Klöckner & Co - Roadshow Presentation March, 2008
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Gisbert Rühl, CFO of Klöckner & Co, a leading multi metal distributor, presented an overview of market expectations and Klöckner & Co's performance for 2008. He discussed expectations for price increases and healthy underlying demand in Europe and North America in the first half of 2008. Rühl also reviewed Klöckner & Co's preliminary figures for FY 2007, financial results for Q3 2007, and growth initiatives including acquisitions and the STAR program aimed at improving purchasing and distribution.
Klöckner & Co - Roadshow Presentation March, 2008
- 1. Gisbert Rühl CFO Klöckner & Co A Leading Multi Metal Distributor March, 2008
- 2. 2 Agenda 4. Overview and market Appendix 1. Current market development and expectations for 2008 3. Profitable growth initiatives 2. Preliminary key figures for FY 2007 and financials for Q3 2007
- 3. 3 Market expectations for H1 2008 in Europe Further improvement in stock levels due to lower production and declining imports Overall healthy underlying demand Price surge in January, further price increases expected: Prices for flat products in Northern Europe remained stable or increased slightly in January/February. Further price increases of at least 50 €/t expected for Q2 Prices for flat products in Southern Europe increased slightly in January/February. Further price increases of at least 50 €/t expected for Q2 Prices for long products increased significantly in January/February. Further price increases are expected throughout Q1 Europe - H1 2008 Start in 2008 better than expected
- 4. 4 Market expectations for H1 2008 in North America Output was cut back significantly in November and December 2007 No pressure from imports due to low price levels Low stock levels Slight improvement of underlying demand, especially for non-residential construction Dramatic jump of scrap prices in January Price surge in January, further price increases expected: Dramatic price increases for strip products in January/February. Further price increases expected throughout Q1 and going forward in Q2 Prices for long products increased significantly in January/February. Further price increases expected in Q1 and Q2 North America - H1 2008 Promising start in 2008
- 5. 5 Market expectations for FY 2008 Overall healthy demand development due to lower but still positive growth forecasts for 2008 in Europe and North America Average price level for steel products expected to be higher than recently Continuing lower imports from China because of rising raw material prices, high taxes and shipping costs, environmental and energy constraints as well as possible anti-dumping actions FY 2008 Again positive development in 2008
- 6. 6 Agenda 4. Overview and market Appendix 1. Current market development and expectations for 2008 3. Profitable growth initiatives 2. Preliminary key figures for FY 2007 and financials for Q3 2007
- 7. 7 Preliminary key figures for FY 2007 (€m) FY 2007 FY 2006 Sales 6,300 5,532 EBITDA % margin 365 5.8 395 7.1 Net debt 750 365 Preliminary results above revised guidance of October 2007
- 8. 8 Summary income statement Q3/9M 2007 (€m) Q3 2007 Q3 2006 Δ% 9M 2007 9M 2006 Δ% Volume (Ttons) 1,601 1,467 +9.1 4,893 4,674 +4.7 Sales 1,583 1,394 +13.6 4,783 4,134 +15.7 Gross profit % margin 286 18.0 313 22.5 -8.6 -20.0 921 19.2 914 22.1 +0.7 -13.1 EBITDA % margin 93 5.9 143 10.3 -34.7 -42.7 288 6.0 325 7.9 -11.5 -24.1 EBIT Financial result 76 -17 128 -24 -40.7 - 242 -80 282 -52 -14.3 - Income before taxes 59 105 - 162 230 - Income taxes -14 -20 - -47 -55 - Minority interests 8 8 - 19 23 - Net income 37 76 - 96 152 - EPS € 0.79 1.64 2.07 3.27 Diluted EPS € 0.78 1.64 - 2.07 3.27 -
- 9. 9 Strong underlying EBITDA improvement driven by STAR Underlying EBITDA 9M 2007 (€m) 9M 2007 9M 2006 Δ EBITDA as reported ● One-offs (mainly sale real estate) 288 33 325 40 -37 -7 Operating EBITDA ● Windfall effects ● carbon and others ● stainless ● Exchange rate effects ● Special expense effects 255 - 13 7 18 286 -35 -15 -1 5 -30 +35 +28 +8 +13 Underlying EBITDA 292 240 +52 ● Acquisitions (LTM*) -18 -5 -13 Underlying EBITDA excluding Acquisitions 274 235 +39 * LTM: Last twelve months
- 10. 10 General financial targets/limits and guidance General target/limit Actual 9M 2007 Underlying sales growth > 10% p.a 15.7% Underlying EBITDA margin* > 6% 6.1% Leverage (Net financial debt/EBITDA LTM) < 3.0x 2.5x Gearing (Net financial debt/Equity) < 150% 108% Challenging financial targets throughout the cycle * According to new definition
- 11. 11 Segment performance 9M 2007 Comments Sales for 9M 2007* in Europe including about - €16.1 million from Westok (UK) - €8.2 million together from Max Carl and Zweygart (D) - €7.8 million from Edelstahlservice (D) - €9.6 million from Teuling (NL) - €27.4 million from Tournier (F) - €6.5 million from Gauss (CH) - €9.1 million from Aesga (E) Sales for 9M 2007* in North America including about - €7.8 million from Premier Steel - €150.1 million from Primary Steel - €39.3 million from Action Steel (€m) Sales 9M 07 Sales 9M 06 Δ % EBITDA 9M 07 EBITDA 9M 06 Δ % Europe 3,989 3,476 14.7 262 299 -12.5 North America 794 658 20.7 50 63 -21.1 HQ / Consol. - - - -24 -37 - Total 4,783 4,134 15.7 288 325 -11.5 * Sales of companies acquired in the last twelve months
- 12. 12 Balance sheet as of Sept. 30, 2007 (€m) September 30, 2007 December 31, 2006 Long-term assets 750 579 Inventories 1,081 841 Trade receivables 1,096 933 Cash & Cash equivalents 130 130 Other assets 113 69 Total assets 3,170 2,552 Equity 813 799 Total long-term liabilities 1,221 744 - thereof financial liabilities 881 416 Total short-term liabilities 1,136 1,009 - thereof trade payables 716 639 Other liabilities - - Total equity and liabilities 3,170 2,552 Net working capital 1,461 1,135 Net financial debt 877 365 Comments Financial debt as of Sept. 30, 2007: • Syndicated loan: €175 million • ABS: €372 million • Bank borrowings: €187 million • Convertible: €262 million • Increased net financial debt due to acquisitions and higher NWC Equity: • Convertible equity share: capital increase of €62 million booked • Decreased equity ratio from 31% to 26% due to increased total assets Net Working Capital: • Increase driven by sales, higher price levels and acquisitions
- 13. 13 Statement of cash flow Comments(€m) 9M 2007 9M 2006 Operating CF 253 287 Changes in net working capital -241 -268 Others -63 -7 Cash flow from operating activities -51 12 Inflow from disposals of fixed assets/others 20 101 Outflow from investments in fixed assets -386 -41 Cash flow from investing activities -366 60 Proceeds from capital increase 62 98 Changes in financial liabilities 463 -73 Net interest payments -61 -26 Dividends -45 -6 Cash flow from financing activities 419 -7 Total cash flow 0 65 CF from operating activities impacted by high net working capital requirements Investing cash flow in Q3 2007 mainly impacted by cash outflow for the various acquisitions and increased stake in Swiss Holding Equity component of the convertible bond: 62€ million (2006: capital increase for IPO) Net interest payments including one-off pre-redemption fees for high yield bond
- 14. 14 Agenda 4. Overview and market Appendix 1. Current market development and expectations for 2008 3. Profitable growth initiatives 2. Preliminary key figures for FY 2007 and financials for Q3 2007
- 15. 15 Profitable growth Grow more than the market Continuous business optimization 1 Acquisitions driving market consolidation Organic growth and expansion into new markets 2 3 STAR Program: - Purchasing - Distribution network Profitable growth through value-added distribution and services within multi metals to companies in Europe and North America Profitable growth through value-added distribution and services within multi metals to companies in Europe and North America
- 16. 16 Country Acquired Company Sales Jan 2008 Multitube €5 million 2008 Ytd 1 acquisition €5 million Sep 2007 Lehner & Tonossi €9 million Sep 2007 Interpipe €14 million Sep 2007 ScanSteel €7 million Aug 2007 Metalsnab €36 million Jun 2007 Westok €26 million May 2007 Premier Steel €23 million Apr 2007 Zweygart €11 million Apr 2007 Max Carl €15 million Apr 2007 Edelstahlservice €17 million Apr 2007 Primary Steel €360 million Apr 2007 Teuling €14 million Jan 2007 Tournier €35 million 2007 12 acquisitions €567 million 2006 4 acquisitions €108 million 2005 2 acquisitions €141 million Accelerating number of acquisitions 12 4 2 2005 2006 2007 Acquisitions Sales €141 million €108 million €567 million 1
- 17. 17 Strong acquisition criteria Further acquisitions in core markets and Eastern Europe: ● Leverage existing structure in core markets with small- and mid-size bolt-on acquisitions ● Large scale acquisitions when appropriate ● Acquisitions in Eastern Europe to increase footprint Focus on targets in 3 directions: ● Expansion of geographic reach ● Extension of customer base ● Extension of product portfolio Focus on targets at attractive valuations: ● EV/EBITDA multiple between 4x and 5x for smaller acquisitions ● EV/EBITDA multiple between 5x and 6x for mid-size and large scale acquisitions Focus on targets with significant synergy and scale effects: ● Stronger purchasing power ● Streamlining operations and processes, integrating IT ● Integration of STAR Accretive growth
- 18. 18 Efficient acquisition process Approach ● Existing local contacts to competitors ● Pro-active contact via M&A advisors ● External contacts (seller, M&A advisors, banks, etc.) Selection of acquisition targets ● Targets must fulfil acquisition criteria Handling of acquisition projects ● Depending on size and complexity of the deal and experience of the country management the process is either run locally or led by the headquarters ● Duration of the projects between 3 to 6 months (first contact to completion) ● Due diligence is focussed on the areas of finance, sales/ marketing, logistics/distribution/stocks, personnel and legal/tax/environmental Country Organization Group Joint effort Size of the project Complexityoftheproject Process run by…
- 19. 19 Expanded businesses in Eastern Europe: Acquisition of Metalsnab in Bulgaria Organic growth through Greenfield approach, e.g. South of Poland and Romania Evaluation of market entry in other countries Organic growth and expansion into new markets2 Status quo Next steps Expansion of strong market positions in core markets: Selective extension of product range Increase value-added services through investments in new processing capacity Further acquisitions and opening of new branches in Eastern Europe Leveraging existing distribution network Sustainable profitable growth Strategy Benefits
- 20. 20 Next steps STAR: Status quo Q3/9M 2007 and next steps3 Status quo Establish European sourcing (STAR Phase II) Increase sourcing from world-class suppliers with structural cost advantages Implement unified article codes Additional frame contracts with main suppliers Extended global sourcing for third party countries Implementation of new organization in Germany (January 1, 2007) almost completed Implementation of a software supporting sales and stock management Purchasing Improved performance as a result of restructured distribution network (warehouses) Start of roll-out of the optimization tool “Prodacapo” (activity based costing) in Spain, UK, France and Eastern European Countries Further structural measures and continuous improvement of distribution network supported by “ProDacapo” (with a focus on ES, F and UK) to increase average EBITDA margins and reduce NWC funding requirements Finalize implementation of SAP throughout the European organization (France, Switzerland) and interface SAP with “Prodacapo” Distribution network
- 21. 21 Phase II (2008 onwards) STAR: Phase I finalized in 2008, further potential in phase II Phase I (2005 - 2008) Overall targets: Central purchasing on country level, especially in Germany Improvement of distribution network Improvement of inventory management 2006: ~ €20 million (9M 2007 ~ €39 million) 2007: ~ €40 million 2008: ~ €20 million ~ €80 million Upside potential Overall targets: European Sourcing Ongoing improvement of distribution network Upside potential 2008 ~ €10 million 2009: ~ €30 million 2010: ~ €20 million ~ €60 million
- 22. 22 Agenda 4. Overview and market Appendix 1. Current market development and expectations for 2008 3. Profitable growth initiatives 2. Preliminary key figures for FY 2007 and financials for Q3 2007
- 23. 23 Klöckner & Co at a glance CustomerKlöckner & Co Klöckner & Co highlights Products: Services: Producer Construction: Structural Steelwork Building and civil engineering Machinery/ Mechanical Engineering Others: Automotive Metal products/ goods, installation Durable goods etc. Leading producer-independent steel and metal distributor in the European and North American markets combined Network with approx. 260 distribution locations in Europe and North America About 10,000 employees Key financials FY 2007 (preliminary) - Sales: €6,300 million - EBITDA: €365 million
- 24. 24 Distributor in the sweet spot Local customersGlobal suppliers Suppliers Sourcing Products and services Logistics/ Distribution Customers Global Sourcing in competitive sizes Strategic partnerships Frame contracts Leverage one supplier against the other No speculative trading One-stop-shop with wide product range of high- quality products Value added processing services Quality assurance Efficient inventory management Local presence Tailor-made logistics including on-time delivery within 24 hours > 200,000 customers No customer with more than 1% of sales Average order size of €2,000 Wide range of industries and markets Service more important than price Purchase volume p.a. of 6 million tons Diversified set of worldwide approx. 70 suppliers Examples: Klöckner & Co’s value chain
- 25. 25 CDN B D F E CH A CZ PL LT RO NL CN USA GB IRL Global reach with broad product and customer diversification About 260 distribution locations CDN 4 USA 25 D/A 23 F/B 75 CH 35 E 54 GB 26 IRL 1 NL 5 Eastern Europe 13 BU
- 26. 26 Global reach with broad product and customer diversification Other GB Construction Machinery/ Manufacturing Auto- motive 40% 20% 5% 35% 23% 21% 13% 10% 6% 9% 1% 13% Germany/ Austria France/ BelgiumSpain Nether- lands Eastern Europe USA Switzerland Canada 4% Steel-flat Products Steel-long Products Tubes Special and Quality Steel Aluminum Other Products 28% 31% 9% 10% 8% 14% Sales split by industry* Sales split by markets* Sales split by product* *as of November 2007*as of 2006 *as of 2006
- 27. 27 North America (2006) Structure: 50-60% through distribution, service centers Size in value: ~€100bn Companies: ~1,300 only independent distributors Europe (2006) Structure: 67% through distribution, service centers Size in value: ~€70–90bn Companies: ~3,000 few mill-tied, most independent Strong position in Europe; Acquisition of Primary significantly improved position in NA Source: Purchasing Magazine (May 2007)Source: EuroMetal, company reports, own estimates ArcelorMittal (Distribution approx. 5%) ThyssenKrupp Corus Other independents Other mill-tied distributors Klöckner & Co Olympic Steel Namasco (Klöckner & Co) Ryerson Other Reliance Steel Samuel, Son & Co ThyssenKrupp Materials NA Russel Metals Worthington Steel Metals USA Carpenter Technology PNA Group McJunkin O'Neal Steel Mac- Steel AM Castle72.5% Namasco with Primary approx. 1.4% 11% 8% 7% 4%~ 45- 55% ~ 15- 25% 4.5% 2.5% 2.1% 1.8% 0.9% 0.9% 0.8% 1.4% 1.3% 1.2% 1.3% 1.8% 1.4% 1.0% 4.7%
- 28. 28 Agenda 4. Overview and market Appendix 1. Current market development and expectations for 2008 3. Profitable growth initiatives 2. Preliminary key figures for FY 2007 and financials for Q3 2007
- 29. 29 Appendix Table of contents Quarterly results and FY results 2006/2005 Steel cycle and EBITDA/cash flow relationship Debt facilities Current shareholder structure Financial calendar 2008 and contact details
- 30. 30 April 1: Full Year Results 2007 May 15: Q1 Interim Report June 20: Annual General Meeting August 14: Q2 Interim Report October 14/15: Capital Market Days November 14: Q3 Interim Report Financial calendar 2008 and contact details Financial calendar 2008 Claudia Nickolaus, Head of IR Phone: +49 203 307 2050 Fax: +49 203 307 5025 E-mail: claudia.nickolaus@kloeckner.de Internet: www.kloeckner.de Contact details Investor Relations
- 31. 31 (€m) Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 FY 2006 FY 2005* Volume (Ttons) 1,601 1,663 1,629 1,453 1,467 1,605 1,601 6,127 5,868 Sales 1,583 1,650 1,550 1,398 1,394 1,418 1,323 5,532 4,964 Gross profit 286 328 307 294 313 316 285 1,208 987 % margin 18.0 19.8 19.8 21.0 22.5 22.3 21.5 21.8 19.9 EBITDA 93 103 92 70 143 104 79 395 197 % margin 5.9 6.2 5.9 4.9 10.3 7.3 6.0 7.1 4.0 EBIT 76 87 78 55 128 89 64 337 135 Financial result -17 -52 -10 -12 -24 -14 -14 -64 -54 Income before taxes 59 35 68 43 105 75 50 273 81 Income taxes -14 -12 -22 16 -20 -22 -13 -39 -29 Minority interests 8 4 6 5 8 9 6 28 16 Net income 37 19 40 54 76 45 31 206 36 EPS (in €) 0.79 0.41 0.86 1.16 1.64 0.97 - 4.44 - Diluted EPS (in €) 0.78 - - - - - - - - Quarterly results and FY results 2006/2005 * 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).
- 32. 32 Debt facilities (€m) Old debt structure Change in debt structure New debt structure ABS Europe 380 +40 420 ABS USA 60 +30 90 Total 440 +70 510 Syndicated loan - +600 600 Bilateral credit agreements 480 -100 380 Total senior bank facilities 480 +500 980 Convertible bond - +325 325 High yield bond 170 -170 - Total facilities 1,090 +725 1,815
- 33. 33 Steel cycle and EBITDA/cash flow relationship Comments Klöckner & Co buys and sells products at spot prices generally Sales increase as a function of the steel price inflation environment Cost of material are based on an average cost method for inventory and therefore lag the steel price increase This time lag creates accounting windfall profits (windfall losses in a decreasing steel price environment) inflating (deflating) EBITDA Assuming stable inventory volume cash flow is impacted by higher NWC needs The windfall profits (losses) are mirrored by inventory book value increases (decreases) Theoretical relationship* Windfall profits Windfall losses (€m) Margin Margin 1 2 3 4 4 5 6 6 *Assuming stable inventory volumes Steel price Sales Cost of material EBITDA Cash flow
- 34. 34 Geographical breakdown of identified institutional investors Current shareholder structure Comments Identified institutional investors account for 76% US based investors dominate Top 10 individual shareholdings represent around 53% Rest of World < 1% (geographical breakdown) Retail share 11% Rest of Europe US United Kingdom Germany France Switzerland Source: Survey Thomson Financial (as of Nov. 07) 14% 6% 5% 21% 47% 8%
- 35. 35 Our symbol the ears attentive to customer needs the eyes looking forward to new developments the nose sniffing out opportunities to improve performance the ball symbolic of our role to fetch and carry for our customers the legs always moving fast to keep up with the demands of the customers
- 36. 36 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, 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 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 them to future events or developments.