73923080 DS Strategic Position and Business Planning 1

P.44260.001.01.72 1

Support in business planning and company valuation Strategic position and business projections

Final presentation

Catania, April 24, 2007

P.44260.001.01.72 2

Roland Berger has supported Sider Sipe in building of a business plan as well as valuating the viability of the planned activities

Executive summary• Sider Sipe SpA as one of the shareholders of Ductil Steel S.A. intends to acquire the remaining

50% of the Ductil Steel shares and hence approached Roland Berger Strategy Consultants to assist in the preparation of a business plan and valuating the entire company

• The business plan projections are build upon expected production and sales volumes of the planned product portfolio taking into account the projected cost structure

• More than 900 kt of liquid steel will be transformed into 872 kt of finished products with a total of 1,238 employees in 2012

• In order to achieve the planned figures an investment package of more than EUR 100m is envisaged until 2012, with the largest investments in 2007 and 2008 for the meltshop (almost EUR 50 m) and rolling mill revamp in Otelu Rosu as well as highly efficient welding and fencing machines in Buzau

• The market analyses in the defined target region on production and consumption of long products revealed available overcapacities for selected products. Apparent overcapacities result often from a statistical availability of production assets which are obsolete and able to commence production solely under substantial investments (almost unrealistic)

P.44260.001.01.72 3

Revenues and cost factors have been challenged in order to depict expectable levels in the future

Executive summary

• Prices of finished products and scrap in the period under scrutiny have been set at the average level effectively realized in 2006 and the future profit margins have thus been calculated. Due tothe strong affinity of both prices this calculation method leads to reliable profit statements

• The cost of energy (electricity and gas) has been modeled at a continuously increasing level by 5% on y/y basis starting from an effectively achieved price level in 2006

• All other important cost factors (ferroalloys, electrodes, water etc.) have been calculated on the basis of benchmark data, expert interviews or information provided by the supplier of technology in his technical documentation

• With predicted sales revenues growing from EUR 198 m in 2007 to EUR 450 m in 2012 the business model shows a positive EBITDA development over the entire period; net profits exceeding EUR 25m in the third year of the projection period, namely in 2009

• Positive and increasing cash flow from operating activities is a good basis for investment success

• For the entire projection period the return on equity (ROE) is estimated to approximate 20%

P.44260.001.01.72 4

A. Project scope and timing

P.44260.001.01.72 5

Roland Berger supported Sider Sipe in analyzing the markets, verifying the business plan and evaluating the 2 operations

Project phases – 4 weeks period

Analysis of the markets and volumes

Production technology and quality

• Analysis of requirements for technological equipment

• Review of specifications provided by potential supplier of key equipment

• Summary of investment volumes for the specified equipment

• Quality specifications of final products for the outlined machinery

Production site aspects

• Analysis of scrap supplies and exploring of different options

• Evaluation of scrap options according to risk (supply stability) and return (costs)

• Evaluation of available arrangements for energy supplies

• Evaluation of logistic concepts and transportation related to end price for final products

• Review of market potential for planned long products portfolio

• Analysis of long products production (status and trends)

• Overview on long products consumption (with a special focus on rebar, wire rod, profiles and welded mesh)

• Identification of price development and key specifications for trading of long products

• Possible risks in the business with long products

A B C

Business plan and company valuationSynthesis of sales volumes/prices, investments, operating and fixed costsEvaluating the operations in Buzau (and Otelu Rosu)

D

P.44260.001.01.72 6

Beside data provided by Ductil Steel we used public and market information and conducted a range of interviews

Documents

• Business Plan 2007-2012

• 2006 Income Statement• 2006 Balance Sheet• Sales plan• Profitability data by product

groups• Production plans and

material flows at Buzau• Organization structures of

Otelu Rosu and Buzau

Documents from Ductil Steel

• Uniromsider• The Ministry of Economy and

Commerce (ROM)• National Statistical offices• IISI, World steel dynamics

and other steel associations• National Steel Producers

Associations• Press articles and other

publications• Market information• United Nations Commodity

Trade Statistics Database

Public and other sources

Interviews

Steel Traders• Voestalpine Intertrading, Stemcor,

Konstam Metal, Kaproni, Rustrans, GI Motor, Ferona

Steel producers• Mechel, Laminorul, Laminate, Otelinox,

Dan Steel, Metalicplas, Trefo, Procema(ROM)

• Trinecke zelezarny, Mittal Steel Ostrava (CZ),

• Kremikovtsi, Promet (BUL)• Cebitas, Cemtas, Ege Celik, Icdas,

Isdemil, Kaptan DC, Kardemir (TUR)Scrap suppliers• Romrecycling, Rec Prod Imp Exp (ROM)

Private subjects along the steelproduction value chain

Analysis approach

P.44260.001.01.72 7

B. Strategic positioning of Ductil Steel

P.44260.001.01.72 8

More than 800 employees in Ductil Steel in Buzau with almost 85% of them in the production business unit

Organization structure of Ductil Steel in Buzau [03/2007]

Board and general director

HR

13

Economic dpt.

19

Sales dpt.

75

Quality dpt.

33

Procurement and warehouse 12

IT

4

Internal audit, environment, work protection 4

Production dpt.

669

Blue collars:Foreman:AdminTotal:

7033393

829

Source: Ductil Steel

P.44260.001.01.72 9

Out of 327 employees at Otelu Rosu the maintenance units contain 120 persons

Organization structure of Ductil Steel in Otelu Rosu [03/2007]

Technical Director

Maintenance &General Services

39

Administration

37

Maintenance dpt.

81

Rolling mill 550

31

Electric ArcFurnace

134

Blue collars:Foreman:AdminTotal:

2713

53327


Furnace dpt.

55

Casting dpt.

56

Administration,Laboratory

12

MechanicalShop

44

ElectricalShop

22

Air pumps,Engineers

14

Procurement

10

HR, Sales, QualityInvestment,Financial 26

Mechanical dpt.

17

Electrical dpt.

6

Administration,Laminor 550,Lathe 8

Mechanical &Electrical Shops 19

Electrical & Hidro-electricalStations 17

Administrative dpt.

2

Other admin. 4

P.44260.001.01.72 10

Ductil Steel is well positioned in the Romanian long products market; improvements planned in the manufacturing background

Strategic positioning of Ductil Steel

Competitive positionKey success factors Position

A Market positioning • Market leader in long products (especially in welded mesh and annealed wire)

B Product portfolio • Broad range of products serving a wide client base

C Manufacturing capability • Production equipment especially in the "warm part of production" (rolling mill-Buzau and EAF-Otelu Rosu) outdated

• Investments planned in high efficiency machines (EAF in Otelu Rosu, welding, rolling mill etc.)

D Manufacturing footprint • High logistics requirements for transporting billets from Otelu Rosu to Buzau (but rebar and wire derivatives near to the consumption focus –Bucharest)

Excellent Poor

Source: Roland Berger Strategy Consultants analysis

P.44260.001.01.72 11

Leading position of Ductil Steel in welded mesh and annealed wire, strong standing also in other products

Market share according to production volume (‘000 t)

Material group Market share (%) Largest competitor Others Import

Rebars 13,0%

9,8%

20,5%

19,8%

15,1%

17,4%

120

50

45

25

14

6

Reinf. steel in coils

Welded mesh

Annealed wire

Galvanized wire

Nails

21,7%

19,6%

12,8%

19,8%

19,4%

23,6%

200

100

28

25

18

9

Mechel Targoviste

Mechel Campia Turzi

Metalicplas

Mechel Campia Turzi

Mechel Campia Turzi

Dan Steel

54,3%

60,8%

66,4%

60,3%

65,2%

59,0%

500

310

145

76

61

21

10,9%

9,8%

0,3%

0,2%

0,3%

100

50

0.6

0.2

0.3

Source: Ductil Steel, Market analysis

A

P.44260.001.01.72 12

Continuous growth of domestic demand reflected in the decrease of export share

0,1

0,2

1,5

0,1

1,0

1,0

6,8

2,5

1,7

9,3

0,1

0,1

0,3

1,7BilletsWire rods & Reinf steelRebars

Drawn wireBlack annealedwireWhite annealed wireCable

Galvanized wireBlack welded meshFences & galvwelded meshBars

Nails

Chain link mesh

Other products

26.4Total

0,2

0,6

2,5

0,1

5,3

1,8

0,0

0,0

2,9

1,1

3,3

13.7

24.9

13.0

69.5

2005Ductil‘s sales breakdown, 2005-2006 [EUR m]

0,1

0,2

1,4

0,1

1,0

2,4

5,7

1,9

0,9

6,8

0,0

2,0

0,1

5,7BilletsWire rods & Reinf steelRebars

Drawn wire

Other products

28.2Total

Black annealedwireWhite annealed wireCable

Galvanized wireBlack welded meshFences & galv welded meshBars

Nails

Chain link mesh

0,2

0,5

2,2

0,1

6,9

1,7

0,0

0,0

3,1

1,0

2,0

20.0

48.5

15.4

101.6

2006

Domestic DomesticExport ExportPRODUCT PRODUCT


A

P.44260.001.01.72 13

Steel production at Otelu Rosu tripling until 2012 with a strong focus on profiles and billets/blooms for sales and processing

183 157242 295 292 292 292 292 292

106 105

97106 129 129 129 129 129

2004 2005 2006 2007 2008 2009 2010 2011 2012

Production dynamics of Ductil Steel [2004 – 2012] [‘000 t]

130 149181244

270 292

307307307307305308264190

29310 18

1619

1418857120110

32200

00

1151100

0

848295 368 461208 90970 655 759

0 0 0 11107

168226 250 270

B

Billets for Buzau

Billets/Blooms for sale

Blooms for profiles

Profiles

Blooms for processing

Plan

Derivatives

Buz

auO

telu

Ros

u

70

Rolling Mill

Total semis


P.44260.001.01.72 14

Wire rod capacities will be used for rebars production; welded mesh will become another principal product

62

26

30

10850

2392392392189490

00017

8640

43

53535360

49

20

26

18 101010

1111

7

6 5 5 5

848460

35

84

28

18181810

14

14136

6666

7

6

6666

15

2217

384

2007

421199

2008

421

2009

207

2005

254

20062004 2012

421

Rebars

Wire rod

Reinforced steelin coils

Black annealed wireOthers

Black Welded MeshOthers

Nails

Galvanized Wirechain link and other

Production dynamics at Buzau – detail [2004 – 2012] [‘000t]Total finished products

B

Plan

Welded Mesh

DrawnProfiles

RollingMill


P.44260.001.01.72 15

Almost 300 kt fully used rolling mill capacity in Buzau in 2007 –major bottlenecks in drawing, annealing and galvanizing

C

Production flow at Buzau [2007]

Billets warehouse[100 x 100 x 1200 mm]

Rolling Mill

• Discharge heating furnace 100t/h

• 6+8+8 rolling stands• Cooling line• Coiling

Source: Ductil Steel, Roland Berger analysis

Capacity 35 – 50 t/h

Rebars

Reinforced steel in coils / [smooth/ ribbed]

Capacity 40– 50 t/h

Straightening and cutting

[6, 8, 10, 12 mm]

Capacity 40 – 50 t/h

Wire rod

• SKEAT• TEAM• HB

Drawing plant

[5.5 - 11 mm]

[1.18 - 6mm]

Nails

HeatTreatment

Wire products

5.2 kt/m/ 10.61)

• Drawing and straightening

• Welding

Welded mesh plant (Beta + DS)

Blackannealed wire

Long Furnace

[0.8 - 10mm]

White annealed wire

Vacuum

[0.8 – 1.5mm]

Wire products

Horseshoe nails

Cable

Soft galvanized wire

Hard galvanized wire

Welded mesh panels

Chain link fences/ mesh Barbed wire

1.9 kt/m/3.7[0.8 - 6mm]

Galvanizing plant

BETA: 4.0 kt/ month/ 8.0DS: 0.4 kt/ month

[10 – 28mm]

2.0kt/m/5.0

Sales25.7kt/m

1) Capacity utilization: planned/available

P.44260.001.01.72 16

Deficiencies in logistics between Otelu Rosu and Buzau are being balanced by an advantageous proximity to consuming markets

D

Manufacturing and distribution footprintComments

• Counterbalance of logistic requirements for transporting billets to Buzau by an excellent positioning of the Buzau plant

• Adding value to blooms and billets in Otelu Rosu (rolling profiles or other products at Lamdro) improves the manufacturing footprint

Bucharest

Otelu RosuBuzau

Blooms/ Billets for sale

Billets for BuzauBillets for

processing

Profiles

Export (~70% in 2012)

Export (~90% in 2012)

Transport ( costs ~ 20EUR )

Derivates

Rebars

• Low export volumes• Serving the local

consumers predominantly • Exploiting the vicinity to

Bucharest/hub for construction activities

Lamdro plant

P.44260.001.01.72 17

C. Market situation for long products

P.44260.001.01.72 18Source: Roland Berger Strategy Consultants analysis

1) 300km being defined as a threshold distance from transportation costs’ point of view

Romania and partly Bulgaria, Hungary and Serbia define the geographical market for Ductil Steel products

HU

SK

SRBG

MO

TU

300 km

600 km

Buzau

RO

UA

OteluRosu

Current consumption of the proposed products

Localization of the competitors and current trade balance

Future development of the key industry of construction, being the main consumers of rebar, wire rod, profiles and welded mesh

Prices for the products as wire rod and rebarstreated as commodities (geographical premium reflected in transportation costs)

Distance from Buzau/Otelu Rosu (market perimeter for products = 300km1) and competitive market reach of 300+300km)

Geographical market has been defined as: Romania, partly Bulgaria, Hungary and Serbia

Key considerationsGeographical market definition

P.44260.001.01.72 19

C.1 Market analysis for long products - summary

P.44260.001.01.72 20

Rebar Wire rod

• Rapid current and predicted growth of the target rebar market and market in Europe as a whole

• Turkish rebar already present on the Romanian market, imported production offers low price but also represents inconsistent quality factor

• Large new rolling capacities have been recently installed in Turkey

• Almost the entire Ductil Steel current wire rod production is being processed into welded mesh, wires, nails and other derivatives

• Romania is exposed to massive inflow of high quality wire rod from the Ukraine and China

• Ductil identified by other producers as highly competitive on the wire derivatives market

Profiles

Within the scope of the market analysis, Roland Berger focused on the four representative product groups

Welded mesh

• Large increase in construction translates into high demand in the heavy sections segment

• Ductil Steel has ideal position to fill in the market gap in neighboring markets of Bulgaria, Hungary and Serbia, where the profiles production is absent

• Further markets (Italy, Spain etc.) able to absorbnew production volumes

• No production footprint at Buzau in the past years

• Ductil Steel is one of the top three welded mesh producers in the country

• Regional capacity extensions and innovations have been already realized or announced for the near future

• Welded mesh is currently replacing some traditional reinforcing materials

P.44260.001.01.72 21

Unused capacities in the target region account for over 30% of total capacities

Current situation on the rebar market, 2006 [kt]

Capacities within

600 km2)

1,618 595

1,223 71 1,294

Unused capacities

within 600 km

Produc-tion

20062)

Balance deficit

Consump-tion 2006

Production beyond target market

Comments

• There are unused capacities amounting to almost 600 kt in the range of 600 km

• Production in 2006 in the whole region was slightly lower than consumption 1) which resultedinto balance deficit1,023

200

1) Including production beyond target market2) Including capacity/production of Ductil SteelSource: Roland Berger analysis, Company data

P.44260.001.01.72 22

Despite future growth of demand still more than 200kt of overcapacities available on the market

Future situation on the target rebar market, 2009E [kt]

1,818

218 1,600

Production capacities

Over-capacities

2009E

Estimated consumption

2009E

Comments

• Estimated rebar consumption in 2009 will reach approximately 1,600 kt

• Despite the rapid growth in demand, overcapacities in the region will reach more than 200 kt in 20092,250

1,2941,023

Consump-tion in 2006

200

595

Production of rebar beyond 600 km range

Consump-tion growth

Productionin 2006∑ 1,223

Unused capacities within 600 km

306

Source: Roland Berger analysis, Company data

P.44260.001.01.72 23

643

13

Assessing target wire rod market, current unused capacities in the region amount to over 800 kt

Current situation on the target wire rod market, 2006 [kt]

Capacities within

600 km2)

1,458 815

656 79 735

Unused capacities

within 600 km

Produc-tion

20062)

Balance deficit

Consump-tion 2006

Comments

• Current unused capacities within 600 km from Buzau slightly exceed 800 kt

• Similar to rebar, total production was slightly lower (by almost 80 kt1)) than local consumption

Production beyond target market

1) Including production beyond target market2) Including capacity/production of Ductil SteelSource: Roland Berger analysis, Company data

P.44260.001.01.72 24

Mild increase of wire rod consumption won‘t have serious influence on deploying of some so far unused capacities

Future situation on the target wire rod market, 2009E [kt]

1,471 657

814


Over-capacities

2009E


2009E

Comments

• There are no significant investments in production capacities announced

• Despite mere consumption growth of wire rod consumption till 2009 the overcapacities in the region will still almost reach over650 kt

422

643Consumptionin 2006

13

815

Production of wire rod beyond 600 km range

Additional consumption

Productionin 2006∑ 656

Unused capacities on the target market

735

79


P.44260.001.01.72 25

Some of currently unused welded mesh capacities are ready to be deployed in the future

Current situation on the target welded mesh market, 2006 [kt]

Capacities within 600 km

222 92

14116

Unused capacities

within 600 km

Production 2006

Balance surplus

Consumption 2006

Comments

• Current unused production capacities within 600 km from Buzau amount to approximately 100 kt

• Total production is slightly bigger than local consumption

130

1) 1)

1) Including capacity/production of Ductil Steel


P.44260.001.01.72 26

If some of announced investments into production are realized, overcapacities in the region could count up to 100 kt in 2009

Future situation on the target welded mesh market, 2009E [kt]

252

102

150


Over-capacities

2009E


2009E

Comments

• Some of the investments were already realized recently, more capacity extensions announced for following years

• In 2009 overcapacities in welded mesh production could count to mote than 100kt2,250

34

116130 Consumptionin 2006

Additional consumption

Productionin 2006∑ 130

New investments

92

30

Unused capacities on the target market


P.44260.001.01.72 27

C.1.1 Detailed overview of the current situation on the regional long products market from Ductil Steel perspective

P.44260.001.01.72 28

Rebar, wire rod and profiles markets are characterized by risingcompetition and growing demand in the key CEE markets

1 Rebar market from Buzau's perspective• Positive development of the construction industry

incurred increasing consumption of rebars

2 Wire rod market from Buzau's perspective• Continuously increasing consumption across the

target market in last years

3 Profiles market from Otelu Rosu's perspective• Growing production capacities and competition in

higher margin profile segment (heavy profiles)

4 Welded mesh market from Buzau's perspective• Strong competition in Romania, ongoing extension of

regional production capacities

6 Trade balance of Romania• Rapid increase in domestic demand for long products

changes traditional export position of Romania

5 Competitive Landscape of Ductil Steel• Close insight on competitors and production

capacities in the target region

Source: Roland Berger analyses

Rebar market from Buzau's perspective Wire rod

market from Buzau's

perspective

Profiles market from Otelu Rosu'sperspective

Competitivelandscape ofDuctil Steel

Welded mesh market from

Buzau's perspective

Trade balance

of Romania

Current situation

on relevant markets

12

3

4

5

6

P.44260.001.01.72 29

424 403 465765

278 353 269

301199 205 208

228

725 725 657

711207

265241

252

87109

95

100

2003 2004 2005 2006

Hungary

Poland

SlovakiaCzech Rep.

1,9202,060

2,357

Romania

Rebar consumption powered by a flourishing demand for construction steel is growing rapidly over the last years

Source: EUROSTAT, Czech Steel Association (HZ), IISI, Roland Berger analyses, expert interviews

Consumption of rebar in the target region and extended region [kt]

Comments

• Year 2004 was extremely successful for the whole steel industry therefore it is necessary to eliminate this year from the analysis of the middle and long term trends

• Strong consumption increase of rebars has been noticed in case of Romania, with further predictions continuity of rapid upward trend

• Rebar consumption in Poland, after slight decrease in 2005, is growing again

CAGR 7.0%

81.0%

8.4%

14.9%

2.0%

21.7%

Change 2006/2003

Bulgaria

1,935

14.6%901 961

1,294

942

1

P.44260.001.01.72 30

Rising domestic consumption changes traditional Romanianexport position

Consumption of rebars in Romania [kt]

Rebar market situation in Romania, 2006

ROMANIA

Source: Steel Statistical Yearbook 2005, 2006, Ministry of Economy and Commerce, Roland Berger analyses

765 kt

Consumption

2006

2005

Production Exports Import Consumption


65 61 765769

10623 465

548

1

P.44260.001.01.72 31

Thanks to improved financial performance of both rebar producersin 2005, rebar production increased in 2006

Consumption of rebars in Hungary [kt]

Rebar market situation in Hungary, 2006

HUNGARY

Source: Steel Statistical Yearbook 2005, 2006, EUROSTAT, Roland Berger analyses

301 kt

Consumption

Mittal Steel OstravaTřinec

2006

2005



4185 301

257

23 105 269189

1

P.44260.001.01.72 32

Rebar market situation in Bulgaria, 2006

Romanian and Turkish imports of rebars are of crucial importance for Bulgaria

Consumption of rebars in Bulgaria [kt]

BULGARIA


228 kt

Consumption

2006

2005



50124 228

154

52119

151208

1

P.44260.001.01.72 33

Imports are the sole source of rebars for the construction industry in Slovakia

Consumption of rebars in Slovakia [kt]

701

Rebar market situation in Slovakia, 2006

Production1) Exports Import ConsumptionConsumption

1) There are no Slovak producers of rebar, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again

100 kt

Consumption

Source: EUROSTAT, HZ, Roland Berger analyses

SLOVAKIA

Production1) Exports Import Consumption


Celsa Ostrowiec

-5

105 100

0

-7

102 95

0

2006

2005

1)

1)

1

P.44260.001.01.72 34

External transfers have significant impact on Polish rebar market

Consumption of rebars in Poland [kt]

Source: IISI, CIBEH, Roland Berger analyses

Mittal Steel Ostrawa a.s. [Nova Hut]

JSC Liepajas

Riva Stahl GmbH

711 kt

Rebar market situation in Poland, 2006

Consumption

POLAND

2006

2005



353

38 711

1,026

265

64 657

858

1

P.44260.001.01.72 35

Czech Republic is traditional rebar exporter with stable domestic consumption

Consumption of rebars in Czech Republic [kt]

Source: Roland Berger analyses, expert interviews, HZ

Rebar market situation in Czech Republic, 2006

CZECH REPUBLIC

252 kt

Consumption

Mittal Steel Sosnowiec

2006

2005



345

98 252

499

351

80 241

512

1

P.44260.001.01.72 36

131 278 296 407137141 134

136180

185 189192

831808

793

821939 939

936117

113 83 89

813

2003 2004 2005 2006

Wire rod consumption has experienced a constant growth in the past years

Consumption of wire rod in the target region and extended region [kt]

Source: EUROSTAT, HZ, Roland Berger analyses, IISI, expert interview

Comments

• The biggest consumption of wire rod has been noticed in case of Czech Republic with almost 950kt

• Slovak wire rod market dropped in 2005 after high consumption in 2003 and 2004 - growth in coming years expected

• Polish market has been constantly decreasing over recent years

• Highest wire rod consumption increase between 2003 and 2006 has been reached in case of Romania

Hungary

Poland

Bulgaria

Czech Rep.

2,2172,464 2,454

Romania 210.7%

14.0%

-23.9%

-4.6%

-1.0%

Change 2006/2003

Slovakia

6.7%

2,553

448604 619

735

2

CAGR 4.8%

P.44260.001.01.72 37

Apparent consumption of wire rod increased significantly furtherin 2006 – import becoming even more important

Consumption of wire rod in Romania [kt]

Wire rod market situation in Romania, 2006

ROMANIA


407 kt

Consumption

2006

2005



4

206 407

205

18

104 296

210

2

P.44260.001.01.72 38

Because of production outages at both major plants, wire rod demand in Hungary is almost solely satisfied by imports

Consumption of wire rod in Hungary [kt]

Wire rod market situation in Hungary, 2006

HUNGARY


136 kt

Consumption

2006

2005



2

125 136

13

2

113 134

23


2

P.44260.001.01.72 39

The fact of absence of the major long products supplier in Bulgaria must be covered by imports

Consumption of wire rod in Bulgaria [kt]

Wire rod market situation in Bulgaria, 2006

BULGARIA


192 kt

Consumption

2006

2005



0

189 189

0

0

192 192

0

2

P.44260.001.01.72 40

Wire rod market situation in Slovakia, 2006

Imports are the only source of wire rod in Slovakia

SLOVAKIA

Consumption of wire rod in Slovakia [kt]

701

Consumption

89 kt

Consumption



2006

2005



-2

91 89

0

0

1) There are no Slovak producers of rebar, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again

-3

86 83

1)

1)

2

P.44260.001.01.72 41

Increased wire rod production didn‘t translate into higher consumption in 2006

POLAND

Mittal Steel Ostrawa a.s. [Nova Hut]

Riva Stahl GmbH

793 kt

Wire rod market situation in Poland, 2006

Consumption

Consumption of wire rod in Poland [kt]


2006

2005



339170 793

951

241 242 813812

2

P.44260.001.01.72 42

More than half of Czech wire rod production (53% in 2006) goes for export

Consumption of wire rod in Czech Republic [kt]


Wire rod market situation in Czech Rep., 2006

CZECH REPUBLIC

936 kt

Consumption

2006

2005



705

316 936

1,325

762

287 939

1,414

2

P.44260.001.01.72 43

The map of profiles production and apparent consumption per country in 2005 [kt]

Belgium

France

C: 706 kt

Great Britain (1.075 kt)

P: 964 ktC: 1.041 kt

Ireland

C: 136 ktNetherlands

Austria

C: 133 kt

Poland (1.750 kt)

P: 1.375 ktC: 657 kt

Portugal

C: 150 ktl

Switzerland

Germany (2.770 kt)

P: 2.304 ktC:1.558 kt

Czech Republic (1.340 kt)

P: 501 ktC: 424 kt

Benelux

P: 1.587ktC: 742 kt

Italy (2.700 kt)

P: 1.000 ktC: 777 kt

Spain (2.500 kt)

P: 2.614 ktC: 1.289 kt

Source: Roland Berger Strategy Consultants

Luxembourg (2.600kt)

Sweden

P: 25 ktC: 107 ktl

3

Country (Nominal Capacities 2006)

Production 2005Apparent consumption 2005

P.44260.001.01.72 44

242 279 352140 136

14563 6768

689 657

434 424452

89 8095

700

2004 2005 2006

Profiles market is recovering from 2005 towards future boom in CEE

Consumption of profiles in the target and extended region [kt]

Source: EUROSTAT, HZ, Roland Berger analyses, IISI, expert interview

Comments

• The consumption of heavy sections is traditional domain of Poland with demand close to 700 kt per year

• As with other product groups, highest increase in profiles consumption was experienced by Romania

• Main profiles producer in CEE is Poland exporting more than a half of its production

Hungary

Poland

Bulgaria

Czech Rep.

1,657 1,643

1,812

Romania

CAGR 4.6%

7.9%

4.1%

3.6%

45.5%

6.7%

Change 2006/2004

Slovakia

1.6%

445 482565

3

P.44260.001.01.72 45

Profiles market situation in Romania, 2006

Romanian export position in heavy sections segment is completelybalanced

Consumption of profiles in Romania [kt]

ROMANIA


352 kt

Consumption

2006

2005



100 100 352352

9449 207

254

3

P.44260.001.01.72 46

Hungary is dependant on imports of profiles due to its production deficit in heavy sections segment

Consumption of profiles in Hungary [kt]

Profiles market situation in Hungary, 2006

HUNGARY


282 kt

Consumption

v

2006

2005



5

120 145

30

10

100 136

36

v

3

P.44260.001.01.72 47

Bulgarian consumption of heavy sections is still far below its potential

Consumption of profiles in Bulgaria [kt]

Profiles market situation in Bulgaria, 2006

BULGARIA


68 kt

Consumption

2006

2005



5 42 6831

6 34 6739

3

P.44260.001.01.72 48

Slovak construction industry is forced to cover all its profilesdemand by imports

Consumption of profiles in Slovakia [kt]

701

Profiles market situation in Slovakia, 2006

Production1) Exports Import ConsumptionConsumption

1) There are no Slovak producers of profiles, yet there is an insignificant volume of rebar that Slovak dealers buy abroad and then resell abroad again

95 kt

Consumption


SLOVAKIA


-7

102 95

0

-14

94 80

0

2006

2005

1)

1)

3

P.44260.001.01.72 49

Poland is by far the top producer and also exporter of profiles in the CEE region

Consumption of profiles in Poland [kt]

Source: IISI, CIBEH, Roland Berger analyses

700 kt

Profiles market situation in Poland, 2006

Consumption

POLAND

2006

2005



141 700

1,616

919

201 657

1376

1,057

3

P.44260.001.01.72 50

Decrease of imports was caused by higher production meanwhile consumption remained stable

Consumption of profiles in Czech Republic [kt]


Profiles market situation in Czech Republic, 2006

CZECH REPUBLIC

452 kt

Consumption

Mittal Steel ¨Poland

2006

2005



351

141 452

662

234157 424

501

3

P.44260.001.01.72 51

Growing consumption in the region will attract new investments into production capacity

Consumption of welded mesh in Romania [kt]

Welded mesh market situation in Romania, 2006

Source: Ministry of Economy and Commerce, Roland Berger analyses

116 kt

Consumption

2005



17 3 116130

10 4 106112

2006

106 116 127

2005 2006 2007e

19.8%

Change 2007/2005

4

CAGR 9.5%

P.44260.001.01.72 52Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data

There are 2 rebar producers within 300km distance from Buzau. Their joint annual capacity amounts to 330kt

Indicates direct competitors within the market perimeter of buzau/otelu rosuIndicates indirect competitors able to export onto buzau/otelu rosu's market

Capacities∑ = 1,158kt

HU

SK

SRBG

TU

MO

300 km

600 km

Capacities∑ = 330kt

Buzau

RO

UA

OteluRosu

Geographical location of main rebar producers in the competitive region

Total production in 2006: 715 kt(out of which 280 kt within the perimeter of 300 km)

Current production capacities: 1,488 kt

No significant capacities enlargement announced

Key figures for the regionMoldova Steel Works Rybnitsa

SiderurgicaHunedoara

DAM 2004MiskolcOAM

Ózd

MechelTargoviste

Otelinox

Lamdro

1) Within 600km perimeter – Ductil Steel not included

1)

1)

5

P.44260.001.01.72 53

1) Estimate based on the total production of rolled products = 450 kt 2) Estimate based on total production figures for Hungary3) Based on total combined production capacity of rebar and wire rod = 300 kt 4) Estimate based on current capacity

The only foreign rebar producer in the target region is Moldova Steel Works

Steel mill CountryProduction 2006 [kt]

Current capacity [kt]

Distance[km]

Investment plan / Outlook for capacity utilization

..

Details on main rebar producers in the competitive region

BACKUP

Mechel Targoviste Romania 122 270 240

Siderurgica Hunedoara 60Romania 308452

Capacity extensions are being considered in the medium term

DAM 2004120

Hungary200

722 Will need huge amount of investment in order to become competitive

2)

OAM Ltd. 80Hungary 810 Max Aicher plans to modernize the plant and increase the combined capacity to 350 - 400 kt

2)2003)

1)

The plant is lacking continuous caster

Moldova Steel Works 3154)Republic of Moldova 437 Recent investments in technology enlarged the production capacity

600

Lamdro Romania 416 250 60 No new investment in rebar announced

Otelinox Romania 122 60 40 No new investment in rebar announced

Total 1,488 715

Source: Roland Berger Strategy Consultants analysis, Expert interviews, Company data

5

P.44260.001.01.72 54

Turkish rebar has already strong presence on Romanian market, characterized by convenient price but also by inconsistent quality



Distance[km] Comments

..

Details on main rebar producers in Turkey

BACKUP

Habas Demir Celik 1,9501)Turkey 2,1001103 Export to Romania and Bulgaria, main competition comes fromChina

Icdas 14701)Turkey 759 Export to Romania and Bulgaria, scrap is purchased globally

1,800

Ege Celik Turkey 923 1,000 8701)

Diler Steel 1,400Turkey 1,800911

Export to Romania and Bulgaria, no investments in rebar in future

1) Estimate based on current capacity and product portfolio

Export to Romania and Bulgaria, no capacity increase is forecasted

Kaptan Demir Celik 9601)Turkey 663 Export to Romania 36 kt/y, will obtain certificate for PC52 in May

1,200

Ekinciler Turkey 1787 1,000 7381) No export to Romania yet, but plans to enter market in near future

Total 8,900 7,388


5

P.44260.001.01.72 55

Along with direct local competition, regional market is already facing fierce competition from the East

Indicates direct competitors within the market perimeter of Buzau/Otelu RosuIndicates indirect competitors able to export onto Buzau/Otelu Rosu's market

HU

SK

SRBG

300 km

600 km

Buzau

TU

MO


RO

UA

OteluRosu

Geographical location of main wire rod producers in the competitive region

Total production in 2006: 534 kt(out of which 160 kt within the perimeter of 300 km)

Current production capacities: 1,208 kt

No significant capacities enlargement announced

Key figures for the region

WIRE ROD PRODUCERS IN THE REGION

Laminate

MechelCâmpia Turzii

DAM 2004MiskolcOAM

Ózd

Moldova Steel Works Rybnitsa


Otelinox


1)

1)



5

P.44260.001.01.72 56

Mechel stopped its EAF in Q1 2006, expected to be restarted after continuous casting is commissioned (not before 2008)

.. .

Details on main wire rod producers in the competitive region

BACKUP



Distance[km]


Mechel Campia Turzii Romania 395

1) Estimate based on the total production of rolled products = 450 kt 2) Estimate based on total production figures for Hungary3) Based on total combined production capacity of rebar and wire rod = 300 kt 4) Estimate based on total production capacity

DAM 2004 8100Will need huge amount of investment in order to become competitive

2)1)Hungary 722

OAM Ltd. 5 Max Aicher plans to modernize the plant

2)Hungary 810 50 3)

65280

Siderurgica Hunedoara 74Romania 408411 Focused on billets for pipes for Petrotub Roman

Five new wire drawing machines in 2005

Laminate Romania 120119 90

70

No new investments in wire rod announced

No new investments in wire rod announced

4)

4)Otelinox Romania 122 100

Total 1,208 534

.2351) Recent investments in technology enlarged the production capacity

.300Moldova Steel Works Republic of Moldova 437


5

P.44260.001.01.72 57

As with rebar, large rolling capacities have been added recently in Turkey with annual capacity over 3,000 tons



Distance[km] Comments

..

Details on main wire rod producers in Turkey

BACKUP

Habas Demir Celik 5601)Turkey 7001103 Export to Romania and Bulgaria, sees china as main competitor

Isdemir 3801)Turkey 1878 Export to Romania by sea, sees main competition to be Turkish

500

Icdas Turkey 759 1,200 1,0501)

Colakoglu 5901)Turkey 650759

Export to Romania and Bulgaria; sees main competition to be Turkish


Exporting mainly by ship to Western Europe, but not to Romania

Total 3,050 2,580


5

P.44260.001.01.72 58

22 major EU 25 profiles producers are proportionally distributedover the continent

Country (capacity 2006)

Belgium

France

Great Britain (1.075)

Ireland

Netherlands

Austria

Poland (1.750)

Portugal

Switzerland

Germany (2.770)

Czech Republic (1.340)

SWT

Arcelor Pallanzeno

Mittal Steel Poland

Inexa Profil AB (sweden)

Arcelor EspañaCelsa

Corus

Arcelor Profil Luxembourg Saarstahl

Salzgitter

Acc. e Ferr. Stefana

Acc. TirrenoDuferdofin SpA

Lucchini SpA

Vitkovice SteelMittal Steel Ostrava

Trinecke ZelezarnyLuxemburg (2.600)

Italy (2.700)

Spain (2.500)

Arcelor

Riva Acciaio SpA

PROFILES PRODUCERS IN THE REGION

Source: Roland Berger Strategy Consultants analysis, IISI

5

P.44260.001.01.72 59

The nominal capacity significantly exceeds the currently realized production of profiles

Total

Czech Republic

Poland

Sweden

Spain

Italy

Great Britain

Luxemburg

Germany

10.263224

52224

1.375

25

1.920694275

725

965

1.480

1.025903376

Production in 2005 (kt)

Mittal Steel OstravaVitkovice SteelTrinecke Zelezarny

Mittal Steel Poland

Inexa Profil ABArcelor EspañaCelsaArcelor PallanzenoRiva Acciaio SpAAcc. E Ferr.StefanaAcc. TirrenoDuferdofin SpALucchini SpA

Corus Construction/ Spec. Profiles

Arcelor Profil Luxembourg

Salzgitter AGSWTSaarstahl AG

Steel Mill Country

Source: VDEh, Factiva, Roland Berger Strategy Consultants

1) Excludes 200 kt utilized for flat products 2) Includes capacity extension realized in20063) Predicted capacity reduction by 330 kt in 2007

15.3656003)140600

1.750

3002.0001.0002)

480500550400500300

1.075

2.4001)

1.3201.000

450

Nominal capacity2006 (kt/y)

Dimensions[mm]

PROFILES PRODUCERS IN THE REGION

130 - 240140 - 600240 - 360

160 - 600

50080 - 600

100 - 45080 - 30080 - 30080 - 300

140 - 600

102 - 1016

100 - 1.100

100 - 1.000100 - 550140 - 450

5

P.44260.001.01.72 60

The four Romanian profile producers compete mainly for domestic and neighboring markets of Bulgaria, Hungary and Serbia

Indicates direct competitors within the market perimeter of Buzau/Otelu RosuIndicates indirect competitors able to export onto Buzau/Otelu Rosu's market

PROFILES PRODUCERS IN CENTRAL EUROPE SOUTH

Geographical location of main profile producers in the competitive region

Total production in 2006: 1,037 kt1)

Current production capacities: 1,676 kt1)

Capacity enlargements announced by Mechel


HU

SK

SR BG

TU

MO

Buzau

RO

UA

OteluRosu

MechelTargoviste


LaminorulHR

Kroman

Ozkan

Kocaer TosyaliGroup

TMK Resita


1) Analyzed area extended, 600 km perimeter doesn‘t apply on profiles production – producers from Turkey also included

5

P.44260.001.01.72 61

New investments of profile producers focus mostly on efficiency improvement rather than capacity extensions

Mechel Targoviste .. .

Siderurgica Hunedoara

Details on main profiles producers in the competitive region

BACKUP

Steel mill

1) Estimate based on production capacity and product portfolio

Laminorul SA

CSR SA Resita

New continuous caster recently commissioned (expected to be fully up to speed in July 2007)


No new investments planned for the short and medium term

Focused on billets for pipes (Artrom) and heavy profiles

Romania

Romania

Country

Romania

Romania

91

382

Distance[km]

594

42

Total

276

180


200

200

856

43

121

Production 2006 [kt]

100

88

352


No new investments planned for the short and medium term

5

P.44260.001.01.72 62

Some of turkish profile producers aim at CEE markets, other major area of interest is the Middle East

Steel mill Country

Details on main profiles producers in Turkey

BACKUP

Kroman

Ozkan

Kocaer

Tosyali Group


Comments

No investments are planned in thenear future, exports by sea

Export to Romania by sea, just inaugurated new rolling mill

Exports to Romania and plans to double capacity by 2008

Export to Romania and Bulgaria bysea, no investments planned

Turkey

Turkey

Turkey

Turkey

Distance[km]

1127

1311

1311

1969

Total


.

100

N/A

360

360

820


.

861)

N/A1)

3141)

2851)

685


5

P.44260.001.01.72 63

300 km

600 km

Buzau

Increasing demand for welded mesh evokes significant regional capacities expansion

indicates direct competitors within the market perimeter of Buzau


HU

SK

SRBG

TU

MOCapacities∑ = 62 ktRO

UA

OteluRosu

Geographical location of main welded mesh producers in the competitive region

Total production in 2006: 85 kt1)

(out of which 38 kt within the perimeter of 300 km)

Current production capacities: 172 kt1)


WELDED MESH PRODUCERS IN THE REGION

Procema

Metalicplas

Dan Steel

RomsteelAndami

Demers

Otelinox

Additional capacities have been recently

added above current production levels



4

P.44260.001.01.72 64

Ductil, Metalicplas and Dan steel basically represent local welded mesh supply

Metalicplas

Dan Steel

Details on main welded mesh producers in the competitive region

BACKUP

Steel mill

Procema

Demers

Romsteel

1) Estimate based on production in 2006

.

No investments were announcedfor the near future

Investments in new technology in 2006 – increasing capacity


N/A

No investments are planned in the near future

New line to be inaugurated in summer, capacity increase 50%

Further investments are planned in technology and capacity increase

Andami

Romania

Romania

Country

Romania

Romania

Romania

Romania

415

443

Distance[km]

124

287

120

136

Total

.

50

60


13

24

11 1)

1)

141)

172

.30

17


15

8

8 2)

7

85


4

P.44260.001.01.72 65

Turkish rebar has already strong presence on Romanian market, but still with the label of inconsistent quality

Rebar flows in/out of Romania, 2006 [kt]

xy kt Net trade balance (Romania)1)

1) Net trade balance = Exports - Imports

Source: United Nations Commodity Trade Statistics Database, Eurostat, HZ, Roland Berger analyses

TRADE BALANCE OF ROMANIA

∑ Net trade balance = 16 kt1)

-4 ktMoldova

Serbia

24 kt

Romania

Slovakia

Czech Republic

The Ukraine

Bulgaria

Hungary

Austria

Turkey-31 kt

Other countries27 kt

6

P.44260.001.01.72 66

Ukraine is the main wire rod exporter to Romania, while Czech and Moldovian imports are of high importance, too

Wire rod flows in/out of Romania, 2006 [kt]



∑ Net trade balance =-206 kt 1)

-13 kt

2 kt

-32 kt

Moldova

Serbia

Romania

Slovakia

Czech Republic

The Ukraine

Bulgaria

Hungary

Austria

-146 kt

-7 kt

Turkeyxy kt Net trade balance (Romania)1)


-10 kt

Other countries

6

P.44260.001.01.72 67

Romania keeps its export position perfectly balanced, Turkey being the main profiles importer onto Romanian market

Profiles flows in/out of Romania, 2006 [kt]



∑ Net trade balance = 0 kt1)

3 ktMoldova

Serbia

Romania

Slovakia

Czech Republic

The Ukraine

Bulgaria

Hungary

Austria

Turkey-63 kt

-4 kt

6 kt

xy kt Net trade balance (Romania)1)


Other countries59 kt

6

P.44260.001.01.72 68

C.1.2 Consumption outlook – by industries

P.44260.001.01.72 69

Consumption of rebar, wire rod and profiles is expected to reflect the steady growth of key construction industry predicted for the next years

Rebar, wire rod and profiles usageHigh steel consuming segments are expected to record steady growth:

Higher rebar, profiles and wire rod consumption

Key drivers for rebar and wire rod consumption in the target market of Ductil Steel


Growth of construction market

• Construction is currently the main economic growth lever. Rapid increase in construction volume will continue in the coming years as formerly seen in Hungary, Czech Republic and Poland

Car production boom

• Romanian car production market has a strong predicted growth but won‘t play major role in wire rod consumption

1

1 2

P.44260.001.01.72 70

172

100

182177

198

168

90

140

190

2000 2005 2010 2015

Production of housing appliances and the construction industry in CEE will experience the biggest growth

Growth development in steel-consuming industries in the CEE

• High pace of economic growth is expected together with high domestic demand and growth of foreign investment (+3.7% a year)

• Appliances and home technology: per annum growth of 4.7% expected; interconnected with GDP

• Construction industry: annual increases shall be around 4.7%; growth predominantly in civil engineering and renovations

• Automotive industry: annual increases of +4.1%; growth in output of plants owned by foreign auto makers

• Machinery industry: annual increases of +3,9% as a result of execution of programs aimed at modernization of production equipment

• Pipes: lower growth rates of 3,5% a year resulting from the substitution of steel pipes with other materials

Forecast

Production indices, [2000 = 100%] CommentsAppliances and home technology

GDP

Pipes

Constructionindustry AutomotiveindustryMachinery

Source: Thomson Business Intelligence, Euromonitor, JDPower, Roland Berger Strategy Consultants analysis

P.44260.001.01.72 71

131

101

107100108

118114

117

136

158

104

121

112109

124

139

111

142

125

90

120

150

2000 2005 2010 2015

Machinery will remain to be the main steel consumer in the EU with an annual growth rate of 3%

Development of steel consuming industries in EU-15

• Low pace of the overall economic growth (+2% a year)• Export-driven growth – low level of internal

consumption• Machinery industry: annual growth rate remains at

the level of 3%, connected with a high demand of Asian countries

• Home appliances: growth rate prediction remains at2.5% a year, high demand in Scandinavian countries, Eastern Europe and Turkey

• Pipes: satisfactory growth rate (+3% a year) relative to investment projects in energy and manufacturing

• Construction: low growth rate (ca 1.5% a year) in relation with low investment activity of the state, manufacturing and construction sectors

• Automotive industry: low growth rate (ca 1% a year) as a result of lowering demand

Forecast Machinery

Home appliance

GDP

Pipes

Production indices [2000 = 100%] Comments

ConstructionindustryAutomotiveindustry

Source: Thomson Business Intelligence, Euromonitor, Euroconstruct, JDPower, Roland Berger Strategy Consultants analysis

BACKUP

P.44260.001.01.72 72

465765

1,000 1,150269

301353

393

208

228

247278657

711

877976

241

252

302

336

95

100

113

125

1,935

2,357

2,892

Index 2005 = 100%

A continuous growth in rebar consumption is expected in the future, with Poland remaining to be the largest market by far

Forecasted rebar consumption in the target and extended target region until 2013 [kt]

Source: Roland Berger Strategy Consultants analysis, expert interviews

100.0% 121.8% 149.4% 168.3%

Hungary

Poland

SlovakiaCzech Rep.

Romania

3,258

2005 2006 2009 2013E

CommentsCAGR 5.9%

7.1%

Bulgaria942

1,2941,600

1,821

• Estimation of rebar consumption for 2008-2013 is based on the growth rates of key consumer industries for the period until 2008

• In addition to that GDP growth has served as an indicator for future development of the key industries

P.44260.001.01.72 73

296 407 460 490136 147 162189192 207 229

813 793 857948

939 9361,010

1,11883 8998

109

134

Czech Republic will retain its leading position within the target markets in terms of wire rod consumption

Source: Roland Berger Strategy Consultants analysis, expert interviews

2,4542,553

2,778

Index 2005 = 100%

Forecasted wire rod consumption in the target and extended region until 2013 [kt]100.0% 104.0% 113.2% 124.5%

Hungary

Poland

Slovakia

Czech Rep.

Romania

3,056

2005 2006 2009 2013E E

CAGR 2.7%CAGR 4.2%

Comments



Bulgaria619 735 814 881

P.44260.001.01.72 74

279 352 380 421

32073 81

657700

755836424

452

488540

8095

103113

145354

13668

67

Poland will remain dominant profiles producer and exporter in the analyzed area

Source: Roland Berger analyses, expert interviews

1,6431,812

2,119

Index 2005 = 100%

Forecasted profiles consumption in the target and extended region until 2013 [kt]100.0% 102.8% 129.0% 142.8%

Hungary

Poland

Slovakia

Czech Rep.

Romania

2,346

2005 2006 2009 2013E E

CAGR 4,6.%

5.4%

Comments



Bulgaria482

565773 856

P.44260.001.01.72 75

Change of the trend in the construction market will increase theprofiles demand up to 10 million tons in 2010

Development of profiles consumption within EU-25, 2000-2010 [kt]

9,8229,327 8,996 8,939 8,691

7,664

9,504 9,770 10,042 10,3219,248

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source:: ISSB; World Steel Dynamics; Euroconstruct 2005; Roland Berger Strategy Consultants

2005 was an abnormal year caused by speculations with the stocks

+2,8% CAGR 2006-10

P.44260.001.01.72 76

C.1.3 Construction industry in the target market

P.44260.001.01.72 77

3,634

2,073 1,999

1,646

1,092898

691553 481

3,542

1,778 1,849

1,493

1,010770

582433 390

Austria Slovenia Germany CzechRepublic

Hungary Poland Slovakia Bulgaria Romania

2008E 2006

Construction market intensity will be gradually increasing in CEE markets

Source: Roland Berger Strategy Consultants analysis, EUROSTAT

Construction production per capita [EUR]

P.44260.001.01.72 78

Compared with other countries within CEE region, Romania has a solid potential to grow its rebar consumption

28.3

23.5

17.7 18.2 17.5

35.4

25.9

21.318.8 20.0

27.8

20.223.1

18.816.0

47.0 45.7

39.1

Austria Hungary Czech Republic Germany Poland Slovakia

20.818.1 19.0

Romania

2004 20032005


BACKUP

Rebar consumption per capita [kg]

P.44260.001.01.72 79

Czech Republic has a significant lead in wire rod consumption per capita – Romania’s potential again substantial

73.5

58.2

21.115.3 13.4

75.3

63.7

21.0 20.814.1

70.1

59.6

21.6 21.513.8

93.2 91.7

80.2

Czech Republic Austria Germany Poland Slovakia Hungary

13.3 12.55.9

Romania

BACKUP

Rebar consumption per capita [kg]

2004 20032005


P.44260.001.01.72 80

3,6 4,2

2006 2008

0,81 0,89

2006 2008

3,6 4,2

2006 2008

3,1 3,5

2006 2008

3,1 3,7

2006 2008

10,1 10,9

2006 2008

Development of construction output [EUR bn]

Growth of the construction output volume in Romania, Bulgaria and Hungary will be much bigger than the average in EU-15

Poland

29,4 34,3

2006 2008

Slovakia CAGR +9%

Germany

2006 2008

Hungary CAGR +4%

Serbia CAGR +5%Croatia CAGR +6%

Slovenia CAGR +8%

165.0152.3

Czech Republic

CAGR +5%CAGR +4%

Austria CAGR +1,3%

2006 2008

30.129.0

CAGR +8%

Source: Roland Berger Strategy Consultants analysis, National Statistical Offices

8,4 10,4

2006 2008

Romania CAGR +11%

3,3 4,3

2006 2008

Bulgaria CAGR +13%

P.44260.001.01.72 81

Romanian construction industry is on the drive, significantly reflects in the growth of national economy.

Comments

1023

35

2115 20

1

-6 -3

3 0 5 6 6

9093

1996-2000

2001 2002 2003 2004 2005 2006 2007

• There is currently a significant surplus of housing demand

• Expected migration into big cities, rising demand for mortgage loans as a result of decreasing interest rates will lead to a growth of housing construction

• There will also be an increase in spending on civil engineering, taking into account its current low level and an expected inflow of the EU reconstruction funds

E

ROMANIA: CONSTRUCTION MARKET – BACKUP

Development of investment in construction [% annual growth]

Investment in construction Investment in construction – average for selected countries1)

1) Selected countries – Czech Republic, Poland, Slovakia, Hungary, Slovenia, Austria, Germany

E = Estimate

Source: The European Commission, NSI, Roland Berger Strategy Consultants analysis

Investment in construction

P.44260.001.01.72 82

82%83%

81%85%

84%79%81%77%

18%

17%

19%15%

16%

21%19%

23%

2001 2002 2003 2004 2005 2006 2007 2008

Newbuildings

Reno-vations

3,1823,621

4,051

5,114

7,0797,552

8,383

9,263

E EE = Estimate

New buildings build-up will continue to be dominant support for increase in construction in following years

Source: NSI, Roland Berger Strategy Consultants analyses

CAGR +10.7%

Construction – development and share of market segments [EUR m]


CAGR +18.9%

P.44260.001.01.72 83

Non residential and government orders in civil construction willlargely contribute to growth in the construction industry

Development and share of construction segments [EUR m]

E = Estimate

Source: NSI, National forecasting institute, Roland Berger Strategy Consultants analysis


12%

37%

24%27%

6.546,6.546

2004

20%

41%

20%

19%

8.109,8.109

2005

20%

40%

21%

20%

9.958,9.958

2006 2007E 2008E

4.267,4.267

2001

16%

38%

19%

27%

4.806,4.806

2002

17%

46%

19%19%

5.416,5.416

2003

15%

44%

22%

20%

ResidentialNon-residential constructionTransportation infrastructureOther

11,053

12,214

20%

40%

21%

20%

20%

40%

21%

20%

P.44260.001.01.72 84

2001 2002 2003 2004 2005 2006 2007E 2008E

Residentialconstruction

506745

899 952

1,632

1,9522,166

2,393

E E

E = Estimate

Middle class housing demand surplus and new means of financing will constantly result into increase of housing construction

Source: NSI, Roland Berger Strategy Consultants analysis

CAGR +10.7%CAGR +25,2%

Construction – development of residential construction [EUR m]

ROMANIA: RESIDENTIAL CONSTRUCTION – BACKUP

P.44260.001.01.72 85

In just two years, dwelling construction doubled in Bucharest and West regions

BACKUP

Source: National Statistics Institute, Census, Roland Berger Strategy Consultants analysis

5.6

4.6 4.4

2.1

6.5

4.4

3.52.9

4.6

2.9

1.4

2.6

6.5

4.7

3.5

4.24.6

2.3

1.2

2.8 2.8

2.0

4.2

6.8

North-East South-East North-West Bucharest South Central West South-West

New dwellings constructed by regions, 2003-2005 [thou units]

2005 2004 2003

27% 31% 49% -9% -3% 53% -21%5%Growth rate 2003-2005

P.44260.001.01.72 86

Significant number of large residential projects will be delivered in the following years, attempting to cover the growing demand

2009

2010

2010

2008

2008

2008

2008

2009

2010

2009

2008

2008

2009

2009

Finishing Date

1800

3400

1200

220

655

788

908

1000

1200

1200

1370

1800

2700

2000

Number of Dwellings

Tiriac Imobiliare + Riofisa

Raicris Construct

Future Group

Enol Grup

Mivan

Colliers

GTC

Adama

River Invest

Euro Habit

Rom Canada Group

Hercesa

Neocity Group Romania

Koch and Partner

Developer

Timisoara

Oradea

Iasi

Cluj

Bucharest

Bucharest

Bucharest

Bucharest

Bucharest

Bucharest

Bucharest

Bucharest

Bucharest

Brasov

City

Riofisa Residential Complex

Cartierul Primaveii (Primaverii Residences)

Green Park

Central Park Residence Cluj

New Town Residences

Asmita Gardens

Rose Garden

Pipera Residences

Sema Parc Residential

Planorama Colentina

West Park

Basarabia Residential Complex

Neopeninsula

Fontana Residences

Project Name

ROMANIA: RESIDENTIAL CONSTRUCTION PROJECTS – BACKUP

Source: CBRE, Colliers, DTZ, Expert Interviews, Roland Berger Strategy Consultants analysis

P.44260.001.01.72 87

2001 2002 2003 2004 2005 2006 2007 2008

Non Residential

Construction

1,5891,825

2,4812,901

3,315

3,9764,413

4,877

E E

E = Estimate

Non residential construction is traditionally the main segment within the construction industry

CAGR +10.7%

Construction – development of non residential construction [EUR m]

ROMANIA: NON RESIDENTIAL CONSTRUCTION – BACKUP

CAGR +16.5%


P.44260.001.01.72 88

Bucharest is the main driver for non-residential projects, but developers are shifting their focus to other cities as well

Developer

Africa-Israel Investments

Baneasa Development

North Real Estate Opportunities Fund

New Century Holdings, Africa Israel

Erste Group, EMCT

Riofisa+Tiriac Investments

Riofisa

TriGranit

Immoeast Austria

Modus Properties

Square Meters

31 000

64 000

50 000

105 000

50 000

53 000

76 000

30 000

47 000

60 000

120 000

140 000

Delivery Date

2009

2008

2009

2008

2008

2009

2009

2008

2009

2009

2009

2009

2009

Cost

30 m

50 m

50 m

50 m

60 m

60 m

100 m

111 m

150 m

150 m

150 m

185 m

400 m

City

Bucharest

Bucharest

Arad

Bucharest

Suceava

Bucharest

Bucharest

Brasov

Brasov

Timisoara

Bucharest

Constanta

Bucharest

Hotel in Bucharest

Ana Tower

Arad Mall

Baneasa Mall

Bucovina Shopping City

Cotroceni Park

Sun Plaza

Brasov Business Park (+ dwellings and hotel)

Riofisa Center

Mall

Esplanada Mall

Polus Center

Coliseum

Project Name

ROMANIA: NON RESIDENTIAL CONSTRUCTION PROJECTS – BACKUP

Source: CBRE, Colliers, DTZ, Expert Interviews, Roland Berger Strategy Consultants analysis

P.44260.001.01.72 89

2001 2002 2003 2004 2005 2006 2007 2008

TransportConstruction

1,041923 1,025

1,4091,657

2,0772,305

2,547

E E

E = Estimate

Infrastructure construction will benefit from massive investments from the Government of Romania as well as the EU

Construction – development of transport construction [EUR m]

ROMANIA: TRANSPORT CONSTRUCTION – BACKUP

CAGR +10.7%CAGR +12,2%


P.44260.001.01.72 90

Romanian Ministry of Transportation, Construction and Tourism launched ambitious plans for highway network construction

1) Price per km includes bridges and tunnels

Source: The Ministry of Transportation, construction and Tourism, Roland Berger analyses

Iasi

Sibiu

Cluj

Arad

Buzau

Constanta

DevaFocşani

Ploieşti

Piteşti

Giurgiu

Bucuresti

Brasov

Piatra NeamtBors

Timisoara

Nadlac 1,199930794

444298 420

6829521,088

264526

1,438

2009 20102008 20112007 2012

• Brasov – Bors: 415 km/2 lanes per direction/ total cost EUR 2.5 bn; cost/km = EUR 5.4 m

• Until 2013 – 1,800 km of highway – cost EUR 12.8 bn, approx EUR 6.6 m/km

PlannedAlready in use

Construction development [km]

ROMANIA: TRANSPORT CONSTRUCTION – BACKUP

Finished Under construction

P.44260.001.01.72 91

C.2 Production technology and quality

P.44260.001.01.72 92

Based on the planned yield factors 1,010 k tons of scrap will betransformed into 872 k tons of long products

Transformation steps with projected losses, 2012

Source: Ductil Steel, Roland Berger analyses

Scrap

1010 kt

Rebar/ reinf. steel in coils

Wire rod

0 kt

239/53 kt

Continuous Casting

908 kt

ElectricArc Furnace

926 kt

Rolling Mill

872 kt

Steel Billets/blooms Finishedlongproducts

2% 0% Billets/blooms for sale or processing

Profiles

310 kt

270 kt9%

4.4/3.7%

8%

Billets/blooms

Rebars/ reinf. steel in coils

Profiles

P.44260.001.01.72 93

The largest part of the EUR 105 m investment over the next 6 years comes from meltshop and rolling mill in Otelu Rosu until 12/2008

1) Including maintenance Capex 2) Schlatter welding machine and fence machine financed through leasing 3) Investment split based on expected needs

Investment break-down1) [EUR m]

Source: Ductil Steel, Roland Berger Strategy Consultants analyses

40.3

13.0

13.0

105.0

19.1

13.0

2007 2008

6.6

2009 2010 2011 2012 Total

Otelu Rosu

Buzau

3.3

3.3

10.03)

3.03)

18.2

0.93.02)

39.7

0.61.02)

10.03)

3.03)

10.03)

3.03)

P.44260.001.01.72 94

More than EUR 56m planned to be invested in Otelu Rosu within the next 2 years to modernize EAF, rolling mill and other assets

1) Continuous casting, meltshop electric system, air compressor, auxiliary equipment2) Building, lighting, environmental and maintenance investments3) as per Techint steel scrap specificationsSource: Ductil Steel, Roland Berger analyses

Revamping rolling mill for profiles

General expenses for rolling mill plant

Revamping furnace #2

Other equipment2)

ROLLING MILL & OTHERSMELTSHOP

Raw materials feedstock

• Steel scrap >0.6 t/m3)

• Additionaly cast iron(2.5-3.0 t/m3

Semi-products

Billets• 100 x 100 x 12,000 mm(Blooms)• (160 - 260 x 12,000 mm)

Final products

• 10 - 28 mm reinforcing bars• 6,8,10,12 mm reinforcing steel

in coils (smooth/ribbed)• 5.5 - 11 mm wire rod• (profiles and beams <200 mm)

Product quality

9,250

1,500

4,950

1,500

1,300

46,850

Electric arcfurnace shop and CONSTEEL system

Other equipment1)

24,250

2,000

Scrap yard modernization

6,300

Water treatment plant

5,300

Smoke treatment

9,000

• Thermo mechanically treated• Drawing• High strength deformed

Total investment break-down in Otelu Rosu [EUR ths]

P.44260.001.01.72 95

Electric arc furnace provided by Techint will offer nominal capacity of 100 t and will reach tap-to-tap time of 43 minutes

Electric arc furnace

COMPONENTS TECHNICAL SPECIFICATIONS

• Steel structure• Hydraulic power station• Lances and burners• Mechanical equipment• Weighing system of the furnace• Casting car• Sample gripper and temperature

• Power supply: 35 kV – 50 Hz @ 66 MVA• Tap-to-tap time: 69 min (stage 1), later 43 min• Transformation yield: 92%• CONSTEEL scrap charging• Bottom tapping iron cutter TBT• 610mm (24”) electrode

PROVIDER PRICE CAPACITIES

EUR 24,250 ths nominal: 100 t

Electric arc furnace characteristics

Source: Ductil Steel, Techint, Roland Berger analyses

P.44260.001.01.72 96

Water treatment plant

Over EUR 14m will be invested into fumes treatment and proper treatment of the water recycling

Smoke treatment plant

DESCRIPTION DESCRIPTION

• New fume system for EAF/CONSTEEL system and the ladle furnace

• Fumes filtration• Dust handling• Flow rate of primary fumes from CONSTEEL –

125,000 Nm3/h (900oC T)• Flow rate of secondary fumes for shed

ventilation – 600,000 Nm3/h (60oC T)• LF fumes flow rate – 35,000 Nm3/h (250oC T)• Gas flow rate to filter – 813,000 Nm3/h (130oC T)

• Flow rate for EAF – 1,400m3/h• Flow rate for CONSTEEL – 1,300m3/h• Flow rate for fume system – 600m3/h

• Water temperature <35oC• pH factor 7.5-8.5

PROVIDER PRICE

EUR 9,000 ths

PROVIDER PRICE

EUR 5,300 ths

Smoke treatment and water treatment plants

Ravagnani

Source: Ductil Steel, Techint, Roland Berger analyses

P.44260.001.01.72 97

D. Prime cost positions of Ductil Steel

P.44260.001.01.72 98

Both scrap and electricity as the main cost drivers for an EAF-based technology should be well available on the Romanian market

• Outlooks for scrap supply in Romania are very positive due to a substantial steel production over the past 35 years and convergence towards the EU standards

• High probability of imports from Russia and Ukraine persisting due to the development of export limitations (lifting them in the future)

• Generally a strong trend towards decreasing scrap exports from the CEE region due to higher local consumption can be observed

• The plant in Otelu Rosu will reach a future scrap consumption of around 1010 kt p.a. for the planned production volume of 872kt final products

• New investments in steel plants in the region will have an impact on scrap and electric energy consumption increase

• The outlook for electric energy is positive due to the well diversified and balanced Romanianelectricity generation assets and the excellent domestic availability of primary energycarriers

Management summary

P.44260.001.01.72 99

Materials and energy costs are the key component of total costs for an EAF technology, with scrap as main cost leverage

13%2%

13%

20%

52%

Other energy

Ferroalloys

Scrap

7%

81%Materials and energy.

External services

Sources: Roland Berger analyses

Typical cost structure of the steel plant based on EAF technology [%]

RenumerationOthers

6%6%

Other materials

Electric energy

100%

P.44260.001.01.72 100

D.1 Scrap availability in Romania and CEE countries

P.44260.001.01.72 101

Romania is expected to maintain its self-sufficiency in scrap generation in the future, too

• Domestic consumption of ferrous scrap is on the rise as an increasing share of the ferrous scrap generated in Romania is delivered to the domestic steel mills –on the export markets Turkey has traditionally been the most important destination

• Romanian scrap generation has been relatively constant, around 4 m tons per year, in the past three years

• Romanian ferrous scrap market is structured into three main levels with a relatively low degree of transparency

• The considerable crude steel production registered in the past 30 to 35 years points towards good availability of scrap iron in the following period

• The geographical distribution of the main steel consuming/ potential scrap generating industrial clusters in Romania is relatively balanced

P.44260.001.01.72 102

Domestic consumption of ferrous scrap is on the rise …

Ferrous scrap consumption in Romania, 1999-2006 ['000 t]

Source: ICEM, Comtrade, Roland Berger analysis

907

1,367 1,4081,125 1,119

1,751

2,256

2,600

1999 2000 2001 2002 2003 2004 2005 2006 E

P.44260.001.01.72 103

… as an increasing share of the ferrous scrap generated in Romania is delivered to the domestic steel mills

Breakdown of ferrous scrap generated by destination market, 1999-2006 ['000 t]

Source: ICEM, UN Comtrade, Roland Berger analysis

1999 2000 2001 2002 2003 2004 2005 2006 E

2,233

3,655

3,083 3,1953,503

Export markets

Domestic market

4,1453,918

4,462

58%58%

42%32%

35%46%

37%

41%

59%

63%54% 65%

68% 58%42% 42%

Note: Imports of ferrous scrap are virtually inexistent ranging from 900 to 10,000 tonnes/ year in the 1999 – 2006 period

P.44260.001.01.72 104

On the export markets Turkey has traditionally been the most important destination for Romanian ferrous scrap

Source: UN Comtrade, Roland Berger analysis

11%

6%

5%3%

8%

65%

2%

Breakdown of ferrous scrap exports by country, 2006 [%] Comments

Turkey

Others

EgyptItaly

Bulgaria

Greece

Hungary

• Turkey is one of the world‘s largest scrap buyers with 13.3 m tonnes imported in 2005, while imports from Romania amounted to 1.2 m tonnes

• Moreover, Turkish scrap traders have longstanding trade relations with Romania, as they also own several domestic scrap dealers

• Due to their insufficient domestic supply but also the relatively low transportation costs, neighboring/ nearby countries (e.g. Greece, Bulgaria, Hungary) are also important export destinations

Total export: 1,874

P.44260.001.01.72 105

Romanian ferrous scrap market is structured on three main levelswith a relatively low degree of transparency

Market structure in Romania

Source: ISI, Metal Bulletin, Roland Berger analysis

• Large number of small C and even B-dealers exists

• Domestic steel industry tries to keep scrap in the market however scrap traders are very flexible and act upon price swings

• The large players (A-dealers) control a significant share of the export (Romrecycling, Romferex, Metal House, etc.)

…………….

Steelmakers

• Several hundreds of companies – performing collection activities

• Companies performing collection/ sorting/ processing activities

• Many of them are former state companies (Remat)

• 5-6 large traders• Main differentiator

compared to B-dealers is size and ability to export (obtain authorizations/ etc.)

B-dealers

C-dealers

…..

Comments

BACKUP

Exports

A-dealers

P.44260.001.01.72 106

The considerable crude steel production registered in the past 35 years points towards good availability of scrap in the future

Source: UN Comtrade, Roland Berger analysis

1) The forecast for 2008 assumes the running of the steel mills at full steam in line with GOR Steel industry Restructuring Strategy

Evolution of crude steel production, 1970-1990 ['000 tons]

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

6,517

14,411

9,761

Evolution of domestic demand for scrap, 2003-20081) ['000 tons]

1,119

3,300

2003 2008

P.44260.001.01.72 107

The geographical distribution of the main potential scrap generating industrial clusters in Romania is relatively balanced

Constructions

Machine building

Chemicals & Oil

Automotive

Appliances

Railways

Shipbuilding

P.44260.001.01.72 108

Scrap market situation in Hungary, 2005

Imports of scrap marginal in Hungary – they cover 5% of its scrap consumption and the rest is covered by domestic scrap supply

Consumption of scrap in Hungary [kt]

822

Consumption

Source: World Steel in Figures 2006

2005

2004

Domestic supply

Exports Import Consumption

761

47 822

1,536

Domesticsupply


900

100 800

1,600

BACKUP

P.44260.001.01.72 109

Scrap market situation in Slovakia, 2005

Drop in scrap consumption in the year 2005 has resulted in lowernet export from Slovakia

701

Consumption

934

Consumption


2005

2004

Domestic supply


391198 934

1,127

Domesticsupply


500300 1,100

1,300

(Italy)

(Germany)

(Russia)

Consumption of scrap in Slovakia [kt]

BACKUP

P.44260.001.01.72 110

Scrap market situation in Czech Republic, 2005

Around 45% of Czech scrap supply is being exported with Germany as a key export target

Consumption of scrap in Czech Republic [kt]

2 621

Consumption


2005

2004

Domestic supply


1,763

399 2,621

3,985

Domesticsupply


1,600

500 2,900

4,000

BACKUP

P.44260.001.01.72 111

Scrap market situation in Poland, 2005

Scrap trade balance in Poland is export-driven – import restrictions are limiting this channel of supply

Consumption of scrap in Poland [kt]

5 040

Consumption


2005

2004

Domestic supply


1,400

240 5,040

6,200

Domesticsupply


2,000

300 5,800

7,500

BACKUP

P.44260.001.01.72 112

D.2. Scrap supply and consumption outlook in the region

P.44260.001.01.72 113

• It is highly possible that import restrictions for scrap import will be reduced

• Ukraine following its new trade policy towards EU will increase export scrap quotas

• Export from the CEE region is expected to decrease in next years

• After period of industry restructuring some steel mills announcenew investments that will increase steel production

• Higher utilization of existing production capacities will be another factor for the rise of steel production

Increasing demand for scrap, change of sources and trade balanceimprovement will determine future scrap availability in the region

Key drivers for scrap availability in the target regionKey drivers

1SCRAP DEMAND

SCRAP SUPPLY

2

SCRAP EXPORT/ IMPORT

3

Expected consequences

• Change of scrap sources: (e.g. increase of availability from one time sources)

• Domestic demand increase for scrap

• Trade balance improvement, more import and less export

• There are some potential sources that will form the scrap supply level in the future:– car utilization– railways liquidation – army reduction

– modernization expenses– household appliances

Source: Roland Berger Analyses

P.44260.001.01.72 114

The investment plans of major steel plants in the region will increase demand for scrap in the future

Steel plants’ investment plans and influence on scrap demand

Source: Companies, press research

Steel plant Investments announced

Influence on scrap demand

Mittal Steel Galati (RO)In addition to recent USD 50 m investment in modernization of blast furnace no. 3, the company is investing USD 59 m into upgrade of its biggest furnace; will lead to a slight increase in scrap consumption

Dunaferr (HU) A recent reline of blast furnace no. 1 will not have any major influence on scrap consumption even in case of a big production increase

Huta Stali Częstochowa Sp. z o.o. (PL)

Ukraine Donbas will invest PLN 440 m to modernize production line in the next years; production should rise to 1.1-1.2 m t annually, additional new consumption ca. 300kt

Mittal Steel Poland- unit in Dabrowa Gornicza

Construction of the third continuous steel casting line with the capacity of 3 m t annually; additional increase in scrap consumption by ca. 800-900 kt

Arcelor Huta Warszawa. Sp z o.o. (PL)

Arcelor will switch into production of rebars and merchant rebars, a new rolling mill will be finished in 2007; new consumption increase by 250-350 kt

CMC Zawiercie S.A. (PL) Building new hot sheet mill and the second continuous steel casting line

1

New players (SK, PL, H ?) Building new Mini- mills and rolling capacities

P.44260.001.01.72 115

Convergence between target region and EU-15 may provide additional 1,878 kt scrap supply in the future

Scrap supply per inhabitant, 2004 [kg]

Source: UN Comtrade, Roland Berger analyses

2

Western European average 2)

CEE region

Comments252 22

230

1) Calculated as potential gap (22) x cumulative n.of inhabitants in the CEE region (85.4 m) 2) EU 15 countries with highest density of steel plant 4) Gap in terms of various aspects, such as average earnings, consumption etc.

• Gap4) between CEE countries (and thus target region) and EU-15 is not substantial and will be getting smaller

• Electric appliances consumption in target region is rising, average age of car park is decreasing

• Based on these assumptions, the gap in average scrap supply per capita is supposed to diminishbetween CEE and EU-15 region, too

• 1,878 kt of additional scrap supply will be generated due to the convergence of target region and EU-15 countries

1,878 kt potential scrap supply1)

P.44260.001.01.72 116

392

160197

240230241

SK CZ HU RO PL CEEaverage

There are major differences found in scrap supply per capita in the target market region

Scrap supply per inhabitant, 2004 [kg]

Source: UN Comtrade, Roland Berger analyses

2 BACKUP

Comments

WE average (252)

• Scrap supply per capita in Czech Republic exceeds the WE average by ca 50%

• Levels of scrap supply per capita both in Romania & Slovakia are comparable to WE average

• Scrap supply per capita in Hungary & Poland are well below both target market and WE market average

P.44260.001.01.72 117

Car utilization is the future large potential scrap source –decreasing volumes of home scrap

Key drivers for scrap supply in the target region

• Change in production methods

Home scrap

• Higher construction level

• Old industrial sites and plants

Demolition

• Increasing car utilization in the CEE region

Car utilization

• Liquidation of the unused railways

Railways

• Increase of scrap collected quote per person

Household

appliances

• Changes within army and reduction of number of active military bases

Military

• Extraordinary scrap prices incurred clean up effect in 2004

Clean up effect


2

P.44260.001.01.72 118

Some scrap sources will win on importance in next years

Key drivers for scrap supply in the target region

DriverMilitary

• Reduction of number of soldiers and closure of military bases are a good source of scrap

• For example in Poland, between the years 2001-2005 out of existing 300 military bases 71was assigned for liquidation. There are further to come

Demolition

• Improvement of condition of target region construction industry in 2005 - 2015 will create demand for demolition works which is a source of scrap

Household appliances

• Due to Access Treaty of NMS quote of scrap collected per citizen should increase to4 kg/ person till 2008

Railways

• Railway densityin the target region exceeds the EU-15 ratio. In Poland it amounts to 6.6 km/100km2, , in Slovakia 7.5km, in Hungary 8.5km and in Czech Republic 12.1km,

For „old EU” the ratio amounts to 4.9 km/100km2

Car utilization

• Increasing car utilization in CEE

• From one car ca. 250 kg of good quality scrap can be retrieved

• According to EU regulations In 2006 NMS1 have to scrap 85% ofall cars that will have their registration withdrawn (by 2015 – 95%)

Descrip-tion


2

1) NMS = New member states

P.44260.001.01.72 119

Railway density in the region exceeds the EU 15 average

BACKUP

7.5

12.1

8.5

6.6

4.8

Slovakia Czech Republic Hungary Romania Poland

EU 15 average 4,9km/100 km2

Railway density in the target region, 2005 [km of rail/km2]


2

P.44260.001.01.72 120

In the next years import should increase due to restrictions simplification and Ukraine’s policy – export expected to decrease

Source: Expert interviews, Roland Berger analyses

Key drivers for scrap export/import development in the target region

According to expert interviews import restrictionsconnected with license will be changed in short term and scrap will not be treated as a waste – negotiations in Sub-commission for Environment Protection in Polish Parliament at the moment

Ukraine increased its quotas for scrap export and decrease export duties to EU for the year 2006

Export from target regions should decrease. Increasing local consumption along with rising scrap prices (for example, in August 2006 scrap prices in Poland exceeded German prices) will have the largest impact on export decrease. In recent years lack of demand for scrap in target regions and poor financial situation of local mills forced scrap collectors to export. Improvement of financial standing & rising demand should limit the export in next years

Trade balance improvement

A

B

C

Import Export

3

P.44260.001.01.72 121

D.3 Electric energy

P.44260.001.01.72 122

The Romanian electricity market is very close to full liberalization –all industrial customers are already able to freely negotiate their electricity purchases

Key developments in the Romanian power sectorOverview of electricity market opening, 2001-2007 [%]

15%33% 33% 40%

55%

100%84%

2001 2002 2003 2004 2005 2006 2007

`

Minimum annual consumption for eligibility (GWh)

Market opening degree

• Industrial market is fully liberalized – all industrial clients areeligible consumers

• Households are expected to become non-captive customersby July 2007

Generation• Generation assets formerly part of only

one state-owned company(CONEL/RENEL) have been separatedand corporatized according to fuel type

• State seeks private partner involvement(e.g. Privatisation of selected thermal power plants)

Transmission• The only transport operator,

Transelectrica, will remain in state controlDistribution• Out of 8 distribution companies (Electrica),

5 are already privatized with E.ON, CEZ and Enel

• The remaining three companies areintended to be privatized in the near future

Supply• Currently there are 66 licensed suppliers

100 40 40 20 1 1 all

Source: ANRE, Roland Berger analysis

P.44260.001.01.72 123

Electricity production and consumption are set to increase, withthe balance shifting slowly towards nuclear

Comments

• Both production and consumption are on the rise

• Energy efficiency is still poorbut it will improve in time

• Romania is and will remain a net exporter of electricity

Overview of electricity production and consumption, 2001 – 2010 [TWh]

• Production

– Thermal

– Hydro

– Nuclear

• Imports

• Exports

• Total final consumption

2001

53.9

33.5

14.9

5.4

+0.8

-2.1

45.4

2002

54.9

33.1

16.1

5.7

+0.4

-3.3

44.9

2003

56.6

38.4

13.3

4.9

+1.0

-3.0

47.2

...

...

...

...

...

...

...

...

Source: National Institute of Statistics, GOR Energy Roadmap, Roland Berger analysis

2004

56.5

34.4

16.5

5.6

+2.4

-3.6

50.7

2005

59.4

33.7

20.2

5.5

+2.3

-5.2

48.9

2006

61.5

36.3

19.7

5.5

+1.0

-5.3

50.3

2010F

64.9

37.0

17.0

10.7

0

-9.0

56.9

P.44260.001.01.72 124

Electricity supply is quite evenly balanced and the futuredevelopments will ensure a positive trend of this sector

11

1212

6

8

3

89

31

Breakdown of electricity supply by producer, 2006 [%] Expected Developments

Hydro• Hidroelectrica has commited to privatise all

the remaining micro-hydo-powerplants untilthe end of 2007

Thermo• The three intergated energy complexes at

Turceni, Rovinari and Craiova will need to beprivatised until the end of 2007

• There are also several greenfield type of initiatives in development in this sector

Nuclear• Unit 2 will be operational in Sep 2007,

increasing Romania‘s electricity output withup to 10%

• Units 3 and 4 could be operational in 2012, after EUR 2 bn investment

Hidroelectrica

ElcenBucuresti

TurceniRovinari

Deva

Craiova

Termoelectrica

Other

SN Nuclearelectrica

Source: ANRE, Government of Romania, Roland Berger analysis

Hydro Thermal Nuclear

P.44260.001.01.72 125

Romania has sufficient resources to ensure a stable energy supplyin the long term, allowing for strong developments in high energy-consumption industries

31

9 1

3 17

39

Structure of electricity generated by type of energycarrier, 2006 [%] Comments

Coal• Expectations for coal reserves are to last for

50 – 150 years

Natural gas• National natural gas production covers over

50% of the total consumption in energygeneration, making Romania one of the moreindependant countries from this point of view

• Natural gas reserves, although depleting, still richer than in surrounding countries

Oil• At present, approximately 50% of the oil used

in energy production comes from national production

• Oil reserves, although depleting, are still richer than in neighboring countries

Coal

Fuel oil Natural gas

Hydropower

Nuclear powerOther1)

1) Others include renewable energy forms (solar, wind, geothermal, etc.

Source: National Statistics Institute (customized data request), Roland Berger analysis

Thermal Hydro Nuclear Other

P.44260.001.01.72 126

E. Business plan

P.44260.001.01.72 127

The medium-term business plan for Ductil Steel shows a signifi-cant growth potential linked to investments in adding capacity

Executive summary

• With predicted sales revenues growing from EUR 198 m in 2007 to EUR 450 m in 2012 the business model shows a positive EBITDA development over the entire period; net profits exceeding EUR 25m in the third year of the projection period, namely in 2009

• Positive and increasing cash flow from operating activities is a good basis for investment success

• For the entire projection period the return on equity (ROE) is estimated to approximate 20%

P.44260.001.01.72 128

E.1 Technological, market and financial assumptions

P.44260.001.01.72 129

Modernization of facilities in Otelu Rosu and Buzau lead to a sub-stantial increase of capacities – further efficiency potential assumed

Technological assumptions and capacity utilization


Production equipment

Capacity utilization

Otelu Rosu:Modernization of the meltshop by installing a new EAF with a 1mt/a capacity (SOP 10/08). Installation of a smoke treatment facility, revamping of the continuous casting, rolling mill for profiles (300kt capacity) and general modernization of facilitiesBuzau:Installment of high capacity machines for welded mesh (Schlatter), for fencing and the Tempcore technology in the rolling mill (for shifting to ST 37.2 instead of PC 52billets)

Predictions of the production volumes have been derived from a 330 days working cycle – 250 days being utilized for the production of rebars and 80 remaining days for wire rods in Buzau. A 3shifts/7 days model envisaged.

Based on the experience of Roland Berger there is a noticeable potential for increasing capacities at a facility like Ductil Steel and the first assessment of figures provided hints towards this assumption (out of the scope of the actual project)

Comments Category

P.44260.001.01.72 130

Rebars and wire rod destined for the local market, profiles enter the bullish market and billets/blooms complete the portfolio

Market assumptions for finished products


Rebars and wire rod

Profiles1)

Thanks to the currently dynamically growing consuming markets (especially construction) and the expected positive trend in Romania Ductil Steel is very well positioned and perceived as a high-end producer of these products for the local market

Profiles represent a product abandoned for a longer period of time for the company. Taking into account the starting production curve of (medium) profiles at Otelu Rosu and expected demand from the markets Ductil Steel will enter a high-demand market. Markets seem to be eager for a new producer to outstand the invisible pressure of large consolidated producers. Heavy sections will experience a larger demand shortly70% of profiles to be exported (via traders), 30% destined for the local market

Comments Category

Billets/blooms(for sale or processing)

Apart from providing semi-finished products for the rolling facilities at Buzau, the company intends to utilize a substantial part of the production assets for the production of billets/blooms for sale or further re-processing in another plants.90% of billets to be exported, 10% destined for the local market to keep competition under control (to the utmost possible extent)

1) Detailled break-down of production volumes and prices for individual profiles groups has not been taken into account

P.44260.001.01.72 131

No price developments taken into account for scrap and finished products due to their strong correlation

Financial assumptions (1/3)


Cost of materials and utilities

• Scrap has been set at an average price level for 2006 (EUR 181/t), future price development of scrap as the most important cost factor have not been taken into account since there is a strong correlation between its price and the price of finished products

• The energy price (electricity and gas) has been estimated to increase by 5% annually relative to the 2006 actual.

• Consumption of the specified materials and utilities (electric energy, oxygen, natural gas, ferroalloys, electrodes etc) has been set at levels stipulated in the technical specification delivered by equipment suppliers or was calculated based on the best practices

• Other important production costs have been calculated based on the average levels recorded in 2006 while taking into account the expected improvement in efficiency resulting from new investments

• General office expenses are estimated to increase by 10% annually until 2009 and by 5% thereafter

• Import prices for wire rod have been estimated constant at EUR 375/ton• Processing charges for rebar at Lamdro have been maintained constant at

EUR 75/ton

Comments Category

P.44260.001.01.72 132

Tight correlation between billet and long products prices over the decade; favorable price span for producers of finished products

Comparative price chart – long products vs. billets

50

100

150

200

250

300

350

400

450

500

January

-98Ju

ly-98

January

-99Ju

ly-99

January

-00Ju

ly-00

January

-01Ju

ly-01

January

-02Ju

ly-02

January

-03Ju

ly-03

January

-04Ju

ly-04

January

-05Ju

ly-05

January

-06Ju

ly-06

Billet, CIS export (FOB Black Sea Port)

Rebar, CIS export (FOB Black Sea Port)

Wire Rod, CIS export (Fob Black Sea Port)

Scrap-HMS I, Rotterdam export (FOB Rotterdam)

Source: Steel Orbis, IISI, Roland Berger Strategy Consultants analysis

BACKUP

P.44260.001.01.72 133

Financial success of the investment is dependant on the development of sales prices for own products



Provision expenses No provisions have been made for doubtful clients or damaged inventories

Comments Category

Salaries and number of employees

Cost of salaries will growth (real growth) through 2007-2009 at the level of 10%and 15% between 2010-2012 annually for direct production workers and support functions in Buzau as well as 15% over 2007-2012 in Otelu Rosu. In 2012 the target number of 1,238 employees will be reached for both plants

Sales revenues The value of sales in the financial model results from sales of 16 main productsand 3 main product groups (rebar/reinf.steel in coils, profiles and billets/blooms) and derivatives. Future price development for these products has been set at constant levels of 2006. According to past developments in the steel sector (and linkage of finished product’s prices to the price of scrap) this method can be used for a relatively reliable prediction of profit margins

P.44260.001.01.72 134

Freeing rolling capacities for rebar production and import of wire rod from abroad are another cornerstone of the business planning



Environmental investment

Import of wire rod

Various investments into environment (besides the CAPEX listed in detail in the document) have been planned in order to meet the upcoming stricter requirements of the Romanian/EU legislation (monitoring water, air, emissions etc.)

Production capacities currently used for wire rod production at Buzau will be freed for the production of higher added-value rebars and wire rod is planned to be imported from abroad (China, Ukraine etc.)

Comments Category

P.44260.001.01.72 135

The business plan is based on common assumptions for key macroeconomic indicators throughout the projection period

Financial assumptions - macroeconomics

General macroeconomic indicators (GDP)

• No major changes expected

Comments Category

Taxes and depreciation standards

Inflation • No inflation adjustments taken into account (except personnel cost, energy and general office expenses)

• The business plan is based on the actual figures for 2006, which have translated from local currency, RON, into EUR at an exchange rate of 3.52 RON/EUR. All projections have been performed directly in EUR and no gains/losses for translation have been taken into account

Exchange rate

• The nominal corporate tax rate is assumed to remain constant, at 16%. Assets are depreciated linearly and no residual value has been taken into account

Source: 2007-2012 Business Plan prepared by Sider Sipe

P.44260.001.01.72 136

Total value of investment in production equipment and buildingsduring the projection period of EUR 105 m

Assumptions concerning the main assets categories in financial model

CommentsCategory

• In 2007 the company plans to start investing, among others, in a new electric arc furnace, new smoke treatment equipment, revamping a profiles rolling mill and a new Schlatter welded mesh machine. The entire capital expenditure over the projection period will amount to EUR 105. In 2007 the company plans to revalue the company’s fixed assets which is expected to increase their value from EUR 45m to EUR 105.5 m

Fixed assets

• The value of the inventories grows in line with the turnover over the projection period. The inventories of scrap and imported wire rod are estimated to amount to 15 days of the following month’s consumption whilst the stocks of auxiliary materials are estimated equal to the consumption of the following two months

Inventories

• The value of the trade receivables will follow the increase in turnover as the company assumes that all export receivables will be collected within the following month after sale whilst 70% of domestic receivables will be collected within the first month following the sale and the remaining 30% within the second month following the sale

Trade receivables


P.44260.001.01.72 137

Profit accumulation and loan pay back during the projection period will significantly improve relation between equity and loans

Assumptions concerning the main captions of equity & liabilities in the financial model

• The company will retain as equity all earnings realized until 2009. During 2011 and 2012 the company plans to distribute dividends equal to 50% of the net profit of the previous financial year

Equity

• To finance the investment in production expansion the company plans to take on an investment loan worth EUR 35 m. To fund the takeover of Ductil Steel’s entire share capital, Sider Sipe plans to take on an additional loan worth EUR 43.5 m. Moreover, the company will recur to bank financing for working capital requirements and to financial leasing agreements. Although during 2007 and 2008 total debt will increase significantly, to reach approx. EUR 95 m as of 31.12.2008, the company estimates that through retained earnings it will achieve to gradually repay a significant amount by 2012

Loans

CommentsCategory

• The company will pay scrap in 15 days after delivery whilst for imported wire rod there is a 90 days credit period

Trade payables


P.44260.001.01.72 138

Equity will increase in the projection period by EUR 152.6 m mainly through retained earnings

Changes in equity during projection period [EUR m]Comments

• In 2007 Sider Sipe plans to acquire and cancel the 50% stake of the company’s shares owned by Feralpi. Moreover, Sider Sipe plans to revalue the company’s fixed assets which should increase the revaluation reserves by EUR 25 m.

• Over the projection period company will generate retained earnings amounting to 128m EUR, which is a result of continuous profits generated between 2007 and 2012

19.2

Equity 2006

25.0

Revaluationreserves

2007

13.3

Retained earnings

2007

0.3

Reduction of share capital

2007

57.2

Equity 2007

114.6

Cumulated retained earnings

2007-2012

171.8

Equity 2012

+152.6


P.44260.001.01.72 139

E.2 Financial projections

P.44260.001.01.72 140

The sensitivity calculations are based on variations of the selling prices for the company’s main products and of the cost of scrap

Price fluctuations for main products and scrap – sensitivity analysis

Price

Rebars

Welded mesh

Scrap

Stress test Business plan Upward sensitivity

2007 2009 2010 2012 2007 2009 2010 2012

• Market prices [EUR] 435 420 435 420 435 435 435 435 435 440 435 440


2007 2009 2010 2012

181 205 181 210 181 181 181 181 181 170 181 175• Scrap prices [EUR]

Profiles


Billets for sale


P.44260.001.01.72 141

Comments

With significant increases in sales, Ductil Steel can achieve stable EBITDA margins and net profits of more than EUR 32 m

Sales, EBITDA and net profits [EUR m]

• A stable EBITDA margin of ~ 15% in the projection period and a growing net profit

2007 2008 2009 2012

62.8

32.2

62.9

32.8

267.4

53.1

31.9

198.1

12.1EBITDAmargin [%]

15.2 15.5 13.9

2010

15.3

23.9

13.3

40.7

17.4

392.1425.7

450.6

BUSINESS PLAN

347.4

25.3

61.0

2011

14.8

Sales EBITDA Net profit


P.44260.001.01.72 142

Despite the projection of potential negative steel cycles in 2009 and 2012, the business model stays viable


Comments

• Two fictional negative steel cycle in 2009 and 2012 have a substantial but very short-term impact on the EBITDA development but does not threaten the company’s sustainability

EBITDA margin [%]

STRESS TEST

267.4

198.1

392.1425.7

434.3

335.7

17.2

62.9

23.823.9

40.761

(6.4)

32.831.9

13.3 17.40.1

12.1 15.2 15.5 4.07.1 14.8

2007 2008 2009 20122010 2011



P.44260.001.01.72 143

With potential positive steel cycles in 2009 and 2012 the sales and profitability figures increase substantially


Comments

• Two fictional positive steel cycles in 2009 and 2012 boost the financial figures substantially


EBITDA margin[%]

UPWARD SENSITIVITY

12.1 15.2 15.5 16.919.0 14.8

2007 2008 2009 20122010 2011

267.4

198.1

392.1425.7

459.3

353.2

77.6

62.966.9

23.940.7

61.0

44.532.831.9

13.317.4

37.0


P.44260.001.01.72 144

Due to the higher volume and higher sales prices rebar and profiles represent ~67% of sales over the entire projection period

Margin on sales %

Sales structure by products, 2009-2013 [EUR m]

198.1

347.4392.1

425.7450.6

2007 2008 2009 20122010 2011Rebar Derivatives Reinforcing steel in coils Billets for sale Profiles

267.4

13.3 16.2 16.3 14.716.1 15.5


P.44260.001.01.72 145

88%

7%5%

Ductil Steel

Materials and energy

External servicesRemunerations

Others

Materials and energy costs are the key component of total costs of investment, with scrap as main cost leverages

Sources: Roland Berger Analyses, 2007-2012 Business Plan prepared by Sider Sipe

81%

7%6%6%

Industry benchmark

Structure of operating costs

1

1) For comparable steel plants based on EAF technology

Comments

• Material and energy costs (including scrap and electricity costs) are the most significant parts of the operating costs structure

• Insignificance of the remunerations costs reflect rather low salaries costs in Romania – especially blue collar personal costs

P.44260.001.01.72 146

788823

673709745765

510510510487341

447

2007 2008 2009 2010 2011 2012

The total workforce remains constant as the reduction in headcount in Buzau in offset by an increase in Otelu Rosu

Development of personnel costs and employees, 2007 – 2012 [EUR ‘000 ]

Comments

• The reduction in headcount in Buzau is linked to productivity gains and will be done through natural staff attrition

• In Otelu Rosu the increase in production capacity will require additional personnel

1,1831,2191,2551,252

Personnel costsØ Salary 7.9

9,232 14,384

11.5

12,480

10.0

11,002

8.9 13.2

16,072

15.2

17,942

Buzau Otelu Rosu

1,1641,235


Ø personnel

P.44260.001.01.72 147

Stable EBITDA margin and net profits exceeding EUR 30m after 2009

Income statement [EUR]2007 2008 2009 2010 2011 2012

Net Sales 198,060,296 267,411,020 347,446,520 392,111,570 425,741,920 450,551,770Raw materials incl bought out wire rods (32,882,006) (50,349,089) (50,483,550) (50,483,550) (50,483,550) (50,483,550)Zinc (1,287,196) (2,020,014) (2,020,014) (2,020,014) (2,020,014) (2,020,014)Raw materials-Scrap Otelu Rosu (71,977,399) (89,804,107) (127,919,368) (148,222,077) (165,475,182) (177,355,361)Auxillary materials-Buzau (1,184,470) (1,502,980) (1,630,285) (1,750,345) (1,800,025) (1,841,425)Auxilary materials-Otelu Rosu (12,202,863) (15,225,157) (21,687,120) (25,129,189) (28,054,236) (30,068,371)Inward trasport-Buzau (5,765,856) (5,705,699) (5,740,415) (5,740,415) (5,740,415) (5,740,415)Energy-Buzau (7,849,164) (10,355,975) (11,933,852) (13,580,280) (14,715,386) (15,850,235)Energy-Otelu Rosu (14,322,696) (18,763,511) (28,063,608) (34,143,607) (40,023,832) (45,042,182)Personnel costs-Otelu Rosu and Buzau (9,231,785) (11,001,558) (12,479,763) (14,384,218) (16,071,768) (17,941,939)Other manufacturing expenses-Buzau (6,237,645) (7,850,068) (8,196,928) (8,524,048) (8,659,408) (8,772,208)Other manufacturing expenses-Otelu Rosu (7,373,331) (9,199,491) (13,104,000) (15,183,800) (16,951,200) (18,168,200)Processing charges (1,500,000) (2,362,500) (8,250,000) (9,000,000) (9,750,000) (11,175,000)

Total production costs (171,814,410) (224,140,149) (291,508,903) (328,161,543) (359,745,017) (384,458,902)Gross Margin 26,245,886 43,270,871 55,937,617 63,950,027 65,996,903 66,092,868as % of net sales 13.3% 16.2% 16.1% 16.3% 15.5% 14.7%General office expenses (2,320,332) (2,543,020) (2,798,183) (2,999,543) (3,146,732) (3,301,142)EBITDA 23,925,553 40,727,851 53,139,434 60,950,484 62,850,172 62,791,726as % of net sales 12.1% 15.2% 15.3% 15.5% 14.8% 13.9%Depreciation (3,526,563) (10,583,382) (13,697,666) (14,401,832) (15,701,832) (17,001,832)EBIT 20,398,991 30,144,469 39,441,768 46,548,651 47,148,339 45,789,893Financing expenses (4,590,430) (9,474,416) (9,343,950) (8,610,195) (8,156,643) (7,514,250)EBT 15,808,561 20,670,053 30,097,818 37,938,456 38,991,696 38,275,643Tax on profit (2,529,370) (3,307,209) (4,815,651) (6,070,153) (6,238,671) (6,124,103)Net Profit 13,279,191 17,362,845 25,282,167 31,868,303 32,753,025 32,151,541as % of net sales 6.7% 6.5% 7.3% 8.1% 7.7% 7.1%


P.44260.001.01.72 148

After 2008 the company‘s asset base will remain constant

2007 2008 2009 2010 2011 2012

Land 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000 8,000,000Buildings 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000 35,000,000Plant & machinery 62,500,000 103,100,000 110,100,000 112,500,000 114,900,000 117,300,000Others Incl Licenses 550,052 550,052 550,052 550,052 550,052 550,052Capital expenditure in progress 9,166,797 8,849,297 8,449,297 19,049,297 29,649,297 40,249,297Gross 115,216,849 155,499,349 162,099,349 175,099,349 188,099,349 201,099,349Less Accumulated depreciation (11,326,743) (21,910,124) (35,607,790) (50,009,622) (65,711,455) (82,713,287)Net PP&E 103,890,106 133,589,225 126,491,559 125,089,727 122,387,894 118,386,062Participation in Subsidiary Companies 8,072 8,072 8,072 8,072 8,072 8,072Net Fixed assets 103,898,179 133,597,297 126,499,631 125,097,799 122,395,966 118,394,134

Raw materials 3,467,107 4,204,642 5,331,160 6,293,680 6,781,772 6,600,428Auxillary and other materials 2,081,738 5,107,947 5,107,947 4,374,316 4,706,477 4,707,485Semi finished goods 3,857,853 4,908,108 7,625,138 7,374,858 7,910,898 7,803,411Finished goods 4,286,503 5,453,453 8,472,376 8,194,287 8,789,887 8,670,457

Total inventory 13,693,201 19,674,150 26,536,622 26,237,141 28,189,034 27,781,781Receivables-Export customers 1,306,908 4,416,588 3,497,838 3,239,878 3,335,338 3,335,338Receivables-Domestic customers 19,590,177 24,230,104 25,014,409 27,658,488 29,050,018 31,651,869Non trade receivables 285,032 285,032 285,032 285,032 285,032 285,032Other financial assets, Prepaid exp 1,246,950 1,246,950 1,246,950 1,246,950 1,246,950 1,246,950

Total current assets 36,122,267 49,852,824 56,580,850 58,667,488 62,106,372 64,300,970Total assets 140,020,446 183,450,121 183,080,481 183,765,287 184,502,338 182,695,104

Balance sheet- Assets items [EUR]


P.44260.001.01.72 149

Long-term liabilities will be gradually reduced by 2012

2007 2008 2009 2010 2011 2012Share capital 255,355 255,355 255,355 255,355 255,355 255,355Share Premium 6,520 6,520 6,520 6,520 6,520 6,520Revaluation reserve- old 4,274,093 4,274,093 4,274,093 4,274,093 4,274,093 4,274,093Revaluation reserve-2007 25,011,545 25,011,545 25,011,545 25,011,545 25,011,545 25,011,545Other reserves, past profits net of IAS adj 14,405,487 14,405,487 14,405,487 14,405,487 14,405,487 14,405,487Profit & Loss cumulative 13,279,191 30,642,036 55,924,203 87,792,506 112,122,035 127,897,063Shareholders' equity 57,232,192 74,595,037 99,877,204 131,745,508 156,075,036 171,850,065Shareholder's loans 7,510,656 7,510,656 7,510,656 7,510,656 0 0Working cap loans net of cash eq. 20,639,699 5,306,706 (21,912,092) (49,773,768) (58,392,404) (70,395,351)New investment loan from Italy 0 35,000,000 32,365,472 29,568,453 26,598,919 23,446,231Bridge loan taken over from Newco 43,500,000 43,500,000 40,220,818 36,740,414 33,046,440 29,125,790Long term leases with accruing interest 5,041,661 3,575,605 2,384,761 1,453,942 273,127 0Long term liabilities 76,692,017 94,892,967 60,569,615 25,499,697 1,526,081 (17,823,329)Trade Payables 1,964,147 7,937,468 15,153,332 17,345,951 19,297,845 19,243,985Nontrade payables 4,132,089 6,024,648 7,480,330 9,174,131 7,603,376 9,424,384Total current liabilities 6,096,237 13,962,116 22,633,662 26,520,082 26,901,220 28,668,368Total Liabilities 140,020,445 183,450,120 183,080,481 183,765,286 184,502,338 182,695,104

Balance sheet-liabilities items [EUR]


P.44260.001.01.72 150

Positive and increasing cash flow from operating activities - good basis for investment success

2007 2008 2009 2010 2011 2012Net profit after tax 13,279,191 17,362,845 25,282,167 31,868,303 32,753,025 32,151,541Adjustments for:

Depreciation 3,526,563 10,583,382 13,697,666 14,401,832 15,701,832 17,001,832Financing charges payable 4,590,430 9,474,416 9,343,950 8,610,195 8,156,643 7,514,250Profit tax 2,529,370 3,307,209 4,815,651 6,070,153 6,238,671 6,124,103

Operating profit before working capital changes 23,925,553 40,727,851 53,139,434 60,950,484 62,850,172 62,791,726Decrease / (Increase) in Inventories 9,437,956 (5,980,950) (6,862,471) 299,481 (1,951,894) 407,254Decrease / (Increase) in receivables (8,899,571) (7,749,607) 134,445 (2,386,119) (1,486,990) (2,601,852)Increase / (Decrease) in payables (4,130,438) 7,350,394 8,805,719 3,494,036 295,848 1,819,170Increase / (Decrease) in short term borrowings 0 0 0 0 0 0Financing charges paid (4,590,430) (9,474,416) (9,343,950) (8,610,195) (8,156,643) (7,514,250)Profit tax paid (2,760,260) (2,791,723) (4,949,824) (5,677,769) (6,153,382) (6,176,125)Operating cash flow 12,982,811 22,081,550 40,923,352 48,069,918 45,397,111 48,725,923

Purchase of tangible and intangible fixed assets (19,117,500) (40,282,500) (6,600,000) (13,000,000) (13,000,000) (13,000,000)Sale of tangible and intangible fixed assets 0 0 0 0 0 0Net cash used in investment activities (19,117,500) (40,282,500) (6,600,000) (13,000,000) (13,000,000) (13,000,000)

Proceeds from long term borrowings 0 35,000,000 0 0 0 0Repayment of borrowings (1,082,310) (1,466,056) (7,104,554) (7,208,243) (15,354,979) (7,346,464)Dividends paid 0 0 0 0 (8,423,496) (16,376,512)Net cash from Financing activities (1,082,310) 33,533,944 (7,104,554) (7,208,243) (23,778,474) (23,722,976)

Net increase / (Decrease) in cash and cash equivalents (7,216,999) 15,332,993 27,218,798 27,861,676 8,618,637 12,002,947

Cash and cash equivalents at 1 January (13,422,700) (20,639,699) (5,306,706) 21,912,092 49,773,768 58,392,404Cash and cash equivalents at 31 December (20,639,699) (5,306,706) 21,912,092 49,773,768 58,392,404 70,395,351

Forecast cash flow Statement [EUR]


P.44260.001.01.72 151

The average return on equity is above 21% for most of period andthe asset turnover increases once the investments are completed

2007 2008 2009 2010 2011 2012Net income/Net sales 6.7% 6.5% 7.3% 8.1% 7.7% 7.1%EBITDA/Net sales 12.1% 15.2% 15.3% 15.5% 14.8% 13.9%Interest coverage (EBIT/financing expenses) 4.44 3.18 4.22 5.41 5.78 6.09 Sales/Total Assets 1.41 1.46 1.90 2.13 2.31 2.47 Total Assets/Equity 2.45 2.46 1.83 1.39 1.18 1.06 ROE 23.2% 23.3% 25.3% 24.2% 21.0% 18.7%

Average receivable collection period 39.04 39.49 30.25 29.03 28.01 28.57 Average inventory processing period 29.09 32.04 33.23 29.18 28.60 26.38 Average payable payment period 12.95 22.74 28.34 29.50 27.29 27.22

Total asset turnover 1.81 1.65 1.90 2.14 2.31 2.45

Key financial indicators

Source: 2007-2012 Business Plan prepared by Sider Sipe, Roland Berger analysis