000 tons a year

Acquired Astralloy Steel Products Inc (Astralloy), a subsidiary of IMS International Metal Service

Signed an agreement to acquire the Mid Vol Coal Group, a Southwest Virginia based coking coal producer

Signed an agreement to acquire Bayou Steel, a producer of structural steel products with facilities in LaPlace, Louisiana, andHarriman, Tennessee, for $475 million

Signed an agreement to acquire Bakermet, a scrap metal recycler in Eastern Ontario, Canada

Announced plans to invest up to $10 billion in Indonesia. As part of its investment plans for Southeast Asia, ArcelorMittal hasproposed an iron ore and coal mining joint venture with local mining firm PT Aneka Tambang Tbk and a joint venture withstate-owned steelmaker PT Krakatau Steel to develop a new steel plant in Java


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ThyssenKrupp


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Thyssenkrupp AG Business Description

ThyssenKrupp AG is a technology company that operates through 5 business segments in over 70 countries

Its Steel business segment concentrates on the manufacturing of carbon flat steel products

The Stainless segment focuses on the production of stainless flat products, nickel-based alloys and titanium

The Elevator business segment manufactures elevators, escalators, moving walks, stair and platform lifts aswell as passenger boarding bridges

The Technologies business segment supplies systems, modules, specialized machinery and components

The Services business segment primarily offers process and supply services for the manufacturing andproduction industries

The company is based in Dusseldorf, Germany and has more than 190,000 employees

For its steel segment the companys strategy is focused on organic growth. As such, the company hasinvested a total of almost 7 billion in a new slab production plant in Brazil, a new production and distributionlocation in the USA, and the optimization of capacities at its integrated steel mill in Duisburg. In addition, theSteel segment is investing in cold-rolling and coating facilities, while Stainless Steel segment plans to build anelectric-furnace meltshop and its own cold-rolling capacities


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ThyssenKrupps Strategy

VALUE BASED MANAGEMENT

ThyssenKrupp is managed and controlled using a value-based management system. The companys objective is tosystematically and continuously increase the value of the enterprise - through profitable growth and a focus on businesses

which offer the best development opportunities in terms of competitiveness and performance

The key elements of ThyssenKrupps management system are : an integrated control concept, value-based performanceindicators, as well as measures to enhance efficiency and optimize capital employed

The integrated control concept guides and coordinates the activities of all segments, supports the decentralization ofresponsibilities and guarantees groupwide transparency. It aims to increase the value of the Group by bridging operational andstrategic gaps between the actual and target situation through the use of concrete measures

The central performance indicator for value-based management in the Group is ThyssenKrupp Value Added (TKVA). TKVAmeasures the value added in a period at all levels of the Group. It is the difference between ROCE and WACC, multiplied bycapital employed

According to the company, three levers can be used to increase TKVA: profitable growth, increases in operating efficiency,and optimization of capital employed. Value through profitable growth is created in particular by new investment projects,provided they generate returns higher than their cost of capital. A major contribution to increasing operating efficiency is made

by the ThyssenKrupp best value enhancement program. Capital employed as the third lever to increase TKVA can beoptimized by withdrawing from business activities in which the cost of capital cannot be earned. Alternatively, targetedprograms can be implemented to release capital, i.e. to reduce capital employed without reducing EBIT

The results of the analysis of the performance indicators feed directly into portfolio management at ThyssenKrupp. Thisinvolves structural measures with a primarily strategic character. Specifically it involves selecting and growing businesses withwhich the targeted TKVA improvements are to be realized, and withdrawing in a timely and profitable way from activities which

do not achieve adequate TKVA improvements


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PORTFOLIO Optimization

Since the merger of Thyssen and Krupp in 1999, the company has worked quite hard to optimize its business portfolio

As such, since the merger the group has sold companies with sales of 9.4 billion and acquired others with sales of 8.5billion, as shown below:


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Construction of New Plants

The Groups Steel segment is working hard to implement its transatlantic growth strategy. For example:

Construction of the new slab mill in Brazil is making good progress. When it starts production in 2009, the mill willsupply 5mn mt of low-cost slabs per year to ThyssenKrupp Steel's European and North American production sites

In Calvert, Alabama/USA, the company has started construction work on a new joint Steel/Stainless complex. Thelocation on the Tombigbee River provides very good logistical links for the supply of raw materials. The new plant willinclude hot rolling, cold rolling and coating facilities and will process slabs from the Brazilian mill into high-quality flatproducts. On completion in 2010, it will have a hot rolling capacity of over 5 million tons per year. In the future, theSteel segment plans to serve the NAFTA markets from this plant

The growth strategy of the Stainless segment also centers on expanding its presence on the NAFTA markets

Building Strong Technological Capabilities

The companys scientists and development engineers are concentrating on key technologies in order to secureThyssenKrupp's leading position in high-quality, high value-added products. Information technology in particular is nowa vital tool for the Groups scientists and technicians - not just in software and electronics but also in mechanicalengineering, process technology, metallurgy and materials science.

More than 3,300 scientists, engineers and other specialists in the companys development centers are currentlyworking on over 2,000 research and development projects, all of them geared to strengthening the groups corecapabilities in products and processes

Innovative product developments in the field of materials include a dual-phase steel with anticorrosion primer for carouter panels which offers high formability and strength, thereby contributing to weight reduction, and providesimproved corrosion protection due to an optimized coating


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Outokumpu Oyj


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Outokumpu OYJ Business Description

One of the worlds largest producers of stainless steel with production facilities located in Finland,Sweden, the UK and the US

Main production facilities are two efficient integrated stainless steel mills in Tornio in Finland and inAvesta in Sweden

The company produces a range of steel grades with different properties, by varying the levels ofchromium, nickel, molybdenum and other elements, such as titanium and niobium, which are added tostainless steel

Recycled stainless and carbon steel as well as ferrochrome and nickel are the main raw materials usedin producing stainless steel. Outokumpu operates its own chromite mine at Kemi and a ferrochromesmelter at Tornio, both in Finland. Recycled stainless and carbon steel as well as nickel and some of theferrochrome are purchased on the open market

Steel product portfolio includes cold rolled products, white hot strip, quarto plate, tubular products, longproducts, & semi-finished products

The company has a 16% share of the stainless steel coil market in Europe and a 6% share worldwide

Main markets are Europe (73% of sales in 2007), Asia (12%) and North and South America (12%). Assuch, the company operates through sales representatives and companies in approximately 30 countriesaround the world

Outokumpu is a public company listed on Helsinki Stock Exchange


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Outokumpus Strategy

Outokumpus vision is to be the undisputed number one in stainless, with success based on operational excellence. The pathto achieving this vision has two main phases:

Ensuring the number one position in Europe with building and strengthening operational excellence

Achieving global leadership in stainless by multiplying operational excellence

Progress towards the leading position through operational excellence:

The company already holds a strong position in the stainless steel industry. In Tornio in Finland, Outokumpu has theworlds most cost-efficient and most integrated production site ensuring the cost leadership in standard grades

Furthermore, Outokumpus long history and comprehensive knowledge as well as well-tailored production facilities in

Sweden, gives the Group a leading position in specialized stainless steel products In accordance with the plan, the emphasis has been so far on internal improvements and strengthening financial

performance, as well as on improving the quality of the current asset base

Currently, both the Production Excellence and Commercial Excellence programs at the company are proceeding at fullspeed. In addition, the EUR 100 million Group-wide fixed-cost reduction program successfully completed in 2006delivered its full benefits in 2007

Closure of the cold rolling facility in Sheffield, completed in 2006, delivered an additional EUR 50 million annual fixedcost savings

The sale of shares and listing of Outokumpu Technology (Outotec Oyj) in 2006 and the subsequent sale of theremaining minority share in Outotec last year practically completed the targeted restructuring of the Group

Outokumpu is today a pure-play stainless steel company with a strong balance sheet and is well positioned toaccelerate its profitable growth


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Outokumpus Strategy

New phase in the strategy development with major investment decisions

In 2007, Outokumpu launched the next phase in the Groups strategy development towards being the undisputednumber one in stainless

In this phase, the focus is on developing and securing a more stable and profitable business model to balance theeffects of volatility in the market for stainless steel standard products. Growth prospects related to both the size andgeographical coverage of the Group will also be addressed

The new phase in strategy entails increasing the proportion of direct end-user and project sales from its current level of35% to at least 50% over the next five years. It also includes expansion of capacity in value-added special productsfrom one third to a half, while maintaining cost leadership in standard grade volume production

The capital expenditure decisions made up to date for the next five years represent so far a total investment of EUR1.3 billion

The excellence programs are expanded to include supply chain management and procurement, increasing thetargeted benefits.

Increasing Outokumpus capacity in value-added special products will include a broadening of the range of gradesmanufactured and an increase in the production of low-nickel duplex grades

Growth targets also include a scaling up of production capacity in ferritic grades to help reduce the earnings cyclicalitydriven by volatile nickel prices.

As a major step in increasing the Groups capacity in value-added special products, Outokumpu has decided to investEUR 550 million, to expand capacity in special grades at the Avesta Works in Sweden. This investment will increasefinished products capacity at Avesta from its current 250 000 tons to some 650 000 tons in mainly duplex grades, withthe additional capacity operational from 2010


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Outokumpus Strategy

An investment decision was also made to expand Outokumpus capacity in hot rolled plate (quarto plate) at Degerfors,Sweden by 80 000 tons and at New Castle (IN), the US by 20 000 tons

Following these EUR 220 million investments, total quarto plate production capacity will increase from its current level

of 160 000 tons to 260 000 tons in 2010

The transformation towards increased end-user and project sales requires investment in the Groups servicecapabilities. To this end, Outokumpus service center network is being upgraded and expanded by 350 000 tons overthree years. In total, investments of EUR 230 million to service centers in China, Finland, France, Germany, India,Italy, Poland and Sweden have been decided

To expand the Groups geographical coverage, in addition to the above mentioned service centers, Outokumpu is

currently conducting a feasibility study on the building of a 250 000-ton stainless steel cold rolling mill in India Due to the good profitability and tight capital expenditure in the past three years, Outokumpus balance sheet is now

very strong and can tolerate these fairly sizeable strategic investments. In addition to the organic growth investments,the Group is continuously mapping a variety of structural growth alternatives for accelerating global expansion


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Outokumpu Other Significant Developments

Signed a deal with Vattenfall about electricity deliveries amounting to approximately 15 terawatt hours (TWh) during a 10 yearperiod in Finland and Sweden

Signed an agreement to acquire the operations of Avesta Klippcenter AB in Avesta, Sweden, from its owners. Avesta

Klippcenter's main business, among others, is to process stainless steel material from Outokumpu's mills in Sweden for re-melting in Avesta's melt shop

Announced plans to expand the Group's ferrochrome production capacity in Tornio, Finland. The EUR 420 million investmentwill double the plant's annual capacity to 530 000 tons. The investment project starts immediately and the new capacity isscheduled to be available during the first quarter of 2011

Signed an agreement to will acquire the SoGePar Group, an Italian distributor of stainless steel

Outokumpu and E.ON AG's joint venture, Fennovoima, has decided to buy over 200 hectares of land in Simo, NorthernFinland, for a potential nuclear plant site

Outokumpu Oyj and Al-Hajailan Group-Armetal, a Saudi Arabian manufacturer of architectural stainless steel, signed anagreement to form a stainless steel tubular joint venture. The joint venture company is expected to be set up in Riyadh and willbe named Outokumpu Armetal Stainless Pipe Co., Ltd

Announced plans to expand its stock and processing capability in France. The project entails relocation of current coil servicecenter from Azay sur Cher in France. Cutting equipment is expected to be installed to enable the processing of stainless steelplate and combined coil and plate processing capacity of standard and special stainless steel grades are estimated be 40,000tons per year, and it is expected to be in place by the end of 2009

Decided to invest EUR 550 million in stainless steel special grades capacity in its Avesta Works in Sweden. The investmentin Avesta includes a new AOD converter and a new slab grinding line


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Voestalpine


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Voestalpine AG Business Description

Voestalpine AG is an Austria-based producer and distributor of steel and steel products

It operates worldwide through five business divisions

The Steel division produces and processes flat steel products for the automotive, household appliance andconstruction industries

The Railway systems division produces rails and switches, wire rod and drawn wire, seamless tubes and semi-finished steel products

The Automotive division specializes in the processing of steel as well as combining steel with other materials toform parts and components for automotive bodies and safety technology

The Profilform division produces tailored tubes and sections as well as storage technology products and logisticssolutions

In 2007, as a result of acquisition of BOEHLER-UDDEHOLM AG, the Company formed the Special Steel divisionthat provides tool steel, bimetallic strips, cutting and creasing rules, rule die steel, blades for gas and steam turbines,as well as high-speed steel and welding materials

With over 41,000 employees, the company has production and sales locations in more than 60 countriesOver 40% of the Group's turnover is accounted for by the automobile industry as well as the railway and theaerospace industry. Furthermore, Voestalpine is one of the leading partners of the construction, civil and mechanicalengineering, energy, household appliance, transportation and storage sectors

With over 80% of all sales, Europe is the companys largest export market


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Voestalpines Strategy

Rigorous Pursuit of Specialization Strategy

In 2001, Voestalpine group adopted a continuing rigorous pursuit of specialization strategy. Key elements of this strategyinclude:

Concentration on niche steel products meeting the highest quality standards while being a leader in customer service

Becoming one of the top 3 suppliers in all core segments

Achieving leadership in terms of technology and innovation in these areas

Continuous extension along the value-added chain

In line with this strategy, the company has made several acquisitions over the past few years. Some of the companys keyacquisitions in since 2007 include:

Acquisition of BHLERUDDEHOLM Group and its integration as the Special Steel Division of the company. Theacquisition also significantly strengthened the Voestalpines international presence, since BHLERUDDEHOLMsmore than 100,000 customers worldwide give it an excellent global presence

The companys Profilform Division entered the South American market by acquiring a majority interest in the Braziliancompany Meincol Distribuidora de Aos S.A., which specializes in the manufacturing of high quality tube and profileproducts

Acquired the North American company Sharon Custom Metal Forming, adding a third location and annual revenues ofEUR 15 million to Voestalpines US activities in the segment of customized special profiles


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Divestment of Non-core Businesses

In FY 2007/08, all the companys significant divestments were related to the Automotive Division and were performed as partof a consistent portfolio adjustment of the Groups automotive supply activities

The key objective is to optimize the product portfolio by eliminating business areas that either do not appear strategicallyreasonable because of too great distance to the core activities of the Group, or are unable to sustainably meet the divisionalprofit targets

This included North American pressing activities, the divisions plastics segment and smaller pressing and pipe processinglocations

Input Procurement Strategy

With respect to the supply situation in the Voestalpine Group, the supply of raw materials continues to appear secure for alllocations in terms of quantity needed at all points in the future

This is due to the procurement strategy that the Group has followed for many years, which significantly minimizes potentialsupply risks

Long-term supply agreements, continuous expansion of the supplier portfolio, and accelerated expansion of internal Groupsupply of both raw materials and, in particular, electrical energy form the core elements of this strategy

The Group expects to reap further benefits in terms of the price sensitivity of raw materials from its comparatively broadsupplier portfolio in the future


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Strong Emphasis on R&D/Innovation

One of the worlds most innovative companies

Over 540 employees in research and development

Annual research expenditure approaching 100 million

60-plus national and international cooperation projects with universities and research establishments


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SSAB


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SSAB Svenskt Stal AB Business Description

SSAB Svenskt Stal AB is a Sweden-based company active within the steel industry

The Company is engaged in the production and sale of high-strength steel sheet and steel plate

It is the parent company within the SSAB Group

The Company operates through three divisions and two principal subsidiaries

The Strip Products division manufactures steel sheet and high-strength steel grades through SSAB Tunnplat AB

The Plate division produces heavy steel plate, as well as quenched and tempered steel, through SSAB Oxelosund AB

The North American division is primarily engaged in the supplies of steel in North America Plannja AB is a subsidiary that handles processing and supplies sheet steel building products

The subsidiary Tibnor AB is the trading company of the group

The Company is also operational through foreign sales companies

2007, SSAB's turnover was approximately EUR 4.3bn

The company is listed on the Stockholm Stock Exchange on the list of the most heavily traded shares and by end- 2007, andmarket was approximately SEK 56bn

In 2008, SSAB completed the sale of its IPSCO Tubular operations division to Evraz group. IPSCO Tubulars was acquired aspart of SSAB's acquisition of IPSCO in 2007. SSAB still retains the majority of IPSCO's steel production capacity and also thefull synergy potential declared at the time of the acquisition of IPSCO


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SSABs Strategy

SSAB has adopted a three-year plan of action, SSAB 2010, the objective of which is to increase the Group's profitability andgrowth

The plan covers three main areas:

Accelerated growth in the companys niches

increased profitability at current plants, and

Strengthening and increasing the efficiency of the organization

The company believes that its steel operations have developed successfully due to a deliberate niche orientation. SSAB aimsto maintain the strategic orientation with a strong focus on several selected product segments in which it believes a strongmarket position and high profitability can be achieved. For instance:

In the plate area, investments are being made within quenched steels, i.e. abrasion-resistant steels and extremelyhigh-strength construction steels, in which the Group is already a world leader

Investments within the strip products area are taking place within advanced high-strength steels, in which SSAB is one

of the leading companies in Europe

According to SSABs management, growth of the companys niche products has been higher than for the steel market ingeneral and deliveries of these products have increased substantially over the past five years. Hence, the company believesthat the investments that have been, and are being, made within SSABs steel operations make possible continued stronggrowth within these niche areas. As such, growth is anticipated primarily in North America, South America and Asia, and will beachieved through organic investments as well as acquisition-based investments


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SSABs Strategy

In order to improve the profitability of plants, the company is looking to embark on several measures:

Supervision and implementation of an overall Group program for systematic productivity work

Reduction of fixed costs

Reduction of tied-up capital

Exploitation of economies of scale within purchasing

To improve organizational efficiency, some of SSABs plans include:

Implementing measures aimed at better exploiting the synergies that exist between SSABs different units

At the same time, intensive investments are taking place to strengthen the organization within several key areas

Furthermore systematic work is taking place, within the Groups global manager supply process, to ensure that thecompany has the management that is required. Identification, appointment, development and evaluation take placebased on six main criteria which have been established by the Group Executive Committee. This process also

constitutes the basis for the planning work that has commenced to handle a generational shift at the Company


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Operational and Financial Benchmarking ofEuropean Steel Companies


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European Steel Companies Operational

and Financial Benchmarking for FY 2007

7.0%

20.0%

3.4

1.0

1.0

192,287

252,615 (265,050)

NA

882

41,490 (25,282)

7600*

12,602

718

11% (10.3%)

1,153 (690.2)7,978

10,481 (6,701)

Voestalpine AG***

7.8%10.2%5.6%8.4%4.7%Return on Assets

20.1%19.6%22.3%21%NAReturn on Equity

2.83.64.72.3NAInventory Turnover

0.71.11.40.9NAAsset Turnover

2.02.51.41.4NACurrent Ratio

316,402753,206215,960201,659NACost/Employee

427,872852,614.7264,125 (333,906)247,247881,059Revenue/Employee

4174,303NA572NACost/ton (EUR)

5654,8719377011,210Revenue/ton (EUR)

10,2188,108195,828 (39,559)311,0008,500Employees

7,741*1,41914,100109,7256,189*Steel Shipments (000 Mt)

9,5995,91038,07491,4114,373Total Assets

4936412,1027,577206Net Income

19.6%8.5%7% (11.8%)14%5.7%EBIT Margin

8575893,681 (1,662)10,838424EBIT3,2336,10742,29162,716NACost of sales

4,3726,91351,723 (13,209)76,8947,489Sales (EUR mn)

Outokumpu SSABThyssenKrupp**ArcelorMittalDuferco

1) Steel Production Figures; 2)Data in orange pertains to the companys steel division; 3) Data in brown pertains to the companys

steel division

Documents

Bench Marking of Leading European Steel Companies