Klöckner & Co - Roadshow Presentation September 2008
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Klöckner & Co SE is a leading steel and metals distributor with over 260 distribution locations in Europe and North America. In this presentation, the CFO provides an overview of the company's strategy, strong financial performance in Q2/H1 2008, and outlook for the full year 2008. Key points include continued acquisition-driven growth, on-track optimization programs contributing to earnings, record half-year results, and an increased full-year outlook with sales over €7 billion and EBITDA over €770 million.
Klöckner & Co - Roadshow Presentation September 2008
- 1. Klöckner & Co SE A Leading Multi Metal Distributor September, 2008 Gisbert Rühl CFO
- 2. 2 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 3. 3 Klöckner & Co at a glance Klöckner & Co Leading producer-independent steel and metal distributor in the European and North American markets combined Network with more than 260 distribution locations in Europe and North America More than 10,000 employees Key financials FC 2008 - Sales: > €7 billion - Operating EBITDA: > €500 million GB 23% 21% 14% 10% 5% 9% 1% 13% Germany/ Austria France/ BelgiumSpain Nether- lands Eastern Europe Switzerland Canada 4% Sales split by markets As of December 2007 Steel-flat Products Steel-long Products Special and Quality Steel Aluminum Other Products 30% 32% 10% 9% 6% 13% Sales split by product As of July 2008 Other Machinery/ Manufacturing Auto- motive 42% 25% 6% 27% Sales split by industry As of December 2007 Construction USA Tubes
- 4. 4 Record results and ongoing profitable growth Highlights 2008 Extraordinary Q2 and half year record results Further expansion especially through the acquisition of Temtco in the US Disposal of KVT (CH) with high tax free income and cash contribution completed Sale of the automotive-related Canadian Namasco Ltd. concluded Business optimization program “STAR” fully on track Transformation of Klöckner & Co AG into a SE (Societas Europaea) completed
- 5. 5 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 6. 6 Profitable growth Grow more than the market Continuous business optimization 1 Accretive acquisitions driving market consolidation 2 STAR Program to optimize • Purchasing • Logistics • 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
- 7. 7 Country Acquired Company Sales (FY) Mar 2008 Temtco €226 million Jan 2008 Multitubes €5 million 2008 Ytd 2 acquisitions €231 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 €141 million €567 million Continued expansion through accretive acquisitions1 12 4 2 2005 2006 2007 Acquisitions Sales >€600 million 2008 €108 million
- 8. 8 Expected EBITDA contribution in 2008 from investments of about €260 million for acquisitions made in 2007 €90 - €100 million Expected EBITDA contribution in 2008 from investments of about €130 million for acquisitions made in 2008 so far €40 million (partially consolidated) €55 million (annualized) Continued expansion through accretive acquisitions1
- 9. 9 Phase II (2008 onwards) STAR program fully on track2 Phase I (2005 - 2008) Overall targets: Central purchasing on country level Improvement of distribution network Improvement of inventory management 2006: ~ €20 million 2007: ~ €40 million 2008: ~ €20 million ~ €80 million Upside potential Overall targets: European sourcing Ongoing improvement of logistics and distribution network Upside potential 2008 ~ €10 million 2009: ~ €30 million 2010: ~ €20 million ~ €60 million €16 million realized in H1
- 10. 10 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 11. 11 Strong market development in Europe Very strong price increases Growing underlying steel demand despite some weak local markets such as Spain SBB long prices - Europe domestic EUR/MT 300 400 500 600 700 800 900 CQ1 2005 CQ2 2005 CQ3 2005 CQ4 2005 CQ1 2006 CQ2 2006 CQ3 2006 CQ4 2006 CQ1 2007 CQ2 2007 CQ3 2007 CQ4 2007 CQ1 2008 CQ2 2008 Merchant Rebar Sections MB flat prices - Europe domestic EUR/MT 300 400 500 600 700 800 900 CQ1 2005 CQ2 2005 CQ3 2005 CQ4 2005 CQ1 2006 CQ2 2006 CQ3 2006 CQ4 2006 CQ1 2007 CQ2 2007 CQ3 2007 CQ4 2007 CQ1 2008 CQ2 2008 HRC CRC HDG
- 12. 12 Strong price development in North America Very strong price increases Growing underlying steel demand remains weak SBB long prices - North America domestic USD/MT 400 500 600 700 800 900 1.000 1.100 CQ1 2005 CQ2 2005 CQ3 2005 CQ4 2005 CQ1 2006 CQ2 2006 CQ3 2006 CQ4 2006 CQ1 2007 CQ2 2007 CQ3 2007 CQ4 2007 CQ1 2008 CQ2 2008 Merchant Rebar Heavy sections SBB long prices - North America domestic USD/MT 400 500 600 700 800 900 1.000 1.100 CQ1 2005 CQ2 2005 CQ3 2005 CQ4 2005 CQ1 2006 CQ2 2006 CQ3 2006 CQ4 2006 CQ1 2007 CQ2 2007 CQ3 2007 CQ4 2007 CQ1 2008 CQ2 2008 Merchant Rebar Heavy sections
- 13. 13 Short-term steel prices remain high despite slowing demand Demand in the EU will be effected by further slowdown mainly in Spain and UK US demand development will stay weak Steel prices are expected to peak in Q3 Even if prices soften slightly in 2009 they will remain on a high level, supported by: Normal inventory levels Lower Chinese exports High raw material costs which will keep cash costs on a high level supporting continuing supply discipline High capacity utilization driven by world wide slower but robust demand Increased pricing power of producers due to higher consolidation in Europe and North America Steel market will remain supply constrained
- 14. 14 Long-term steel prices are still expected to rise Long-term steel prices are still expected to rise based on robust demand as well as higher cash and fixed costs for new capacities Cash costs driven by iron ore and coking coal prices are expected to remain on a high level Expected global steel demand growth of 5 to 6% p.a. requires 70 to 90 million tons of new capacity each year, thereof 20 to 40 million tons ex China Steel prices must rise to cover escalating fixed costs for new capacities Steel market will remain supply constrained
- 15. 15 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 16. 16 Financial highlights Q2/H1 2008 290 321 3,582 3,475 H1 2008 87 103 1,650 1,663 Q2 2007 75.3166126.3197EBIT 65.0195107.0212EBITDA 12.03,19916.51,922Sales 5.53,2925.51,755 Volume (Ttons) Δ% H1 2007 Δ% Q2 2008 (€m)
- 17. 17 Summary income statement Q2/H1 2008 (€m) Q2 2008 Q2 2007 Δ% H1 2008 H1 2007 Δ% Volume (Ttons) 1,755 1,663 5.5 3,475 3,292 5.5 Sales 1,922 1,650 16.5 3,582 3,199 12.0 Gross profit % margin 462 24.0 328 19.8 41.0 21.2 803 22.4 635 19.8 26.4 13.1 EBITDA % margin 212 11.0 103 6.2 107.0 77.4 321 9.0 195 6.1 65.0 47.5 EBIT Financial result 197 -17 87 -52 126.3 -67.9 290 -34 166 -63 75.3 -46.1 Income before taxes 180 35 419.1 256 103 149.4 Income taxes -55 -12 372.6 -79 -33 137.3 Minority interests 3 4 -18.4 5 10 -53.2 Net income 122 19 538.2 173 59 191.6 EPS € (basic) 2.63 0.41 541.5 3.72 1.28 190.6 EPS € (diluted) 2.48 0.41 504.9 3.54 1.28 176.6
- 18. 18 Underlying EBITDA again improved Underlying EBITDA H1 2008 16.3 -30.1 46.5 130.3 - 10.5 -12.2 126.6 3.7 Δ 189.6 -10.3 199.9 188.2 - 4.5 7.2 194.6 -6.4 H1 2007 205.9 -40.4 246.4 318.5 -82.1 15.0 -5.0 321.2 -2.7 H1 2008 Underlying EBITDA excluding Acquisitions ● Acquisitions (LTM*) Operating EBITDA ● Windfall effects ● Exchange rate effects ● Special expense effects Underlying EBITDA EBITDA as reported ● One-offs (€m) * LTM: Last twelve months
- 19. 19 Includes acquisition-related sales of M€63 for H1 2008* in Europe and sales of M€226 for H1 2008* in North America Segment performance H1 2008 Comments(€m) Europe North America HQ/ Consol. Total Volume (Ttons) H1 2008 2,434 1,041 - 3,475 H1 2007 2,422 870 - 3,292 Δ % 0.4 19.7 - 5.5 Sales H1 2008 2,882 700 - 3,582 H1 2007 2,713 486 - 3,199 Δ % 6.2 44.1 - 12.0 EBITDA H1 2008 234 93 -6 321 % margin 8.1 13.3 - 9.0 H1 2007 178 33 -16 195 % margin 6.6 6.7 - 6.1 Δ % EBITDA 31.3 185.5 - 65.0 * Sales of acquired companies for the first twelve months of their consolidation
- 20. 20 Balance sheet H1 2008 1,072 1,652 3,612 858 1,380 1,043 1,376 856 3,612 267 124 1,236 1,199 786 June 30, 2008 930Trade receivables 956Inventories 735Long-term assets 154Cash & cash equivalents 191Other assets 610- thereof trade payables 969Total short-term liabilities 1,152Total long-term liabilities 845Equity 2,966Total assets 813- thereof financial liabilities December 31, 2007 (€m) 2,966Total equity and liabilities 746Net financial debt* 1,323Net working capital* Comments Financial debt: • Syndicated loan: €404 million • ABS: €322 million • Bilateral credits: €195 million • Convertible: €275 million Net Working Capital: • Sales-, acquisition- and price-driven * Including Canada and KVT
- 21. 21 Statement of cash flow Comments(€m) H1 2008 H1 2007 Operating CF 317 188 Changes in net working capital -274 -303 Others -40 -25 Cash flow from operating activities 3 -140 Inflow from disposals of fixed assets/others 8 15 Outflow from investments in fixed assets* -282 -366 Cash flow from investing activities -274 -351 Changes in financial liabilities 296 531 Net interest payments -16 -51 Dividends -38 -45 Cash flow from financing activities 242 435 Total cash flow -29 -56 Operating CF more than fully covered the investments in net working capital Investing CF mainly impacted by increased stake in Swiss Holding and acquisition of Temtco CF from financing activities driven by acquisitions *and acquisition of subsidiaries
- 22. 22 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 23. 23 General financial targets/limits and guidance 125.2%< 150%Gearing (Net financial debt/Equity) 2.2x< 3.0xLeverage (Net financial debt/EBITDA LTM) 6.9%> 6%Underlying EBITDA margin 12.0%> 10% p.a.Top line sales growth Actual H1 2008 General target/limit Challenging financial targets throughout the cycle
- 24. 24 Outlook 2008 For the full year 2008, we expect the following key figures: Sales of more than €7 billion EBITDA before one-offs of more than €500 million Reported EBITDA including divestments of more than €770 million Net income of more than €500 million The raised outlook is based on record half year results and still overall favorable market environment for the steel distribution industry going forward despite a weaker global economic development and is supported by the following effects: Positive contribution from STAR program Positive contribution from acquisitions made in 2007 and in 2008 Further stock gains in the course of H2 2008 Outlook raised again – 2008 results far above 2007
- 25. 25 Agenda 2. Strategy update Appendix 3. Market update 4. Q2/H1 financial review 5. Targets and outlook 1. Overview
- 26. 26 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
- 27. 27 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 > 210,000 customers No customer with more than 1% of sales Average order size of €2,500 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 Klöckner & Co’s value chain
- 28. 28 B D F E CH A CZ PL LT RO NL CN USA GB IRL More than 260 distribution locations in Europe and NA USA 30 D/A 23 F/B 75 CH 35 E 54 GB 26 IRL 1 NL 5 Eastern Europe 13 BU
- 29. 29 Largest independent multi metal distributor Europe (2007) Source: company reports, own estimates ArcelorMittal (Distribution approx. 5%) ThyssenKrupp BE Group Other mill-tied and independent distributors 11.1% 9.8% 6.4% 1.0%71.7% Klöckner & Co Source: Purchasing Magazine (May 2008), own estimates North America (2007) Steel Technologies Namasco (Klöckner & Co) Ryerson Reliance Steel Samuel, Son & Co ThyssenKrupp Materials NA Worthington Steel Carpenter Technology McJunkin O'Neal Steel Mac-Steel A.M. Castle 4.2% 2.8% 2.2% 2.2% 1.0% 1.0% 0.9% 1.3% 1.2% 1.1% 1.3% 1.8% 1.7% 1.0% 5.1% Other 71.2% Russel Metals Metals USA Structure: 50-60% through distribution, service centers Size in value: ~€100bn Companies: ~1,300 only independent distributors Structure: 67% through distribution, service centers Size in value: ~€71–91bn Companies: ~3,000 few mill-tied, most independent PNA Group
- 30. 30 (€m) Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006 FY 2007 FY 2006 FY 2005* Volume (Ttons) 1,755 1,720 1,585 1,601 1,663 1,629 1,453 1,467 1,605 1,601 6,478 6,127 5,868 Sales 1,922 1,660 1,492 1,583 1,650 1,550 1,398 1,394 1,418 1,323 6,274 5,532 4,964 Gross profit 462 340 300 286 328 307 294 313 316 285 1,221 1,208 987 % margin 24.0 20.5 20.1 18.0 19.8 19.8 21.0 22.5 22.3 21.5 19.5 21.8 19.9 EBITDA 212 109 83 93 103 92 70 143 104 79 371 395 197 % margin 11.0 6.6 5.6 5.9 6.2 5.9 4.9 10.3 7.3 6.0 5.9 7.1 4.0 EBIT 197 93 65 76 87 78 55 128 89 64 307 337 135 Financial result -17 -17 -17 -17 -52 -10 -12 -24 -14 -14 -97 -64 -54 Income before taxes 180 76 48 59 35 68 43 105 75 50 210 273 81 Income taxes -55 -24 -6 -14 -12 -22 16 -20 -22 -13 -54 -39 -29 Minority interests 3 2 4 8 4 6 5 8 9 6 23 28 16 Net income 122 51 37 37 19 40 54 76 45 31 133 206 36 EPS basic (€) 2.63 1.09 0.80 0.79 0.41 0.86 1.16 1.64 0.97 - 2.87 4.44 - EPS diluted (in €) 2.48 1.06 0.80 0.78 0.41 0.86 1.16 1.64 0.97 - 2.87 4.44 - Quarterly results and FY results 2008/2007/2006/2005 * 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).
- 31. 31 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
- 32. 32 Geographical breakdown of identified institutional investors Current shareholder structure Comments Identified institutional investors account for 74% US based investors still dominate but share decreased in favor of UK (up from 14% as of Sept. 2007) Top 10 individual shareholdings represent around 48% Rest of World < 1% (geographical breakdown) Retail share increased from 11% to almost 14% Rest of Europe US United Kingdom Germany Spain Switzerland Source: Survey Thomson Financial (as of Febr. 08) 20% 4% 4% 24% 41% 7%
- 33. 33 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
- 34. 34 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.