F.A.Q.

1. What are the KME Group’s main products and in what sectors of application are they?
2. Who are the KME Group’s main suppliers of copper as a raw material?
3. How does KME manage the increase in the price of copper in its business dealings?
4. Does KME implement a policy of hedging to cover its risk on the price of the metal?
5. Do changes in the exchange rate affect KME’s financial results?
6. What is the status of the European fines proceeding and how did it impact on KME’s Consolidated Financial accounts?

1. What are the KME Group’s main products and in what sectors of application are they?
   When we think of copper, mining and smelting are generally the operations that come to mind, but KME operates downstream of these industries, in the next link of the copper value chain: in the processing of the metal into semi-finished products.
   Producers of semi-finished items, such as KME, buy and use copper and other metals (such as zinc, nickel, tin, etc.) as raw materials and transform them, after processing, into semi-finished products, i.e. products made from copper and its alloys (such as sheets, strips, tubes, rods and other special products) which are then sold to other transformer companies, which use them as the raw material for their products. We are therefore a typical producer of intermediate goods, working in the non-ferrous metals sector.
   KME Group is the world’s largest producer of semi-finished copper and copper alloy products (not including copper wires). Our group has one of the world’s broadest product portfolios, and is able to supply semi-finished products in an extremely wide variety of forms: sheets and strips, tubes, rods, wires and profiles, casting moulds, tube bundles and other special products. From construction to the various industrial sectors, our semi-finished products’ field of application is so broad that we can claim to supply products to almost all production sectors, except for the food, textiles and chemicals industries.
   KME supplies semi-finished products to the construction industry, the electrical and electronics industry, all sectors of the mechanical engineering industry, and the transport and consumer durables sectors. People are not usually aware of it, but there are copper or copper alloy components everywhere, incorporated in the objects we use every day, from the most traditional to the high-tech: from tap fittings to the electric windows of cars, from guttering to cell phones, from large desalination plants to the pipes which carry water and gas from the meters to our taps in our homes, from PCs to buttons and from ordinary screws to microprocessors.
   For a full survey of KME’s products and the industries served, visit the Products and Markets section of this site.
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2. Who are the KME Group’s main suppliers of copper as a raw material?
   The KME Group purchases its virgin raw material from the world’s biggest suppliers of refined copper, refined zinc and other non-ferrous metals.
   The KME Group is also particularly oriented towards recycling, enabling it to extract the full benefits from the competitive advantage of having its production plants and foundries right in the heart of Europe, in countries which generate large quantities of copper and copper alloy scrap. The capability for full and widespread geographical coverage in the collection of material for recycling enables the KME Group to exploit its proximity to this “mine” of raw material to optimal effect.
   Visit the section of our site which explains the advantages of using scrap for the environment and the world resources economy.
   
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3. How does KME manage the increase in the price of copper in its business dealings?
   For a producer of semi-finished products like KME, the price charged to the customer generally consists of two separate parts: 1) the price of the metal as quoted on the LME (London Metal Exchange) and 2) the “conversion price”, or the “price of transforming” the metal into the semi-finished product. It is this second part which we actually negotiate with our customers. The value of the metal, on the other hand, is included in our products’ final price at a value based on the current LME quotation at the time when the customer decides to “fix” the value of the metal. This agreement is an integral part of the sales contract and commits us to supplying our product at the processing price agreed with the customer and at LME price of reference for copper at the contract time. KME buys the copper needed to cover the sale at this price of reference.
   Although the mechanism for formation of the final price charged to the customer may vary slightly from product to product, the base price for the metal, both for sale to the customer and for our purchase, is always the LME quotation.
   
   
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4. Does KME implement a policy of hedging to cover its risk on the price of the metal?
   The largest, most strategic financial risk for a group like KME, which transforms such a volatile raw material as copper into semi-finished products, derives from the variations in the price of the metal, which as we all know is quoted on the LME.
   The KME Group manages this risk to provide itself with full security. As previously explained, the reference price for the metal in all our sales of semi-finished products and all our purchases of raw material is controlled on the basis of the LME quotation, so that no speculative positions have to be taken.
   KME obtains coverage against risk for all quantities “fixed” for sale, which for operational reasons it is not economically feasible to cover through corresponding physical purchases of metal at the reference price, by buying futures on the London Metal Exchange.
   Our group therefore engages in a typical hedging operation which not only allows us to manage both our raw material purchases and the sale of the metal in our products in a totally secure, unspeculative way, but also enables us to optimise the physical flows of metal purchased, processed and sold.
   
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5. Do changes in the exchange rate affect KME’s financial results?
   Like any company working on the international markets, our Group is exposed to fluctuations in the exchange rates. However, as we have already seen in the case of metals, here again KME implements hedging policies which enable it to ensure that its financial results are absolutely unaffected by these risks.
   In particular, KME uses derivatives as set-term contracts on exchange rates.
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6. What is the status of the European fines proceeding and how did it impact on KME’s Consolidated Financial accounts?
   With respect to the fines (for a total amount of Euro 107 million) imposed by the EC Commission on some KME subsidiaries for alleged infringement of art. 81 of the EC Treaty, relevant appeal was lodged with the Court of First Instance of the European Communities (CFIEC), to request such court to annul the Commission decision insofar as it relates to the Commission’s calculation of the fines and to reduce said fines accordingly. The appeal is based on several pleas, asserting the objective disproportion of the abovementioned fines with respect to the alleged infringements and the size of our Group.
   At this stage, considering the complexity and length of the judicial proceeding, it is not easy to forecast its outcome or the economic consequences for KME. In any case, the CFIEC’s judgment may be appealed by the unsuccessful party before the Court of Justice of the EC.
   As far as the financial impact of such fines is concerned, the Company has provisioned the entire amount of the sanctions, which may generate cash flows only at the end of the judicial proceeding before the EC courts and only in case the final judgement should confirm the amount of the fines. Until such a date (which is not foreseeable yet), the payment of the fines is guaranteed vis-a-vis the Commission by a security deposit (Euro 17 million) and a bank surety (Euro 90 million). Those delays however generate financial charges, which are provisioned.
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