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Klöckner strategy keyed to boost US profits

Keywords: Tags  Klockner & Co. SE, Klockner Metals Corp., metals distributor, Americas unit, U.S. sales strategy, margin expansion, cost-cutting, restructuring sales volume

CHICAGO — Although Klöckner & Co. SE will remain in a cost-cutting mode through the end of 2013, including at U.S. subsidiary Kloeckner Metals Corp., it expects to improve profits in the region by revising its U.S. sales strategy. Thirty-eight percent of the parent company’s global sales come from the United States.

Klöckner’s Americas segment reported sales of €594 million ($797.7 million) during the third quarter, down 14.9 percent from the same period a year ago, but earnings before interest, taxes, depreciation and amortization (Ebitda) after restructuring expenses grew 41.7 percent in the same comparison.

"Our Americas segment volumes dropped by 4.2 percent, driven mainly by shifting focus on greater margin business," Gisbert Rühl, chairman and chief executive officer of the Duisburg, Germany-based company said during a Nov. 6 earnings conference call.

"It makes sense to increase market share by focusing on volume when the market is in a trough because no one is earning money anyway. When taking over Macsteel (Service Centers USA Inc., during the first quarter of 2011), we increased market share because one of our main competitors was focused on margin. We got a lot of new customers and increased margins 11 percent and 15 percent, (respectively), in 2011 and 2012," he said.

"Now, we have a much larger customer base, combined with a reduction of low-margin business."

Asked how Roswell, Ga.-based Kloeckner will retain market share, Rühl explained that when the unnamed U.S. competitor focused on margin growth, it "defined a minimum (but) didn’t get the margin and lost a lot of volume in the downturn. ... We took over a significant share of that business and we won’t lose it because of the service we are providing," he said. This is especially the case among monthly and quarterly contract customers, he added, "where sometimes we are managing their entire incoming material (sourcing). So they are not able to easily switch back to another supplier."

Rühl said it is possible the competitor could undercut prices to regain its lost market share. "But if they do that aggressively, they won’t earn money." There is limited potential under that scenario, he said, because then the competitor will lose margin "even in a better market environment."

There’s also the service difference, Rühl said. "The customer is not switching for $10 a ton."

The upshot is that Kloeckner "got a lot of new customers and has increased total volume over the past two years. As markets improve, we will do better because we have higher market share," Rühl said.

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