Klöckner & Co - Roadshow Presentation April 29, 2007

32
Klckner & Co - A Leading Multi Metal Distributor - April 2007 Gisbert Rühl CFO Dr. Thomas Ludwig CEO

Transcript of Klöckner & Co - Roadshow Presentation April 29, 2007

Page 1: Klöckner & Co - Roadshow Presentation April 29, 2007

Klöckner & Co- A Leading Multi Metal Distributor -

April 2007

Gisbert Rühl

CFO

Dr. Thomas Ludwig

CEO

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Agenda

1. Overview, Market and Strategy

Appendix

2. Financials and Outlook

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Klöckner & Co at a glance

Klöckner & Co highlights� Leading producer-independent steel and

metal distributor in the European and North American markets combined

� Distribution network with approx. 240 warehouses in Europe and North America

� About 10,000 employees

� Key financials FY 2006

- Sales: �5,532 million

- EBITDA: �395 million

- Net indebtedness �365 million

DistributorProducer Customer

Products:

Services:

Construction:� Structural

Steelwork� Building and civil

engineering

Machinery/MechanicalEngineering

Others:� Automotive� Metal products/

goods, installation� Durable goods� etc.

Overview

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Distributor in the sweet spot

Suppliers SourcingProducts 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

� More than 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 tones

� Diversified set of worldwide ca. 70 suppliers

� Examples:

Klöckner & Co�s value chain

Overview

Global suppliers Local customers

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Global reach with broad product and customer diversification

Germany/Austria 23%

France/Belgium 21%

Switzerland 15%

Spain 10%

UK 9%

Nether-lands 6%

Eastern Europe 1%

USA 10%Canada 5%

Steel-flat Products28%

Steel-long Products 31%Tubes 9%

Special Steel/Quality Steel 10%

Aluminum 8%

Other Products 14%

Construc-tion 40%

Machinery/Manufacturing 20%

Auto-motive 5%

Metal Products20%

Other 15%

USA

CAD

USA

CAN

G 25 LocationsF 76 Locations CH 31 LocationsE 48 LocationsUK 24 LocationsIE 1 LocationNL 7 LocationsEastern Europe 4 LocationsCAN 5 LocationsUSA 17 Locations Total 238 Locations

Locations (Dec. 31, 2006)

Country headquarters

Sales split by markets (2006)

Sales split by product (2006)

Sales split by industry (2006)

IE

Overview

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Strong position in Europe; significantly improved position in NA after acquisition of Primary

Europe (2005) North America (2005)

Arcelor Mittal AM3S 12%

(Sales Distribution �3.2m = 5%)

ThyssenKrupp 8%

Corus 6.5%

Klöckner & Co 5.9%

Other Mill-Tied Distributors ~15-

25%

Other Independents

~45-55%

Klöckner & Co 6%

Corus 4%

Source: EuroMetal, Company reports, Klöckner & Co

Other72.5%

Ryerson5.0% Reliance Steel

4.4% Samuel, Son & Co.2.3%

ThyssenKrupp Materials NA

2.0%

Russel Metals1.9%

Worthington Steel1.6%

Metals USA1.3%

Carpenter Technology1.1%

PNA Group1.1%

McJunkin1.2%

O'Neal Steel1.4%

MacSteelService Centers

1.5%

Olympic Steel0.8%

AM Castle0.7%

Klöckner & Co 1

1.0%

1) Operates as Namasco in North AmericaSource: Purchasing Magazine (May 2006)

Market

Structure: 67% through distribution, service centersSize in value: ~�65�80bnCompanies: ~3,000 few mill-tied, most independent

Structure: 50-60% through distribution, service centersSize in value: ~�68-92bnCompanies: ~1,300 only independent distributors

Only independent in top tier

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Broad coverage of the US marketand much stronger platform for further bolt-on acquisitions

Geographical Scope

Primary outlet

Primary Sales office

Oakland

Houston

Missouri

Chicago

Tampa

CharlotteArizona

Arkansas

Iowa

Alabama Georgia

South Carolina

North Carolina

Indiana

Maryland

Maine

Connecticut

Florida

Louisiana

Illinois

Texas

CaliforniaDubuque

Louisville

Indianapolis

AtlantaB´ham

CharlestonDallas

AustinNew Orleans

Jacksonville

Orlando

Pompano

Phoenix

Santa Fee Springs

Tulare

West Memphis

Savannah

Portland

Middletown

New Castle

Namasco Gen. line

Namasco Processing

� Sales: 2006: $467 million

� Leading market position in plate distribution

� Wide range of offered services

� Broad geographic coverage with seven locations

Key Facts

Primary Steel

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Investment highlights

� The plate market is attractive and has a good perspective� Pricing has been relatively stable and less volatile than other segments (also supported by high supply

side concentration)� Low dependency on individual market segments� Good growth perspective for main segments heavy equipment, oil & gas, transportation and railcar,

shipbuilding, etc.

� Primary is a well respected and well managed major player in plate distribution segment� Good quality based market reputation� Decent profitability and relatively good operational performance also supported by PE environment� Strong management team with good acquisition track record

� A combined Primary and Namasco company would create a leading position in plate distribution� Estimated total market share of 10% in plate segment� Broad geographic coverage� Wide range of offered services

� Complementary sales coverage combined with strong product overlap offers synergy potential� Namasco�s market coverage hugely enlarged� More than doubled purchasing power helps to counterweight the strong supplier consolidation (top 3

account for more than 90% of market)� Additional (typical) synergies in admin, finance, IT, etc.

Growth in an attractive

market segment

Acquire respected and well managed

business

Synergies

Leading position in plate segment

Primary Steel

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High added value, low customer concentrationwith broad industry split and complementary product mix

Product Mix (2006, $ mio.) (1)

0

50

100

150

200

250

StripMill

AsRolled

FR Pipe Merch.Bar

Beams /struc.

Tube others

Primary Namasco

Customer concentration

Customer 1 Shipbuilding 4,2%Customer 2 Power Generation 3,1%Customer 3 Oil & Gas 1,9%Customer 4 Transp. Equipment 2,1%Customer 5 Service Center 1,9%Customer 6 Transp. Equipment 1,8%Customer 7 Oil & Gas 1,4%Customer 8 Oil & Gas 1,4%Customer 9 Ind. Equipment 1,3%Customer 10 Service Center 1,0%

Segments Served

Service Centres 33,5%

Metal builders 2,9%Construction 2,6%

Heavy in. Equip. 29,3%

Transp. Equipment 4,5%Ship building 4,8%

Oil & Gas 16,2%

Power Generation 6,2%

Sales split by type of value added

Cut to length 45%

Stock sales 34%

Shearing 1%Slitting 3%

Thermal cutting 13%

Outside Processing 4%

Primary Steel

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Steel industry trends

Industry trends supporting Klöckner�s strategy

� Globalization and consolidation resulted in large costs savings, higher and more flexible capacity utilization, much better supply discipline and higher pricing power, which will prevent the margin destroying behaviour from the past

� Capacity and export containment in China under the drive of central government

� Higher material costs especially of iron ore and decreasingly relevant fixed costs have flattened the global steel cost curve in favour of developed-market steel producers

� Stable global demand growth leads to far quicker destocking and eroded global overcapacity

� On-going consolidation favouring large scale distributors

� Higher prices with much shorter downturns support more stable earnings and cash flows for distributors

Strategy

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Profitable growth

Strategy

Profitable growth through value-added distribution and services within multi metals to companies in Europe and North America

Grow more thanthe market

Continuous businessoptimization

1 Acquisitions driving market consolidation

2 Organic growth and expansion into new markets

3 STAR Program:- Purchasing- Distribution network- Inventory management

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Acquisitions driving market consolidation1

Next steps

Further acquisitions in core markets at attractive valuations:

� Leverage existing structure with 10 to 12 smaller (local) bolt on acquisitions in 2007

� Medium and large scale acquisitions when appropriate

� Include attractive industries, e.g. oil and gas

Focus on targets in key markets at attractive valuations

Strategy

BenefitsSignificant synergy opportunities

� Streamlining operations, processes and sales force

� Integration of STAR

Economies of scale

� Stronger purchasing power

Strategy

Status Quo

� Attractive valuations� Proven acquisition integration capability

04/2007: Teuling�14 million sales; 16 employees01/2007: Tournier�35 million sales; 41 employees10/2006: Action Steel �55 million sales; 110 employees10/2006: Gauss �10 million sales; 40 employees07/2006: Aesga�18 million sales; 40 employees02/2006: Targe�25 million sales; 50 employees10/2005: Alu Menziken Service�33 million sales; 70 employees07/2005: Reynolds�108 million sales; 150 employees

04/2007: Primary Steel�360 million sales; 389 employees

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Organic growth and expansion into new markets2

Status Quo

� Strong growth in core markets above GDP partly as a result of the outstanding development of the construction and machinery industries and steel prices

� Improved performance mainly in Germany and France due to organizational changes

� Eastern European facilities established in Poland, Czech Republic, Romania and Baltic States

� Extending activities of our Chinese representative office

Next steps

Expansion of strong market positions in core markets:

� �STAR-Program� supporting organic growth

� Selective extension of product range

� Increase value added services through investments in new processing capacity

� Extension of customer base

� Opening of new branches in Eastern Europe (Romania, Poland, Czech Republic and Baltic States)

Leveraging existing distribution network

Strategy

Benefits Sustainable profitable growth

Strategy

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Purchasing � Status Quo

Improved performance as a result of restructured distribution network:

� Close-down of warehouses in Northern Germany (3 0)

� Reduction number of warehouses in the Lyon area in France (8 4)

� Improvement warehouse structure in the Iowa-region in US (3 1)

� Restructuring of service center business in Switzerland (3 1)

3

Next steps

STAR: Status quo 2006 and next steps

Distribution � Status Quo Next steps

� Continuous improvement of distribution network throughout the Group with support of the optimization-tool �Prodacapo� (activity based costing)

� Ongoing roll-out throughout the European countries

� Finalize implementation of SAP throughout the European organization (France, Switzerland) and interface SAP with Prodacapo

� Implement unified article code

� Finalize central purchasing on country level, especially in Germany

� Establish European purchasing (STAR Phase II) and increase sourcing from world-class suppliers with structural cost advantages

� Frame contracts with main suppliers

� Global sourcing for third party countries

� Implementation of new organization in Germany (January 1, 2007)

Strategy

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3 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

2007: ~ �40 million

2008: ~ �20 million

~ �80 million

Phase II (2008 onwards)

Phase I upside potential

Overall targets:

� European Sourcing

� Ongoing improvement of distribution network

Strategy

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Agenda

1. Overview, Market and Strategy

Appendix

2. Financials and Outlook

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Strong quarterly development in 2006 compared to 2005

48494654 70108104

74

05 Q1 06 05 Q2 06 05 Q3 06 05 Q4 06

EBITDA¹

(�m)

Net debt deleveraging2

(�m)

Sales(�m)

670482 435

365

Q1 06 Q2 06 Q3 06 Q4 06

1,2171,1911,348

1,2071.3981,3941,4181,323

05 Q1 06 05 Q2 06 05 Q3 06 05 Q4 06

Fast and constants deleveraging

Sales increase driven by volume and price increases

1) Adjusted by one-off effects (asset disposals): Q1 2006: about 5M� and Q3 2006: about 35M�2) Q1 2006 incl. shareholder loan

Strong profitability growth in Q2 and Q3 also driven by stock profits

Financials

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Summary Income Statement Q4/FY 2006

--4.44--1.16Earnings per Share in �

-36206-254Net income

-

-

-

81

-29

16

273

-39

28

-

-

-

17

-11

4

43

16

5

Income before taxes

Income taxes

Minority interests

+149.6%

-

135

-54

337

-64

+77.4%

-

31

-14

55

-12

EBIT

Financial result

+100.5%

-

1974.0

3957.1

+42.9%-

494.0

704.9

EBITDA% margin

+22.5%-

98619.9

1,20821.8

+11.4%-

26421,7

29421.0

Gross profit% margin

+11.4%4,9645,532+14.8% 1,2171,398Sales

Ä%

FY

2005*

FY

2006Ä%

Q4

2005

Q4

2006

(�m)

* 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)

Financials

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Segment Performance FY 2006

3955,532Total

-50-HQ/Consol.

79862North America

3664,670Europe

EBITDASales(�m)

� Both segments show excellent performance

� Sales in Europe including �164 million from Reynolds (F), �65 million from Alu MenzikenMetall Service (CH), �8 million from Aesga (E), �2 million from Gauss (CH), �20 million from Targe (F) and �8 million from Klöckner Romania

� Sales in North America including �15 million from Action Steel

Comments

Financials

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Balance Sheet FY 2006

957

719

1, 135

365

Net Working Capital

Net financial debt

2,2562,552Total equity and liabilities

2,256

323

921

589

1,012

536

-

2,552

799

744

416

1,009

639

-

Total assets

Equity

Total long-term liabilities

- thereof financial liabilities

Total short-term liabilities

- thereof trade payables

Other liabilities

595

694

800

80

87

579

841

933

130

69

Long-term assets

Inventories

Trade receivables

Cash & Cash equivalents

Other assets

Dec. 31

2005

Dec. 31

2006

(�m)Comments

Financial debt as of December 31, 2006:

� Outstanding bonds: �170 million

� ABS: �156 million

� Bilateral credit facilities: �147 million

� Net financial debt reduced from �719 to �365million

Equity:

� Conversion shareholder loan: �165 million

� IPO: capital increase �98 million

� Strong results

� Equity ratio increased from 14% to 31%

Net Working Capital:

� Increase in line with the additional sales

Financials

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365 M�

558 M�

50%

173%

0

200

400

600

FY 2005 FY 2006

�m

/ %

Net debt Gearing

Constant deleveraging

� Strong cash flow leads to constant deleveraging and opens up room for acquisitions

� Bond redeemed from �260 million to �170 million

� Standard & Poor�s increased rating to �BB� with stable outlook

Comments

Financials

Leverage* 2.8 0.9

Net debt FY 2005 excluding shareholder loans �161 million* Net indebtedness/EBITDA LTM

Net debt and Gearing

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Statement of Cash Flow

FY

2005*

FY

2006

(�m)

* Pro-forma consolidated figures for the FY 2005

� Strong business development reflected in positive CF deriving from operational activities and increased NWC requirements

� Investing CF FY 2006 mainly includes:

- cash inflow from the sale of non core activity AVZ and real estate disposals

- cash outflows mainly due to acquisitions of Targe, Aesga, Action Steel and Gauss

Comments

38

-119

64

-33

-12

-62

15

98

-

-136

-46

-6

-90

52

Proceeds from capital increase

Net impact of change of financing

Changes in financial liabilities

Net interest payments

Dividends

Cash Flow from financing activities

Total Cash Flow

22

-66

-44

102

-92

10

Inflow from disposals of fixed assets/others

Outflow from investments in fixed assets

Cash Flow from investing activities

179

126

-184

121

354

-195

-27

132

From operational activities

Changes in net working capital

Others

Cash Flow from operating activities

Financials

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Challenging financial targets throughout the cycle

Financials

Target Actual2006

Financial Targets

Underlying sales growth

Underlying EBITDA margin

Leverage (Net financial debt/EBITDA)

Gearing (Net financial debt/Equity)

> 10% p.a

> 6%

< 3.0x

< 150%

11%

7.1%

0.9x

50%

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New holding facility increases scope for further acquisitions

Debt structure

ABS EuropeABS USA

Total

Syndicated LoanBilateral Credit Agreements

Total Senior Bank Facilities

High Yield Bond

Total Facilities

Current DebtStructure

Change inDebt Structure

New DebtStructure

38060

440

-480

480

170

1,090

+40-

+40

+450-100

+350

-

+390

42060

480

450380

830

170

1,480

(�m)

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Outlook / Guidance 2007

Basic Assumptions for 2007

� Positive prospects for the steel industry

� Economic growth in relevant markets of about 1.8% -5% in 2007

� Stable and increasing demand especially in the construction and machinery industries

� Price development stable or better

� In H1 expected to rise

Outlook

Guidance

� At least10% top line growth driven by acquisitions and organic growth

� EBITDA at about 2006 level adjusted by one-offs � provided that the positive economic development continues

� Dividend continuity: 30% payout ratio after deduction of extraordinary income

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Financial Calendar 2007 and Contact Details

Contact Details Investor Relations

Claudia Nickolaus, Head of IR

Phone: +49 (0) 203 307 2050Fax: +49 (0) 203 307 5025E-mail: [email protected]: www.kloeckner.de

Financial Calendar 2007

May 14: Q1 Interim Report

June 20: General Shareholders� Meeting

August 15: Q2 Interim Report

September 19: Analysts� and Investors� Meeting

November 14: Q3 Interim Report

Contact

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Agenda

1. Overview, Market and Strategy

Appendix

2. Financials and Outlook

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Table of contents

Appendix

� Quarterly/FY Results 2006

� IPO on 28 June 2006 followed by free float increase

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Quarterly/FY Results 2006

* 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).

Appendix

Q4 Q3 Q2 Q1 FY FY 2006 2006 2006 2006 2006 2005*

Sales 1,398 1,394 1,418 1,323 5,532 4,964

Gross profit 294 313 316 285 1,208 986

% margin 21.0 22.5 22.3 21.5 21.8 19.9

EBITDA 70 143 104 79 395 197

% margin 4.9 10.3 7.3 6.0 7.1 4.0

EBIT 55 128 89 64 337 135

Financial result -12 -24 -14 -14 -64 -54

Income before taxes 43 104 75 50 273 81

Income taxes 16 -20 -21 -13 -39 -29

Minority interests 5 8 9 6 28 16

Net income 54 76 45 31 206 36

Earnings per Share in � 1.16 1.64 0.97 - 4.44 -

(�m)

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IPO on 28 June 2006 followed by free float increase

IPO Highlights

Issue price: �16 per share

Offer Size: �264 million; of which Klöckner received �104 million gross proceeds from the capital increase

Placement: 16.5 million shares (in total 46.5 million shares); thereof:

� 6.5 million new shares from a capital increase

� 10 million from the selling shareholder Lindsay Goldberg & Bessemer (via Multi Metal Investment S.à.r.l.)

Current shareholder structure

January 2007 sell-down� LGB/Management 15.5%� Free float 84.5%

October 2006 sell-down� LGB/Management 45.0%� Free float 55.0%

Post-IPO� LGB/Management 65.0%� Free float 35.0%

� Mainly large European Institutional Investors� Increasing share of US Investors� Growing share of Retail Investors

Appendix

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Symbol

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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

climateand 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.

Disclaimer