Klöckner & Co - Roadshow Presentation June 2010
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Klöckner & Co SE provided a roadshow presentation in June 2010. The presentation contained forward-looking statements and disclaimers. It highlighted improvements in Klöckner & Co's financial results in Q1 2010, including higher sales volumes and EBITDA compared to Q4 2009. It also outlined Klöckner & Co's strategy of pursuing growth through acquisitions, organic expansion, and continuous optimization.
Klöckner & Co - Roadshow Presentation June 2010
- 1. Klöckner & Co SEKlöckner & Co SE A Leading Multi Metal Distributor Roadshow June 2010 Gisbert Rühl CEO/CFO June 2010
- 2. 00 Disclaimer This presentation contains forward-looking statements. These statements use words like “believes”, “assumes”, “expects” or similar formulations. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results financial situation developmentfactors could lead to material differences between the actual future results, financial situation, development or performance of our company and those either expressed or implied by these statements. These factors include, among other things: • Downturns in the business cycle of the industries in which we compete; • Increases in the prices of our raw materials, especially if we are unable to pass these costs along to customers; • Fluctuation in international currency exchange rates as well as changes in the general economic climateeconomic climate • and other factors identified in this presentation. In view of these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We assume no liability whatsoever to update these forward-looking statements or to conform fthem to future events or developments. This presentation is not an offer for sale or a solicitation of an offer to purchase any securities of Klöckner & Co SE or any of its affiliates ("Klöckner & Co"). Securities of Klöckner & Co including but not limited to rights shares and bonds may not be offered orSecurities of Klöckner & Co, including, but not limited to, rights, shares and bonds, may not be offered or sold in the United States or to or for the account or benefit of U.S. persons (as such term is defined in Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act")) unless registered under the Securities Act or pursuant to an exemption from such registration. 2
- 3. Agenda Overview & Highlights01 Financials Q1 201002 Market, Outlook & Strategy03 Appendix04 Appendix04 3
- 4. 01 Distributor in the sweet spot Suppliers Sourcing Products Logistics/ CustomersSuppliers Sourcing and services g Distribution • Purchase volume p a of Customers • Global Sourcing in competitive • One-stop-shop with wide • Efficient inventory • ~178,000 customersvolume p.a. of >5 million tons • Diversified set of worldwide approx 70 in competitive sizes • Strategic partnerships • Frame contracts with wide product range of high-quality products • Value added inventory management • Local presence • Tailor-made logistics customers • No customer with more than 1% of sales • Average orderapprox. 70 suppliers • Frame contracts • Leverage one supplier against the other • N l ti Value added processing services • Quality assurance logistics including on- time delivery within 24 hours • Average order size of €2,000 • Wide range of industries and markets• No speculative trading assurance markets • Service more important than price 4 Klöckner & Co’s value chainGlobal suppliers Local customers
- 5. 01 Klöckner & Co at a glance Sales split by industryKlöckner & Co • Leading producer-independent steel and metal distributor in the European and North American markets combined • Network with around 250 distribution locations in Europe and North America Sales split by marketsSales split by product 5 Including Becker Stahl-Service Group pro-forma figures (year ending September)
- 6. 01 How the Company structurally improved over the past two years 1. Procurement: Central European Sourcing levers procurement conditions 22. Inventories: International Product-Management steers inventories tightly 3. Processes: European operations centrally define best practice processes 4 S t IT t d d t f ll t d4. Systems: IT systems upgraded to fully support renewed processes 5. Management: Country CEO’s all changed to support new structure, lean board 6 I ti ti B l b t t i l i it d t ll b ti6. Incentivation: Balance between entrepreneurial spirit and cross-country collaboration 7. Healthy balance sheet with prolonged maturities 8 2 acquisitions already done again and €500m still available8. 2 acquisitions already done again and €500m still available Flexibility and efficiency increased, advantages of scale realized 6
- 7. 01 Highlights Q1 2010 and until today • First yoy improvements since beginning of the crisis for almost all key indicators • Sequential improvement in volumes and EBITDA during Q1 with ramp up in March• Sequential improvement in volumes and EBITDA during Q1 with ramp up in March • Breakeven at net income level • Acquisitions of Becker Stahl-Service and Bläsi completed • Capital basis further strengthened with placement of €145m Promissory Notes • European ABS financing extended by another 2 years • Extension of syndicated loan from €300m to €500m and maturity until 2014• Extension of syndicated loan from €300m to €500m and maturity until 2014 • Standard & Poor’s confirmed it’s BB rating and changed outlook to stable • Promising start into Q2 with further increasing volumes and prices • Sales guidance revised from more than 20% to more than 25% growth 7
- 8. Agenda Overview & Highlights01 Financials Q1 201002 Market, Outlook & Strategy03 Appendix04 Appendix04 8
- 9. 02 Improving financials in Q1 2010 Sales 1,180 Tto +10.5%Volumes €1 095m €1 049 -4.2% 1,068 Tto 966 Tto €1,095m €1,049m €873m Q1 2009 Q1 2010Q4 2009 Q1 2009 Q1 2010Q4 2009 Gross profit EBITDA €236m+201.9% €198m €29m Q1 2010 €6m* €78m Q1 2009 Q1 2010Q4 2009 €-132m +122.1% Q1 2009 Q4 2009 9 * adj. for cartel fine reduction
- 10. 02 Both segments improved performance in Q1 2010 Volumes (Tto) Sales (€m) EBITDA (€m) 827 909 882 858 +9.8% -2.8% 8 5%*-0.2%* -8.5%* 240 271 213 191 25 9 +12.9% -10.2% Q1 09 Q1 10 Q1 09 Q1 10 -31 Q1 10Q1 09 Europe North America 10 * without BSS -93
- 11. 02 Consistent NWC management NWC and NWC as % of sales Stocks and sales volumes 1.72 1.75 22 0% 24.8% 25.1% NWC –50% NWC/ sales –5.3%p 1.35 1.15 1.07 1.05 1.03 0.97 1.18 22.0% 20.8% 16.3% 14.9% 16.0% 16.5% 19.8% Stocks –19% * BSS BSS 0.2 Stocks w/o BSS –34% 1.21 1.32 1.25 1.01 0.89 0.75 0.74 0.75 1.07 1,404 1,652 1,720 1,407 1,006 779 702 637 868 117 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Stocks in million to Sales volumes in million to Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 NWC in €m NWC as % of sales (LTM) • NWC/ sales ratio still not above maximum target level of 20% despite opportunistic inventory build-up with orders dated back to December 11 * adj. for acquisitions
- 12. 02 Strong balance sheet Q1 2010 Comments % €3,040.7m 113* • Equity ratio at 37% • Impact of BSS integration (purchase price ll ti f M h 1 2010) 860 1,137 Non-current assets Equity 100* allocation as of March 1, 2010): • Non-current assets include additions to intangible assets (customer relations, trade name) of €35 7m and goodwill of 798Inventories 27* 74* trade name) of €35.7m and goodwill of €5.6m as well as property, plant and equipment of €69.6m • Net working capital contribution of 690 78 / 4* 1,001 Trade receivables Other Non-current liabilities 96* Net working capital contribution of €115.3m • Transaction volume €207m • D&A for the Group will increase in 2010 by78 / 4 615 903 current assets Liquidity Current liabilities 44* D&A for the Group will increase in 2010 by ~€20m (incl. PPA BSS) and thereafter annual run rate ~€10m 12 *BSS proportion, transaction volume offset against Group liquid funds (€207m)
- 13. 02 Financial power for growth through acquisitions Financial structure Funds for future growth Bank debt Securitized debt Capital markets debt AcquisitionsNWC Equity AcquisitionsNWC €1,137m Increase of €200m €300m Syndicated Loan = €500m €98m Convertible €193m Rights Issue > €500m App. €145m Promissory Notes €325m Convertible €450m Bilateral Facilities €510m ABS Co e b e Bond 2009 > €500m predominantly for growth through acquisitions Bond 2007 €944m Equity pre Rights Issue 13 • Standard & Poor‘s rating „BB“ with outlook „stable“ • Moody‘s rating „Ba2“ with outlook „stable“
- 14. Agenda Overview & Highlights01 Financials Q1 201002 Market, Outlook & Strategy03 Appendix04 Appendix04 14
- 15. 03 Real growth beyond restocking? • Apparent demand increased impressively so far driven by end of destocking, gradual restocking and strong demand from the automotive industryrestocking and strong demand from the automotive industry • What do we expect in H2 2010 for our main customer segments? • Construction is expected to remain weak overall. In Europe impacts from the various stimulus programs will be limited. Positive impacts for infrastructure in the US have so far been compensated by weaker than expected housing. • Automotive will probably soften in H2 2010 especially in Europe as restocking eases and the wreckage premiums have expired. Increasing exports will limit the contraction. • Significantly increasing order intakes for machinery and mechanical engineering willSignificantly increasing order intakes for machinery and mechanical engineering will be translated into higher demand for distribution in H2 2010. • What are the main downside risks for demand?What are the main downside risks for demand? • Demand could be negatively affected when stimulus programs expire • Increasing European sovereign debt risk and budget cuts 15 • Tightening measures in China could affect exports
- 16. 03 Steel prices have rallied for six consecutive months 1 100 1.200 nthe 800 900 1.000 1.100 and($/st)in 500 600 700 800 t)inEurope US >+50% 200 300 400 500 elprices(€/t • Steel prices are globally rising since November 2009 Mar 06 May 06 Jul 06 Sep 06 Nov 06 Jan 07 Mar 07 May 06 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 July 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Stee HRC-Europe HRC-US Medium sections-Europe Beams-US • Steel prices are globally rising since November 2009 • HRC quotes in Europe and North America >50% above November 2009 16 Source: SBB
- 17. 03 Limited steel price correction expected • Since prices for long products are already under pressure we expect that prices for sheets will peak in Q3 and softening slightly thereafter mainly because of:will peak in Q3 and softening slightly thereafter mainly because of: • Steel producing capacity has been brought back too quickly while real demand outlook remains relatively weak overall • End-users and service centers have sufficient refilled stocks and becoming increasingly hesitant to accept further price increases • Leading steel price indicators like scrap, spot iron ore and Chinese steel prices have softened • European steel price levels are higher than everywhere else in the world • However, we remain confident that the price correction will be limited and possibly short term mainly because of: • Low inventories throughout the value chain • High raw material costs • Obvious willingness of producers to cut back capacity again 17 g p p y g
- 18. 03 Steel production is significantly outstripping steel consumption Crude steel production 4 months 2010 compared to 4 months 2009 Apparent steel consumption estimate 2010 as compared to 2009p p World +32% +11% EU 27 +44% +14%EU 27 44% 14% CIS +22% +11% Other Europe +15% +14% North America +59% +24% South America +33% +20% Asia +29% +8% of which: China +25% +7% Middle East +13% +10% Source: Eurometal Newsletter Nr. 32, May 2010 18
- 19. 03 We anticipated current development • We mentioned already in our FY 2009 Results Analysts‘ and Investors‘ Conference on March 9 2010 the risk of overcapacities in H2 in our outlook statement:March 9, 2010 the risk of overcapacities in H2 in our outlook statement: • “Risk of reversal of prices in H2 if real demand is not picking up to support utilization of the mills” • We accordingly started to reduce orders already a few weeks ago to avoid buying at high price levels 19
- 20. 03 We follow our strategy of growth through acquisitions… M&A StrategyConsolidation among steel producers is well ahead of highly fragmented • Achieve profitable growth • Strengthen country power vs. suppliers for core group products g y g distribution sector 18% Others Top 6 -20 Others Western Europe • Strengthen country specific market positions • Expand footprint outside construction industry • Focus on geographical core markets in EU, NA and 18% 32% 50% 61% 39% Others EEC to leverage existing network Target selection criteria Top 5 Top 5 Top 6 -20 Others Others ProducersDistributors • Profitability above group average • Strong synergy potential in purchasing, admin and warehousing with low integration risk 31% 69% 17% 18% 65% Others g g • EV/EBITDA multiple between 4x and 6x EBITDA • EPS-accretive from year one 69% Top 5 Top 5 North America 20
- 21. 03 …organic growth… Crisis management Managing growth again Wave 3 Wave 1 Wave 2 • Market / customer segmentation • Focus on under-penetrated regions/ customer segments • Leverage existing product/ service offering and competitive strength • Increase share of wallet with current accounts • Product portfolio managementp g • Improve product mix by expanding higher margin business • Drive value added services • Pricing strategyPricing strategy • Adjust pricing to segment/ product approach 21 October 08 Summer 09
- 22. 03 …and continuous optimization Areas of optimization Sourcing Product Management Logistics Centralization of procurement to reach scale Standardized sourcing Product portfolio optimization Increasing share of value added services Network management Location concepts C t l t k t t Standardized sourcing Global sourcing added services Inventory management Central stock structure Cross-border logistics Standardized processes and IT-systems Key-Performance-Indicators Asset-Management 22
- 23. 03 We stick to our longterm targets Underlying sales growth > 10% p.a. Starting 2010 Underlying EBITDA-margin Gearing (Net financial debt/ Equity) > 6% < 75% Starting 2011 Revised 23 Gearing (Net financial debt/ Equity) 75%
- 24. 03 Outlook 2010 • Q2 expected to deliver significantly higher results than Q1 due to price and volume trends • Sales to grow by more than 25% (before >20%) including acquisition impact with only• Sales to grow by more than 25% (before >20%) including acquisition impact with only limited contribution from real demand but normalization of customers’ stock levels and higher prices • Automotive: Europe so far strong but risk of decline in H2 • Machinery & Equipment: High order entry should translate into demand in H2 esp. in Germany • Construction: No recovery expected neither in the US nor in Europe • Significant positive EBITDA in 2010 but not back to target margin of 6% • Still more than €500m available for acquisitions to further drive consolidation• Still more than €500m available for acquisitions to further drive consolidation 24
- 25. Agenda Overview & Highlights01 Financials Q1 201002 Market, Outlook & Strategy03 Appendix04 Appendix04 25
- 26. 04 Appendix Financial calendar 2010 August 11 2010: Q2/H1 interim report 2010August 11, 2010: Q2/H1 interim report 2010 November 10, 2010: Q3 interim report 2010 Contact details Investor Relations Dr. Thilo Theilen, Head of Investor Relations & Corporate Communications Ph 49 203 307 2050Phone: +49 203 307 2050 Fax: +49 203 307 5025 E-mail: thilo.theilen@kloeckner.de Internet: www.kloeckner.de 26
- 27. 04 Quarterly results and FY results 2005-2010 (€m) Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005* Volume (Ttons) 1,180 966 1,033 1,053 1,068 1,151 1,348 1,755 1,720 4,119 5,974 6,478 6,127 5,868 Sales 1,049 873 934 959 1,095 1,394 1,773 1,922 1,660 3,860 6,750 6,274 5,532 4,964 Gross profit 236 198 208 161 78 173 391 462 340 645 1 366 1 221 1 208 987Gross profit 236 198 208 161 78 173 391 462 340 645 1,366 1,221 1,208 987 % margin 22.5 22.6 22.3 16.8 7.1 12.4 22.0 24.0 20.5 16.7 20.2 19.5 21.8 19.9 EBITDA 29 83 11 -31 -132 -133 413 212 109 -68 601 371 395 197 % margin 2.8 9.5 1.2 -3.2 -12.0 -9.6 23.3 11.0 6.6 -1.8 8.9 5.9 7.1 4.0% margin 2.8 9.5 1.2 3.2 12.0 9.6 23.3 11.0 6.6 1.8 8.9 5.9 7.1 4.0 EBIT 11 26 -7 -48 -149 -152 395 197 93 -178 533 307 337 135 Financial result -15 -16 -14 -15 -16 -18 -18 -17 -17 -62 -70 -97 -64 -54 Income before taxes -4 9 -21 -63 -165 -171 378 180 76 -240 463 210 273 81 Income taxes 6 3 -2 16 38 29 -30 -55 -24 54 -79 -54 -39 -29 Net income 2 12 -23 -47 -127 -141 348 125 52 -186 384 156 235 52 Minority interests 1 3 0 1 2 15 4 3 2 3 14 23 28 16Minority interests 1 3 0 1 -2 -15 -4 3 2 3 -14 23 28 16 Net income KlöCo 1 9 -23 -48 -126 -126 352 122 51 -188 398 133 206 36 EPS basic (€) 0.02 0.56 -0.42 -1.04 -2.70 -2.72 7.56 2.63 1.09 -3.61 11.28 2.87 4.44 - EPS diluted (€) 0 02 0 56 -0 42 -0 85 -2 43 -2 44 7 01 2 48 1 06 -3 61 10 60 2 87 4 44 - 27 EPS diluted (€) 0.02 0.56 -0.42 -0.85 -2.43 -2.44 7.01 2.48 1.06 -3.61 10.60 2.87 4.44 - * Pro-forma consolidated figures for FY 2005, without release of negative goodwill of €139 million and without transaction costs of €39 million, without restructuring expenses of €17 million (incurred Q4) and without activity disposal of €1.9 million (incurred Q4).
- 28. 04 Balance sheet as of Mar. 31, 2010 (€m) Mar. 31, 2010 Dec. 31, 2009 Comments Non-current assets 860 712 Inventories 798 571 Shareholders’ equity: • Decreased from 41% to 37% due to BSS Trade receivables 690 464 Cash & Cash equivalents 615 827 Other assets 78 139 • Would be at 47% if cash would be used for debt reduction Financial debt:Other assets 78 139 Total assets 3,041 2,713 Equity 1,137 1,123 • Gearing at 13% • Net debt position due to purchase price payment for BSS andTotal non-current liabilities 1,001 927 thereof financial liabilities 668 619 Total current liabilities 903 663 payment for BSS and Bläsi AG and NWC build-up NWC: thereof trade payables 620 398 Total equity and liabilities 3,041 2,713 Net working capital 868 637 • Swing mainly driven by BSS consolidation and pickup in business 28 Net financial debt 150 -150
- 29. 04 Statement of cash flow Comments(€m) Q1 2010 Q1 2009 • NWC changes due to built up of inventories • Investing CF impacted b i iti f BSS Operating CF 29 -136 Changes in net working capital -96 414 Others 7 17 by acquisitions of BSS and Bläsi Others 7 -17 Cash flow from operating activities -60 261 Inflow from disposals of fixed assets/others 1 5 Outflow from acquisitions -124 0Outflow from acquisitions -124 0 Outflow from investments in fixed assets/others -4 -10 Cash flow from investing activities -127 -5 Changes in financial liabilities 34 -106Changes in financial liabilities 34 106 Net interest payments -2 -5 Repayments of shareholder loan BSS -58 0 Cash flow from financing activities -26 -111Cash flow from financing activities -26 -111 Total cash flow -214 145 29
- 30. 04 Segment performance Q1 2010 (€m) Europe North America HQ/ Consol. Total Comments • E l BSS E ld Volume (Ttons) Q1 2010 909 271 - 1,180 Q1 2009 827 240 - 1,068 • Excl. BSS Europe would have been stable in volumes and total would be at 2.8% yoy Δ % 9.8 12.9 - 10.5 Sales Q1 2010 858 191 1 049 • Sales still negative yoy due to lower average prices • Without BSS total salesQ1 2010 858 191 - 1,049 Q1 2009 882 213 - 1,095 Δ % -2.8 -10.2 - -4.2 would be -8.9% yoy EBITDA Q1 2010 25 9 -5 29 % margin 2.9 4.8 2.8 Q1 2009 -93 -31 -8 -132 % margin -10.5 -14.5 -12.0 Δ % EBITDA -126.4 -129.5 -122.1 30 % 6 9 5
- 31. 04 Current shareholder structure Geographical breakdown of identified institutional investors Comments • Identified institutional investors account for 59% • UK based investors dominate (Franklin remains Klöckner’s biggest investor with 9.41% of the total shares outstanding)investor with 9.41% of the total shares outstanding) • Top 10 shareholdings represent around 28% • Retail shareholders represent 22% • 100% free float 31 100% free float
- 32. 04 Our symbol the ears the eyesthe ears attentive to customer needs the eyes looking forward to new developments the nosethe nose sniffing out opportunities to improve performance the ball symbolic of our role to fetchsymbolic of our role to fetch and carry for our customers the legsthe legs always moving fast to keep up with the demands of the customers 32