Gisbert RühlCFO
Klöckner & Co
A Leading Multi Metal Distributor
RoadshowNovember, 2007
2
Agenda
2. Update on recent developments
3.
Financials
Appendix
1.
Overview, market and strategy
3
Klöckner & Co at a glance
CustomerKlöckner & Co
Klöckner & Co highlights
Products:
Services:
Producer
Construction:Structural SteelworkBuilding and civil engineering
Machinery/MechanicalEngineering
Others:AutomotiveMetal products/ goods, installationDurable goodsetc.
Leading producer-independent steel and metal distributor in the European and North American markets combined
Distribution network with approx. 250 warehouses in Europe and North America
About 10,000 employees
Key financials FY 2006- Sales: €5,532 million- EBITDA: €395 million
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Distributor in the sweet spot
Local customersGlobal suppliers
Suppliers Sourcing Products and services
Logistics/
Distribution Customers
Global Sourcing in competitive sizesStrategic partnershipsFrame contractsLeverage one supplier against the otherNo speculative trading
One-stop-shop with wide product range of high-quality productsValue added processing services Quality assurance
Efficient inventory managementLocal presenceTailor-made logistics including on-time delivery within 24 hours
> 200,000 customersNo customer with more than 1% of salesAverage order size of €2,000Wide range of industries and marketsService more important than price
Purchase volume p.a. of 6 million tonsDiversified set of worldwide approx. 70 suppliersExamples:
Klöckner & Co’s
value chain
5
CDN
B D
F
E
CH ACZ
PL
LT
RO
NL CN
USA
GBIRL
Global reach with broad product and customer diversificationAbout
250 locations
CDN 5 LocationsUSA 28 Locations
D 25 LocationsF 76 LocationsCH 31 LocationsE 48 Locations
GB 25 LocationsIRL 1 LocationNL 7 LocationsEastern Europe 11 Locations
BU
6
Global reach with broad product and customer diversification
Customer
diversification
(2006)
Other
GB
Construction
Machinery/Manufacturing
Auto- motive
40%
20%5%
35%23%
21%
15%
10%
9%
6%1%
10%Germany/
Austria
France/Belgium Spain
Nether- lands
Eastern Europe
USA (incl. Primary
17%)
Switzerland
Canada
5%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
7
North America (2006)
Structure: 50-60% through distribution, service centersSize in value: ~€100bnCompanies: ~1,300 only independent distributors
Europe (2006)
Structure: 67% through distribution, service centersSize in value: ~€70–90bnCompanies: ~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 & CoThyssenKrupp Materials NA
Russel Metals
Worthington Steel
Metals USA
Carpenter Technology
PNA Group
McJunkin
O'Neal Steel
Mac- Steel
AM Castle 72.5%
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%
8
Country Acquired Company SalesSep 2007 Lehner & Tonossi €9 millionSep 2007 Interpipe €14 millionSep 2007 ScanSteel €7 millionAug 2007 Metalsnab €36 millionJun 2007 Westok €26 million
May 2007 Premier Steel €23 millionApr 2007 Zweygart €11 millionApr 2007 Max Carl €15 millionApr 2007 Edelstahlservice €17 millionApr 2007 Primary Steel €360 millionApr 2007 Teuling €14 millionJan 2007 Tournier €35 million
2007 Ytd 12 acquisitions €567 million2006 4 acquisitions €108 million2005 2 acquisitions €141 million
Accelerating numbers of acquisitions
12
42
2005 2006 2007
Number Sales
€141 million€108 million
€567 million
1
Acquisitions
9
Strong acquisition criteriaFurther 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
1
10
Efficient acquisition processApproach
• 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 lead 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/environmental
CountryOrganization
Group
Joint effort
Size of the project
Com
plex
ity o
f the
pro
ject
Process run by…
1
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Growth above GDP in core markets partly as a result of the outstanding development of the construction and machinery/mechanical engineering industries and steel prices
Eastern European facilities established in Poland, Czech Republic, Romania and Baltic States
Acquisition of Metalsnab in Bulgaria
Evaluation of market entry in Slovakia, Turkey and Russia
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 throughinvestments in new processing capacityOpening of new branches in EasternEurope
Leveraging existing distribution network
Sustainable profitable growth
Strategy
Benefits
12
Next steps
STAR: Status quo H1 2007 and next steps3
Status quo
Increase sourcing from world-class suppliers with structural cost advantagesEstablish European sourcing (STAR Phase II)
Additional frame contracts with main suppliersExtended global sourcing from third party countriesImplementation of new organization in Germany almost completedImplementation of a software supporting stock management
Purchasing
Improved performance as a result of restructureddistribution networkStart of roll-out of the optimization tool “Prodacapo”(activity based costing) in Spain, UK and Eastern European Countries
Continuous improvement of distribution network throughout the Group with support of the optimization-tool “Prodacapo”
- Ongoing roll-out throughout European countries- Restructuring of warehouse structure in Spain,
France and UKFinalize implementation of SAP throughout the European organization (France, Switzerland) and interface SAP with “Prodacapo”
Distribution
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Phase II (2008 onwards)
STAR: Phase I finalized in 2008, further potential in phase II3
Phase I (2005 -
2008)
Overall targets:Central purchasing on country level, especially in GermanyImprovement of distribution networkImprovement of inventory management
2006: ~ €20 million2007: ~ €40 million2008: ~ €20 million
~ €80 million
Upside potential
Overall targets:European SourcingOngoing improvement of distribution network
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Agenda
2. Update on recent developments
3.
Financials
Appendix
1.
Overview, market and strategy
15
Overall at least stable demand; strong demand from construction and mechanical engineering in Europe
At least firm price development for carbon steel .
Downward trend over the coming months for stainless steels due to the fall of the nickel price
Overall stable demand and healthy margins
Expectations versus recent developments
Expectations for H2 2007
Overall satisfactory demand without being strong; construction softer than expected .
Prices softening in Q3; announced and expected price increases for Q4 will probably not materialize
Sharp drop of the nickel price translated in strong price decline of stainless steels .
Increasing pressure on margins, especially regarding stainless steels
Recent developments
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Consequences for Klöckner & Co
Overall lower margins than expected, especially for stainless
Unlike previous year, no stock gains at all
Volumes satisfactory but partially lower than expected
Additional effects because of weaker USD and CHF
Revised guidance for 2007
Reported EBITDA approximately 10% below the reported 2006 level of €395 million (including one-offs in each case)
Details to be given during Q3 conference call
17
Market expectations for Q4 2007
EuropeSlight improvement in stock levelsOverall healthy sales activity, without being strongPrices overall expected to remain flat
North AmericaFurther declining importsCompletion of the most recent phase of destockingRelatively soft demand for flat, stronger for long productsModerate price recovery possible
Q4 2007
Q4 2007 will not balance the weakness of Q3
18
Market expectations for 2008
Rising steel prices in 2008 by a two-digit percentage due to expected raw material hikes (iron ore and coking coal)*
Expected increase of apparent steel use in EU-27 1.4%, other Europe 5.7% and North America 4%; World 6.8%*
Continuing lower imports from China because of rising raw material prices, environmental and energy constraints as well as possible anti-dumping actions
2008
Again positive development in 2008 expected
* According to International Iron & Steel Institute
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Conclusion for Klöckner & Co
Acquisitions driving market consolidation
Organic growth and expansion into new markets
STAR Program
Continuation of growth strategy and optimization!
Targets and strategy remain unchanged
1
2
3
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Agenda
2. Update on recent developments
3.
Financials
Appendix
1.
Overview, market and strategy
21
Summary income statement H1 2007
(€m) H1 2007
H1 2006 Δ%
Sales 3.199 2,741 +16.7
Gross profit% margin
63519.8
60121.9
+5.6-9.6
EBITDA% margin
1956.1
1836.7
+6.4-8.9
EBITFinancial result
166-63
154-28
+7.7-
Income before
taxes 103 126 -
Income taxes -33 -35 -
Minority interests 10 15 -
Net income 59 76 -
EPS
€ 1.28 1.63 -
Comments
Strong sales growth driven by higher price levels and acquisitions
Further improved gross profit and EBITDA; lower %-margins because of higher price levels
Financial results negatively impacted by one time effects of 38 €m for the redemption of the HYB
22
Balance sheet H1 2007
(€m) June 30, 2007
December 31, 2006
Long-term assets 768 579Inventories 1,095 841Trade receivables 1,212 933Cash & Cash equivalents 74 130Other assets 85 69Total assets 3,234 2,552Equity 714 799Total long-term liabilities 1,277 744
- thereof financial liabilities 936 416Total short-term liabilities 1,243 1,009
- thereof trade payables 776 639Other liabilities - -Total equity and liabilities 3,234 2,552Net working capital 1,531 1,135Net financial debt 996 365
Comments
Financial debt as of June 30, 2007:• Syndicated loan: €517million• ABS: €339 million• Bank borrowings: €190 million• Increased net financial debt due to
acquisitions and higher NWC
Equity:• Decrease driven by increase of
stake in Swiss Holding and dividend distribution
• Further, equity ratio decreased due to higher assets from 31% to 22%
Net Working Capital:• Increase driven by sales, higher
price levels and acquisitions
23
Statement of cash flow H1 2007
Comments(€m) H12007
H12006
Operating CF 188 179
Changes in net working capital -303 -186
Others -25 -3
Cash flow from operating activities -140 -10
Inflow from disposals of fixed assets/others 15 34
Outflow from investments in fixed assets -366 -16
Cash flow from investing activities -351 18
Proceeds from capital increase - 101
Changes in financial liabilities 531 61
Net interest payments -51 -19
Dividends -45 -6
Cash flow from financing activities 435 137
Total cash flow -56 145
Strong business development reflected in positive cash flow deriving from operational activities and increased NWC requirements
Investing cash flow in H1 2007 mainly impacted by cash outflow due to the various acquisitions and increased stake in our Swiss Holding
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November 14: Q3 Interim Report2008April 1: Full Year Results 2007
May 15: Q1 Interim Report
June 20: Annual General Meeting
August 14: Q2 Interim Report
November 14: Q3 Interim Report
Financial calendar 2007/2008 and contact details
Financial calendar 2007/2008
Claudia Nickolaus, Head of IR
Phone: +49 203 307 2050
Fax: +49 203 307 5025
E-mail: [email protected]
Internet: www.kloeckner.de
Contact details Investor Relations
25
Agenda
2. Update on recent developments
3.
Financials
Appendix
1.
Overview, market and strategy
26
Appendix
Table of contents
Quarterly results and FY results 2006/2005
Debt facilities
Steel cycle and EBITDA/cash flow relationship
27
(€m) Q2
2007
Q12007
Q42006
Q32006
Q22006
Q12006
FY2006
FY2005*
Sales 1,650 1,550 1,398 1,394 1,418 1,323 5,532 4,964
Gross profit 328 307 294 313 316 285 1,208 987
% margin 19.8 19.8 21.0 22.5 22.3 21.5 21.8 19.9
EBITDA 103 92 70 143 104 79 395 197
% margin 6.2 5.9 4.9 10.3 7.3 6.0 7.1 4.0
EBIT 87 78 55 128 89 64 337 135
Financial result -52 -10 -12 -24 -14 -14 -64 -54
Income before taxes 35 68 43 105 75 50 273 81
Income taxes -12 -22 16 -20 -22 -13 -39 -29
Minority interests 4 6 5 8 9 6 28 16
Net income 19 40 54 76 45 31 206 36
Earnings per share in € 0.41 0.86 1.16 1.64 0.97 - 4.44 -
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).
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Debt facilities
(€m) Old debtstructure
Change indebt structure
New debtstructure
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
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Steel cycle and EBITDA/cash flow relationship
Comments
Klöckner & Co buys and sells products at spot prices generallySales increase as a function of the steel price inflation environmentCost of material are based on an average cost method for inventory and therefore lag the steel price increaseThis time lag creates accounting windfall profits (windfall losses in a decreasing steel price environment) inflating (deflating) EBITDAAssuming stable inventory volume cash flow is impacted by higher NWC needsThe windfall profits (losses) are mirrored by inventory book value increases (decreases)
Theoretical relationship*
Windfall profits
Windfall losses
(€m)
Margin
Margin
12
3
4
4
5
6 6
*Assuming stable inventory volumes
Steel price SalesCost of material EBITDACash flow
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Our symbol
the earsattentive to customer needs
the eyeslooking forward to new developments
the nosesniffing out opportunities to improve performance
the ballsymbolic of our role to fetch and carry for our customers
the legsalways moving fast to keep up with the demands of the customers
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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.
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