Klöckner & Co - Pan European Mid & Small Caps Conference
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Klöckner & Co - Pan European Mid & Small Caps Conference

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June 6, 2008, Nice

June 6, 2008, Nice

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    Klöckner & Co - Pan European Mid & Small Caps Conference Klöckner & Co - Pan European Mid & Small Caps Conference Presentation Transcript

    • Klöckner & Co AG A Leading Multi Metal Distributor Société Générale Pan European Mid & Small Caps Conference June 6, 2008 in Nice Gisbert Rühl CFO
    • 2 Agenda 1. Overview and market Appendix 2. Current market development and expectations for 2008 3. Profitable growth initiatives 4. Financials and outlook
    • 3 Klöckner & Co at a glance CustomerKlöckner & Co Klöckner & Co highlights Products: Services: Producer Construction: Structural Steelwork Building and civil engineering Machinery/ Mechanical Engineering Others: Durable goods Metal products Installation etc. 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 FY 2007 - Sales: €6,274 million - EBITDA: €371 million
    • 4 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 €2,000 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
    • 5 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
    • 6 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 and growing 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 and Temtco approx. 1.5% 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%
    • 7 Broad industry, product and customer diversification Other GB Construction Machinery/ Manufacturing Auto- motive 42% 25% 6% 27% 23% 21% 14% 10% 5% 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 29% 30% 10% 10% 7% 14% Sales split by industry* Sales split by markets* Sales split by product* *As of December 2007 *As of December 2007*As of December 2007
    • 8 Agenda 1. Overview and market Appendix 2. Current market development and expectations for 2008 3. Profitable growth initiatives 4. Financials and outlook
    • 9 Ongoing profitable growth Highlights Q1 2008 and until today Excellent results, supported by price increases Further expansion through the acquisition of Temtco in the US and also Multitubes in the UK Acquisition of remaining outside shareholdings in Swiss Company Debrunner Koenig Holding AG and as a consequence full integration into the Group Sale of the automotive-related Canadian Namasco Ltd. Business optimization program “STAR” fully on track All preparatory steps to transform Klöckner & Co AG into a European company (SE – Societas Europaea) completed Ulrich Becker joined the Management Board on April 1, 2008, responsible for Europe and Purchasing
    • 10 Financial highlights Q1 2008 (€m) Q1 2008 Q1 2007 Δ% Volume (Ttons) 1,720 1,629 5.6 Sales 1,660 1,550 7.1 EBITDA 109 92 18.3 EBIT 93 78 18.6
    • 11 Steel market development in Q2 2008 Strong price increases despite a softer economic growth due to a favorable supply and demand relation especially in the US but also in Europe Structural change due to the fact that steel prices are now driven primarily by raw material costs Higher discipline on the producer side due to consolidation High capacity utilization Low stock levels and low import volumes Further price increases already announced for the upcoming months Strong steel market development expected to continue in Q3
    • 12 80% 90% 100% 110% 120% 130% 140% Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Flat Products / HRC / N.Europe domestic Flat Products / CRC / N.Europe domestic Ex-Works /t Flat Products / HDG / N.Europe domestic Ex-Works /t Flat prices Northern Europe (SBB, Jan 2007 = 100)
    • 13 90% 110% 130% 150% 170% 190% 210% Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Flat Products / HRC / N.America domestic FOB US Midwest mill $/t Flat Products / CRC / N.America domestic FOB US Midwest mill $/t Flat Products / HDG / N.America domestic FOB US Midwest mill $/t Flat Products / Plate (A36) / N.America domestic FOB US Midwest mill $/t Flat products prices North America (SBB, Jan 2007 = 100)
    • 14 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Long Products / Medium sections / Europe domestic delivered /t Long Products / Merchant Bar / Europe domestic delivered /t Long Products / Rebar / Europe domestic delivered /t Long products prices Europe (SBB, Jan 2007 = 100)
    • 15 Long products prices North America (SBB, Jan 2007 = 100) 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Long Products / Rebar / N.America domestic FOB US Midwest mill $/t Long Products / Merchant Bar / N.America domestic FOB US Midwest mill $/t Long Products / WF beams (medium) / N.America domestic FOB US Midwest mill $/t
    • 16 Agenda 1. Overview and market Appendix 2. Current market development and expectations for 2008 3. Profitable growth initiatives 4. Financials and outlook
    • 17 Profitable growth Grow more than the market Continuous business optimization 1 Acquisitions driving market consolidation and Organic growth and expansion into new markets 2 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
    • 18 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 12 4 2 2005 2006 2007 Acquisitions Sales €141 million €108 million €567 million Continued expansion through acquisitions1
    • 19 Acquisition of Temtco, a leading plate distributor 40% of the 2007-level of acquisition-related sales already achieved Tacoma, WA Chicago, IL Apache Junction, AZ Louisville, MS York, PA High quality product portfolio: High strength quenched & tempered steel, wear-resistant steels and security steels Sales 2007: $310 million (€226 million) with 180 employees More than 60% of sales are processed products Excellent customer base in application sectors such as energy, machinery and mechanical engineering, mining and transport CommentsNorth America/USA – 03/08: Temtco
    • 20 Investment highlights Complementary sales coverage combined with an additional product range offers synergy potential Namasco’s and Primary’s market coverage hugely expanded Enlarged purchasing power helps to counterweight the strong supplier consolidation (top 3 account for more than 80% of market) Additional (typical) synergies in admin, finance, IT, etc. The acquisition of Temtco supports significantly the leading position of Primary and Namasco in the plate distribution segment Securing continuing specialty plate supply through Temtco’s supplier relations Leveraging Temtco’s customer base for sale of Namasco/Primary’s commodity plate and vice versa Broad geographic coverage with five locations Leading position in plate segment Synergies
    • 21 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 6x Focus on targets with significant synergy and scale effects: ● Stronger purchasing power ● Streamlining operations and processes, integrating IT ● Integration of STAR Accretive growth 1
    • 22 Organic growth and expansion into new markets Closing of acquisition of Metalsnab in Bulgaria in January 2008 Additional acquisitions and opening of new branches Evaluation of market entry in other countries (e.g. Turkey, Russia) Concentrate product range and expand higher margin products Increase value-added services Further expansion in Eastern Europe and into new markets Expansion of strong market position in core markets 1
    • 23 STAR: Status Quo Extension of European sourcing Improvement of the European stock management Ongoing SAP roll-out across European countries Improving performance of distribution network STAR program fully on track Purchasing Distribution network 2
    • 24 Phase II (2008 onwards) STAR: Phase I finalized in 2008, further potential in phase II2 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 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
    • 25 Agenda 1. Overview and market Appendix 2. Current market development and expectations for 2008 3. Profitable growth initiatives 4. Financials and outlook
    • 26 Summary income statement Q1 2008 (€m) Q1 2008 Q1 2007 Δ% Volume (Ttons) 1,720 1,629 5.6 Sales 1,660 1,550 7.1 Gross profit % margin 340 20.5 307 19.8 10.8 3.5 EBITDA % margin 109 6.6 92 5.9 18.3 11.9 EBIT Financial result 93 -17 78 -10 18.6 63.7 Income before taxes 76 68 11.7 Income taxes -24 -22 10.3 Minority interests 2 6 -74.9 Net income* 51 40 26.3 EPS basic (€) 1.09 0.86 26.7 EPS diluted (€) 1.06 0.86 23.3 * Attributable to shareholders of Klöckner & Co AG
    • 27 Again strong underlying EBITDA Underlying EBITDA Q1 2008 (€m) Q1 2008 EBITDA as reported ● One-offs 109,0 0,2 Operating EBITDA ● Windfall effects ● Exchange rate effects ● Special expense effects 109,2 -8,0 4,1 -6,5 Underlying EBITDA 98,8 ● Acquisitions (LTM*) -13,5 Underlying EBITDA excluding Acquisitions 85,3 * LTM: Last twelve months
    • 28 Includes sales of M€40 for Q1 2008* in Europe and sales of M€101.4 for Q1 2008* in North America Segment performance Q1 2008 Comments(€m) Europe North America HQ/ Consol. Total Volume (Ttons) Q1 2008 1,211 509 - 1,720 Q1 2007 1,230 399 - 1,629 Δ % -1.5 27.5 - 5.6 Sales Q1 2008 1,358 301 - 1,660 Q1 2007 1,339 211 - 1,550 Δ % 1.5 42.7 - 7.1 EBITDA Q1 2008 84 26 -1 109 % margin 6.2 8.8 - 6.6 Q1 2007 85 14 -7 92 % margin 6.4 6.6 - 5.9 Δ % EBITDA -2.0 88.6 - 18.3 * Sales of acquired companies for the first twelve months of their consolidation
    • 29 Balance sheet as of March 31, 2008 (€m) March 31, 2008 December 31, 2007 Long-term assets 753 735 Inventories 1,020 956 Trade receivables 1,083 930 Cash & Cash equivalents 108 154 Other assets 188 191 Total assets 3,152 2,966 Equity 771 845 Total long-term liabilities 1,255 1,152 - thereof financial liabilities 914 813 Total short-term liabilities 1,126 969 - thereof trade payables 740 610 Total equity and liabilities 3,152 2,966 Net working capital* 1,404 1,323 Net financial debt* 904 746 Comments Financial debt as of March 31, 2008: • Syndicated loan: €311million • ABS: €301 million • Bilateral credits: €120 million • Convertible: €271 million Net Working Capital: • Seasonal effect; sales-, acquisition- and price-driven * Including Namasco Ltd. / Canada
    • 30 Statement of cash flow Comments(€m) Q1 2008 Q1 2007 Operating CF 107 92 Changes in net working capital -88 -164 Others -29 -16 Cash flow from operating activities -10 -88 Inflow from disposals of fixed assets/others 3 1 Outflow from investments in fixed assets -144 -18 Cash flow from investing activities -141 -17 Changes in financial liabilities 111 51 Net interest payments -5 -3 Cash flow from financing activities 106 48 Total cash flow -45 -58 Operating CF more than fully covered the investments in net working capital Investing CF mainly impacted by increased stake in Swiss Holding CF from financing activities reflects the increased utilization of debt instruments
    • 31 General financial targets/limits and guidance General target/limit Actual Q1 2008 Top line sales growth > 10% p.a. 7.1% Underlying EBITDA margin* > 6% 5.94% Leverage (Net financial debt/EBITDA LTM) < 3.0x 2.3x Gearing (Net financial debt/Equity) < 150% 117% Challenging financial targets throughout the cycle * According to new definition
    • 32 Outlook 2008 Based on good Q1 results, Q2 and H1 EBITDA are expected to be higher than last year supported by an on-going favorable market environment for the steel distribution Positive development expected to continue. Thus, we expect the 2008 results to exceed the 2007 results supported by €30 million additional EBITDA from STAR program Positive contribution of additional €25-30 million EBITDA from acquisitions made in 2007 Positive contribution of €15-20 million EBITDA from acquisitions made in 2008 High likelihood of further stock gains in the course of 2008 Raised outlook – 2008 results above 2007
    • 33 Agenda 1. Overview and market Appendix 2. Current market development and expectations for 2008 3. Profitable growth initiatives 4. Financials and outlook
    • 34 Appendix Table of contents Quarterly results and FY results 2007/2006/2005 Steel cycle and EBITDA/cash flow relationship Debt facilities Current shareholder structure Financial calendar 2008 and contact details
    • 35 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
    • 36 (€m) 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) 1,720 1,585 1,601 1,663 1,629 1,453 1,467 1,605 1,601 6,478 6,127 5,868 Sales 1,660 1,492 1,583 1,650 1,550 1,398 1,394 1,418 1,323 6,274 5,532 4,964 Gross profit 340 300 286 328 307 294 313 316 285 1,221 1,208 987 % margin 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 109 83 93 103 92 70 143 104 79 371 395 197 % margin 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 93 65 76 87 78 55 128 89 64 307 337 135 Financial result -17 -17 -17 -52 -10 -12 -24 -14 -14 -97 -64 -54 Income before taxes 76 48 59 35 68 43 105 75 50 210 273 81 Income taxes -24 -6 -14 -12 -22 16 -20 -22 -13 -54 -39 -29 Minority interests 2 4 8 4 6 5 8 9 6 23 28 16 Net income 51 37 37 19 40 54 76 45 31 133 206 36 EPS basic (€) 1.09 0.80 0.79 0.41 0.86 1.16 1.64 0.97 - 2.87 4.44 - EPS diluted (in €) 1.06 0.80 0.78 - - 1.16 - - - 2.87 4.44 - Quarterly results and FY results 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).
    • 37 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
    • 38 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
    • 39 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%
    • 40 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
    • 41 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.