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Klöckner & Co - Q3 2009 Results

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Analysts' and Investors' Conference Call …

Analysts' and Investors' Conference Call
November 13, 2009


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  • 1. November 13, 2009November 13, 2009 KlKlööckner & Co SEckner & Co SE Gisbert RGisbert Rüühlhl CEO/CFOCEO/CFO A Leading Multi Metal Distributor Q3 2009 Results Analysts‘ and Investors‘ Conference Call A Leading Multi Metal Distributor Q3 2009 Results Analysts‘ and Investors‘ Conference Call
  • 2. 2 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. 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 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.
  • 3. 3 Agenda 1. Market 2. Crisis management and strategy update Appendix 4. Outlook 3. Financials Q3 2009
  • 4. 4 Results improving although volumes are still low, but through the trough Highlights Q3 2009 and until today First quarter since beginning of the crisis with positive EBITDA of €11m Volumes on same levels as in Q1 and Q2 Gross margin increased from 16.8% in Q2 to 22.3% in Q3 Cost cutting ahead of plan with almost fully achieved €100m net cost savings target for 2009 Successful placement of a rights issue with net proceeds of €193m Net debt position converted into net cash position with €139m due to further release of NWC and rights issue Back on acquisition track to strengthen Klöckner & Co’s position in flat steel: Becker Stahl-Service Group’s SSC with around €600m sales and constantly higher EBITDA-margin than Group target * Adjusted for inventory devaluations
  • 5. 5 Prices in general improved during Q3 but came again under pressure in last weeks in EU/ NA Chinese prices picked up after weakening in October Producers ramped up idled capacities too fast Steel inventories remaining on low levels especially in the US Steel inventories in the US near all time lows and back to H1 2008 levels in terms of months of sales Source: SBB Steel prices volatile Source: Metals Service Center Institute Prices after recovery again under pressure 5,500 6,500 7,500 8,500 9,500 10,500 11,500 12,500 13,500 Jan08 Mar08 May08 Jul08 Sep08 Nov08 Jan09 Mar09 May09 Jul09 Sep09 Inventories(Tto) 1.5 2.0 2.5 3.0 3.5 4.0 Monthsofshipments Inventories Months 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Jan06 Apr06 Jul06 Oct07 Jan07 Apr07 Jul07 Oct07 Jan08 Apr08 July08 Oct08 Jan09 Apr09 Jul09 Oct09 Steelprices(€/t) HRC-Europe HRC-US Medium sections-Europe Beams-US
  • 6. 6 Agenda 1. Market 2. Crisis management and strategy update Appendix 4. Outlook 3. Financials Q3 2009
  • 7. 7 Effective crisis management Crisis management Managing growth again Cost cutting NWC- / debt-reduction Safeguard financing Waves 1 and 2 Wave 3 Efficiency program Continuous improvement Acquisition strategy Organic growth Growth capital ( )
  • 8. 8 €35-40m fixed cost savings in 2009, annualized fixed cost savings of €50-60m Cost cutting ahead of plan €100m net savings target 2009 Personnel 50% Shipping 20% Operating supplies/ tools 15% Repair/ maintenance 10% Other 5% Reduction of >1,500 jobs or >15% of total workforce
  • 9. 9 1.21 1.32 1.25 1.01 0.89 0.75 0.74 Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009 Q3/2009 -0.14 0.12 0.32 0.57 0.69 1.07 0.90 Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009 Q3/2009 Fast adaptation of NWC- / Net-debt to current situation Destocking Net debt Monthly shipment levels / NWC €bn Stock levels of KCO in million to -44% -113% Jan 08Feb 08M ar08Apr08M ay 08Jun 08 Jul08Aug 08Sep 08O ct08N ov 08D ec 08Jan 09Feb 09M ar09Apr09M ay 09Jun 09 Jul09Aug 09Sept09 Receivable days Payable days Receivable / payable days 230 280 330 380 430 480 530 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sept 09 650 850 1050 1250 1450 1650 Turnover (Tto) NWC (T€)
  • 10. 10 Financial structure Bank debt Securitized debt Capital markets debt AcquisitionsNWC 43% 26% 31% €325m Convertible Bond 2007 €400m Bilateral Facilities €505m ABS €300m Syndicated Loan €98m Convertible Bond 2009 Funds for future growth €193m Rights Issue €912m Equity pre Rights Issue >€600m predominantly for growth through acquisitions incl. expected outflow for acquisition of Becker Stahl- Service Group in 2010 €1,105m €616m Strong financial power for growth through acquisitions Equity BSS
  • 11. 11 After managing the crisis back on track with Wave 3 Crisis management Managing growth again Cost cutting NWC- / debt-reduction Safeguard financing Waves 1 and 2 Wave 3 Efficiency program Continuous improvement Acquisition strategy Organic growth Growth capital ( )
  • 12. 12 Acquisitions1 Acquired sales1,2 ¹ As of announcement ² Figures refer to the latest fiscal years, prior to the acquisitions of the companies 3 Subject to due diligence and the approval by the antitrust authority Successful acquisition-led growth re-established €108m4 acquisitions2006 €567m12 acquisitions2007 €35mTournierJan 2007 €14mTeulingApr 2007 €360mPrimary SteelApr 2007 €17mEdelstahlserviceApr 2007 €15mMax CarlApr 2007 €11mZweygartApr 2007 €23mPremier SteelMay 2007 €26mWestokJun 2007 €36mMetalsnabAug 2007 €7mScanSteelSep 2007 €14mInterpipeSep 2007 €9mLehner & TonossiSep 2007 €231m2 acquisitions2008 €5mMultitubesJan 2008 €226mTemtcoMar 2008 ~€600mBecker Stahl Service GroupEarly 20103 Sales (FY)2CompanyAcquired1Country ~€600m €141m €567m €108m 2 4 12 2 2005 2006 2007 2008 2009 2010 1 €231m Acquisitionstrategysuspended
  • 13. 13 Overview Becker Stahl-Service Group (BSS) OverviewFacility BSS is the largest single site SSC in Europe • Privately owned business • ~€600 million sales in 2008/2009* • Consistently higher EBITDA margin than Group target • 460 employees • Located in Bönen (Ruhr area) BSS has a unique market position based on size and flexibility • Covers all applications up to 4 mm thickness supplying to automotive OEM, Tier 1, white goods and other manufacturing • Cost leadership with significant scale advantage vs. all EU SSC including mill tied locations • Only SSC that has flexibility to deliver on short notice almost all specifications • Modern location with exceptional logistical concept – recently completed expansion “Werk Nord” is most likely the world leading SCC site • BSS enjoys an excellent market reputation for flexibility, reliability and quality *preliminary figures business year ending in September subject to due diligence
  • 14. 14 Recently completed expansion most modern site Total property of 74.900 m2 Covered site area: 14.500 m2 Total invest of ~ €30 million Cut to length and slitting line Fully automatic coil storage and handling Expansion > 4mm possible More details on technical capabilities Automatic coil storage and handling
  • 15. 15 #1 independent SSC in GER and #1 single site in EU 3.3%OKS (Stemcor) 5.6%Salzgitter(1) 8.2%ArcelorMittal SSC 11.5%Becker Stahl-Service (BSS) 31.7%Others 3.8%DM-Stahl(3) 4.7%Knauf Interfer(2) 5.4%Tata Corus 5.0%Stahlo / Starcon 6.8%EMW Eisen- und Metallwerke 14.0%ThyssenKrupp SSC Market share of Top 10 SSC in Germany (1) Hövelmann & Lueg (2) Max Baumann Stahlservice, W. Patz, Delta Stahl (3) Inkl. Bandstahl-Service Hagen Source: Handbuch Stahl 2008 / 09 >100,000FranceJeumontThyssenKrupp SA >100,000AustriaMauthausenAtlas-Blech-Center GmbH >100,000GermanyGeraStarcon >100,000GermanyMudersbachWalter Platz GmbH >100,000SwitzerlandSennwaldKoenig Feinstahl AG >100,000PolandPolskaVoestalpine, Polska >100,000UKNewportThyssenKrupp SC UK >100,000GermanyRadebeulThyssenKrupp Stahl-SC >100,000SloveniaNakloMerkur naUKNASS Group naPolandPUDS Group naItalyItalian Group naSpainSpanish Group/Transid >100,000GermanyFellbachStahl-Metall-Service GmbH >100,000FranceFossesThyssenKrupp SA >100,000GermanyStuttgartHerzog Coilex >100,000GermanyMannheimThyssenKrupp Stahl-SC >100,000GermanyLeverkusenThyssenKrupp Stahl-SC >100,000GermanyBreyellThyssenKrupp Stahl-SC >100,000GermanyBochumThyssenKrupp Stahl-SC >100,000SpainLayde >100,000FranceCorbellUnitol >100,000NIMoerdijkNamascor >100,000NLMaastrichtCorus Service Centre >100,000GermanyNeussCorus Degels >100,000GermanyGelsenkirchenCorus Gelsenkirchen >250,000Czech Republ.KollnMi-King >250,000SpainVictoriaROS CASARES >250,000GermanyDillenburgStahlo >250,000GermanySchwerteHoevelmann & Lueg GmbH >250,000GermanyNeunkirchenEMW 50,000-500,000Italy, EEC7 Sites, split naCLN >500,000NLValkenswaardMCB International BV >500,000AustriaLinzVoestalpine, Linz >1,000,000GermanyUnna-BönenBecker Stahl-Service Gmbh Production t/aLocationSiteCompany/Group
  • 16. 16 Constant high profitability even in tough environment Normalized EBITDA margin Note: Becker Group closes on 30/09 every year. 2009e based on first nine month plus budget last three months. Customers Split Others (White Goods, Metal Goods, etc.) Distributors ~60% ~20% ~20% Automotive Constant high EBITDA margin EBITDA-margin above Group’s target margin Source: Eurometal 2008 * Subject to due diligence EBITDA margin* FY 05 FY 06 FY 07 FY 08 FY 09
  • 17. 17 BSS will be the core of KCO EU Flats SSC Division Internal sheets supply to KSM and other distribution workhouses would reduce NWC, expand product portfolios and significantly improve competitiveness BSS know how and processes would be rolled out to existing SSC in UK, F, ES and CH Synergies from capacity adjustments expected Klöckner & Co SE ASD (UK) DKH (CH) KSM (D) KDI (F) CDL (ES) BSS (D) Armstrong KFS Targe Cortichapa Tournier … … … … … Flats SSC
  • 18. 18 Internal supply from BSS would increase effectiveness Current Material Flow in Value Chain New Material Flow in Value Chain SupplierKCOCustomer Mill-SSC Independent SSC C1 C2 C3 C4 C6 Warehouse3 Various Steel Mills C5C5 Warehouse2 Steel Mill C1 C2 C3 C4 C6C5 Warehouse2 C7 C8 Steel Mill Warehouse3 Steel MillSteel Mill Warehouse1Warehouse1
  • 19. 19 Overall attractive set of synergies Overall EU purchasing power in flats would significantly increase Combined normal purchasing volume would increase from about 500 Tto to more than 1.500 Tto Existing SSC production capacity with equipment could be shifted permanently to BSS supply Total EU capacity based on 2 shifts per day about 100 Tto Detailed analysis to be carried out – divestments to be considered Sourcing from BSS with short lead times would allow for reduced inventories Assuming a doubling of inventory turns and direct supply would result in significant NWC reduction
  • 20. 20 Attractive valuation within target range of 4x-5x EBITDA Perfect fit to our acquisition criteria *Deal is subject to due diligence and competitive authority approvals and expected to be closed beginning of 2010 Achieve a leading EU-position in sheets in one single step with largest most modern single site Steel Service Center operation (SSC)* Leverage to Group’s flat procurement Leverage to Group’s SSC activities and know how Realize synergies in purchasing Customer diversification outside construction Stabilize Group earnings volatility Constant EBITDA-margin above Group target (6%) EPS-accretive from year one 16 Achieve profitable growth Strengthen purchasing power vs. suppliers for core group products Strengthen country specific market positions Expand footprint outside construction industry Focus on geographical core markets in EU, NA and EEC to leverage existing network Western Europe NAFTA Steel ProducerSteel Distributor Steel Distributor Top 6 -20 Top 5 65%17% 18% Others Top 5 31% 69% Steel Producer Others Top 5 39% 61% OthersOthersTop 6 -20 Top 5 18% 32% 50% Klöckner & Co: Acquisition strategy2 Source: Company data, Eurometal, broker research Consolidation among steel producers is well ahead of highly fragmented distribution sector M&A strategy Profitability above group average Strong synergy potential in purchasing, admin and warehousing with low integration risk EV/EBITDA multiple between 4x and 6x EBITDA EPS-accretive from year one Target selection criteria Track record of 18 successful acquisitions since IPO shows ability to integrate companies and extract synergies Rights issue roadshow Septem ber 2009
  • 21. 21 Agenda 1. Market 2. Crisis management and strategy update Appendix 4. Outlook 3. Financials Q3 2009
  • 22. 22 Summary income statement Q3/9M 2009 -106.0 -105.5 -106.7 -108.2 -92.4 -105.5 -101.7 -18.9 -97.3 -94.8 -46.6 1.4 -47.4 -23.4 Δ% -4.16 -4.16 -197 1 51 -249 -204 -46 -151 -5.1 447 15.0 2,988 3,154 9M 2009 10.55 11.28 525 -1 -108 634 686 -51 735 13.7 1,193 22.3 5,355 4,823 9M 2008 -34.61,3481,033Volume (Ttons) -136.97.56-0.42EPS basic (€) -139.3378-21Income before taxes -147.4-30-2Income taxes -145.240Minority interests -0.42 -23 -7 -14 11 1.2 208 22.3 934 Q3 2009 -139.47.01EPS diluted (€) -137.6352Net income* -62.5 -32.8 391 22.0 Gross profit % margin 395 -18 413 23.3 1,773 Q3 2008 -129.7 -11.3 EBIT Financial result -120.6 -136.9 EBITDA % margin -44.2Sales Δ%(€m) * Attributable to shareholders of Klöckner & Co SE
  • 23. 23 Organic volume development in North America -27.2% Comments Segment performance Q3 2009 23.3-13.225.4% margin 934-159775Q3 2009 1,348-351997Q3 2008 -47.3--58.4-44.3Δ % 1,033-249784Q3 2009 -97.3--80.1-98.9Δ % EBITDA 413951353Q3 2008 1.2-6.40.5% margin 11-3104Q3 2009 1,773-3821,391Q3 2008 EBITDA Sales -21.5 Europe -23.4--28.9Δ % Volume (Ttons) Total HQ/ Consol. North America(€m)
  • 24. 24 Balance sheet as of Sept. 30, 2009 -139 702 2,914 427 738 618 1,071 1,105 2,914 176 863 556 573 746 Sept. 30, 2009 799Trade receivables 1,001Inventories 811Long-term assets 297Cash & Cash equivalents* 176Other assets 392• thereof trade payables 826Total short-term liabilities 1,177Total long-term liabilities 1,081Equity 3,084Total assets 813• thereof financial liabilities Dec. 31, 2008**(€m) 3,084Total equity and liabilities 571Net financial debt 1,407Net working capital * Including restricted cash of €7m; ** restated due to initial application of IFRIC 14 Shareholders’ equity: Increased from 35% to 38% Would be at 50% if cash would be used for net debt reduction Financial debt: Gearing reduced from 53% to -13% Net Working Capital: Decrease is price- and volume- driven Comments
  • 25. 25 Statement of cash flow Operating CF negatively impacted by volume drop, offset by change in NWC Investing CF mainly balanced because of postponement of acquisitions and investment cut Comments -36-1Others 32541Cash flow from operating activities 3877Inflow from disposals of fixed assets/others -296-13 Outflow from investments in fixed assets/ others 91-6Cash flow from investing activities -384703Changes in net working capital - - 22 26 195 -161 Equity component of convertible bond Rights issue Changes in financial liabilities 452-161Operating CF 84570Total cash flow -3935Cash flow from financing activities -22 -38 -25 0 Net interest payments Dividends 9M 2008 9M 2009 (€m)
  • 26. 26 Agenda 1. Market 2. Crisis management and strategy update Appendix 4. Outlook 3. Financials Q3 2009
  • 27. 27 We stick to our targets Roadshow Presentation April 2006 Underlying sales growth Underlying EBITDA margin Gearing (Net financial debt/Equity) > 10% p.a. > 6% < 75% Starting 2010 Starting 2011 Revised
  • 28. 28 Outlook 2009 Current negative pricing expectations directly influence customers buying behavior Uncertainty for Q4 earnings mainly due to price related revaluation effects EBITDA in H2 maximum break even given seasonality and price environment despite positive EBITDA for Q3 and October Overachievement of cost cutting target of €100m net in 2009 Stocks and NWC not expected to materially change in Q4 Accretive acquisition initiated and expected to be closed beginning of 2010 Gradual volume improvement expected into 2010 although no signs of real demand recovery recognized yet Efficiency measures ahead of plan, value enhancing acquisition initiated
  • 29. 29 Agenda 1. Market 2. Crisis management and strategy update Appendix 4. Outlook 3. Financials Q3 2009
  • 30. 30 +49 203 307 2050Phone: Internet: E-mail: Fax: Dr. Thilo Theilen, Head of Investor Relations & Corporate Communications thilo.theilen@kloeckner.de www.kloeckner.de +49 203 307 5025 Contact details Investor Relations Q3 interim report 2010November 10, 2010: Q2/H1 interim report 2010August 11, 2010: Annual General MeetingMay 26, 2010: Q1 interim report 2010May 12, 2010: Annual Statement 2009March 9, 2010: Financial calendar 2010 Financial calendar 2010 and contact details
  • 31. 31 -0.42 -0.42 -23 0 -2 -21 -14 -7 1.2 11 22.3 208 934 1,033 Q3 2009 -0.85 -1.04 -48 -1 16 -63 -15 -48 -3.2 -31 16.8 161 959 1,053 Q2 2009 -2.43 -2.70 -126 -2 38 -165 -16 -149 -12.0 -132 7.1 78 1,095 1,068 Q1 2009 8.11 8.56 398 -14 -79 463 -70 533 8.9 600 20.2 1,366 6,750 5,974 FY 2008 4.44 4.44 206 28 -39 273 -64 337 7.1 395 21.8 1,208 5,532 6,127 FY 2006 2.48 2.63 122 3 -55 180 -17 197 11.0 212 24.0 462 1,922 1,755 Q2 2008 -2.871.097.56-2.72EPS basic (€) 1.06 51 -2 -24 76 -17 93 6.6 109 20.5 340 1,660 1,720 Q1 2008 5,8686,4781,3481,151Volume (Ttons) 81210378-171 Income before taxes -29-54-3029Income taxes 1623-4-15Minority interests -2.44 -126 -18 -152 -9.6 -134 12.4 173 1,394 Q4 2008 -2.877.01EPS diluted (€) 36133352Net income -54-97-18Financial result 135307395EBIT 4.05.923.3% margin 197371413EBITDA 19.919.522.0% margin 9871,221391Gross profit 4,9646,2741,773Sales FY 2005* FY 2007 Q3 2008 (€m) Quarterly results and FY results 2005-2009 * 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 * Net debt / equity €1,105m min €500m max 150% Q3 Minimum Equity Covenants Maximum Gearing* Existing covenants on Syndicated Loan and European ABS Non performance related covenants leave us with lots of headroom Q3: Equity ratio currently at 38% Gearing currently at -13% €0 0%
  • 33. 33 €42m €230m €98m €325m €14m €341m 2009 2010 2011 2012 2013 2014 ABS Syndicated loan Convertible 2007¹ Convertible 2009¹ Drawn amount Facility Committed FY 2008 Q3 2009 Bilateral Facilities 417 65 66 ABS 505 213 56 Syndicated Loan 300 298 230 Total Senior Debt 1,222 576 352 Convertible 2007¹ 325 280 288 Convertible 2009¹ 98 0 75 Finance leases 9 12 9 Total Debt 1,654 867 724 Cash 297 863 Net financial position 571 -139 Debt and liquidity overview Current maturity profile of drawn amountsOverview of cash & indebtedness (€m) Additional flexibility through renegotiated covenants, which are now free of performance measures Improved Liquidity and total Net Cash Balance after rights issue in September 1 Drawn amount excludes equity component * Excluding bilateral facilities and finance leases
  • 34. 34 Current shareholder structure Source: Survey Thomson Financial (as of September 2009) Identified institutional investors account for 56% UK based investors dominate (Franklin remains Klöckner’s biggest investor with 9.32% of the total shares outstanding) Top 10 shareholdings represent around 28% Retail shareholders represent 24% 100% free float CommentsGeographical breakdown of identified institutional investors Germany 25% United Kingdom 34% US 14% 14% Rest of Europe 3% Switzerland France 8% 2% Rest of the World
  • 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