Roadshow
September 2007
Klöckner & Co
A Leading Multi Metal
Distributor
Gisbert Rühl
CFO
Agenda
1. Overview, market and strategy
2. Financials and outlook
Klöckner & Co at a glance
Customer
Distributor
Klöckner & Co highlights
Products: Services:
Producer
Construction: Structural Steelwork Building and civil engineering Machinery/ Mechanical Engineering Others: Automotive Metal products/ goods, installation Durable goods etc. 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 millionDistributor in the sweet spot
Local customers Global suppliers
Suppliers Sourcing and servicesProducts DistributionLogistics/ 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 > 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 tons Diversified set of worldwide ca. 70 suppliers Examples:
CDN B D F E CH A CZ PL LT RO NL CN USA GB IRL
Global reach with broad product and customer diversification
About 250 locations (August 2007)
28 Locations USA 5 Locations CDN 48 Locations E 31 Locations CH 76 Locations F 25 Locations D 11 Locations Eastern Europe 7 Locations NL 1 Location IRL 24 Locations GB
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%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;
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 & Co ThyssenKrupp 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%
Industry trends supporting Klöckner
’
s strategy
Positive impact on distribution industry Globalization and consolidation Stable globaldemand growth Far quicker destockingHigh capacity utilisation of steel mills
Large costs savings
Higher and more flexible capacity utilization
Much better supply discipline and higher pricing power creating an improved balance between supply and demand
On-going consolidation favoring large scale distributors
Higher prices with much shorter downturns support more stable
Profitable growth
Grow more than
the market
Continuous
business
optimization
1
Acquisitions
driving
market consolidation
Organic growth
and
expansion
into new
markets
2
3 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
€36 million Metalsnab Aug 2007 €108 million 4 acquisitions 2006 €537 million 9 acquisitions 2007 ytd. €35 million Tournier Jan 2007 €14 million Teuling April 2007 €360 million Primary Steel April 2007 €17 million Edelstahlservice April 2007 €15 million Max Carl April 2007 €11 million Zweygart April 2007 €23 million Premier Steel May 2007 €26 million Westok June 2007 €141 million Sales 2005 Acquired Company Country 2 acquisitions
Acquisitions driving market consolidation
1
Acquisitions
Next steps
Significant synergies
Streamlining operations, processes and sales force
Integration of STAR
Economies of scale
Stronger purchasing power
Further acquisitions in core markets at attractive valuations:
Leverage existing structure with small- and mid-size bolt-on acquisitions
Large scale acquisitions when appropriate
Benefits Strategy
Focus on targets at attractive valuations in 3 directions
Expansion in new regions
Extension of product portfolio
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 an Russia
Organic growth and expansion into new markets
2
Status quo
Next steps
Expansion of strong market positions in core markets:
Selective extension of product range
Increase value-added services through investments in new processing capacity
Opening of new branches in Eastern Europe
Evaluating of market entry in other
countries like Slovakia, Turkey and Russia
Leveraging existing distribution network
Sustainable profitable growth
Strategy Benefits
Next steps
STAR: Status quo H1 2007 and next steps
3
Status quo
Establish European sourcing (STAR Phase II)
Increase sourcing from world-class suppliers with structural cost advantages
Implement unified article codes
Additional frame contracts with main suppliers
Extended global sourcing for third party countries
Implementation of new organization in Germany almost completed
Implementation of a software supporting stock management
Purchasing
Improved performance as a result of restructured distribution network (warehouses):
-
Q1 2007: Concentration of warehouse structure in the Iowa region in US-
Q1 2007: Restructuring of service center business in Switzerland Start 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 Finalize implementation of SAP throughout the European organization (France, Switzerland) and interface SAP with “Prodacapo”
Phase II (2008 onwards)
STAR: Phase I finalized in 2008, further potential in phase II
3
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
Agenda
1. Overview, market and strategy
2. Financials and outlook
Summary income statement Q2/H1 2007
-126 103 -75 35Income before taxes
--35 -33 --22 -12 Income taxes -15 10 -9 4 Minority interests 1.28 59 166 -63 195 6.1 635 19.8 3.199 H1 2007 0.41 19 87 -52 103 6.2 328 19.8 1,650 Q2 2007 -1.63 -0.97 EPS € -76 -45 Net income +5.6 -9.6 601 21.9 +3.7 -10.9 316 22.3 Gross profit % margin 89 -14 104 7.3 1,418 Q2 2006 +7.7 -154 -28 -2.2 -EBIT Financial result +6.4 -8.9 183 6.7 -1.1 -15.0 EBITDA % margin +16.7 2,741 +16.4 Sales Ä% H1 2006 Ä% (€m)
Segment performance H1 2007
Comments
Sales for H1 2007 in Europe including about
-
€9 million from Aesga (E)-
€4 million from Gauss (CH)-
€21 million from Tournier (F)-
€5 million from Teuling (NL)-
€3 million from Edelstahl-service (D)-
€1.5 million together from Max Carl and Zweygart (D)-
€8 million from Westok (UK) Sales for H1 2007 in North America including about
-
€26 million from Action Steel-
€54 million from Primary-
€2.5 million from Premier3,199 -486 2,713 Sales H1 2007 +6.4 183 195 +16.7 2,741 Total --25 -16 -HQ / Consol. -16.4 39 33 +8.5 448 North America +5.6 169 178 +18.4 2,292 Europe Ä % EBITDA H1 2006 EBITDA H1 2007 Ä % Sales H1 2006 (€m)
Balance sheet H1 2007
996 1,531 3,234 -776 1,243 936 1,277 714 3,234 85 74 1,212 1,095 768 June 30, 2007 933 Trade receivables 841 Inventories 579 Long-term assets 130 Cash & Cash equivalents69 Other assets
639 - thereof trade payables
-Other liabilities
1,009 Total short-term liabilities
744 Total long-term liabilities
799 Equity
2,552 Total assets
416 - thereof financial liabilities
December 31, 2006
(€m)
2,552 Total equity and liabilities
365
Net financial debt 1,135
Net working capital
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 NWCEquity:
•
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 acquisitionsStatement of cash flow
Comments
101
-Proceeds from capital increase
-3 -25
Others
-10 -140
Cash flow from operating activities
34 15
Inflow from disposals of fixed assets/others
-16 -366
Outflow from investments in fixed assets
18 -351
Cash flow from investing activities
-186 -303
Changes in net working capital
61 531
Changes in financial liabilities
179 188
Operating CF
145 -56
Total cash flow
137 435
Cash flow from financing activities
-6 -45
Dividends
-19 -51
Net interest payments
H1 2006 H1 2007 (€m) 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
General financial targets and limits
139%
< 150%
Gearing (Net financial debt/Equity)
2.4x
< 3.0x
Leverage (Net financial debt/EBITDA LTM)
6.1%
> 6%
Underlying EBITDA margin
16.7%
> 10% p.a
Underlying sales growth
Actual
H1 2007
General
target/limit
New holding facility and convertible
bond increase scope for further acquisitions
325
+325
-Convertible bond
1,785
+695
1,090
Total facilities
--170
170
High yield bond
980
+500
480
Total senior bank facilities
380
-100
480
Bilateral credit agreements
600
+600
-Syndicated loan
480
+40
440
Total
60
-60
ABS USA
420
+40
380
ABS Europe
New debt
structure
Change in
debt structure
Old debt
structure
(
€
m)
Outlook / guidance 2007
At least 15% top line growth mainly driven by acquisitions
EBITDA approximately on reported 2006 level
Dividend continuity: 30% payout ratio after deduction of extraordinary income
Positive prospects for the steel industry
Economic growth in relevant markets of about 1.8% to 5% in 2007
Stable and increasing demand especially in the construction and machinery
industries
Price development stable or better
Basic assumptions for 2007
Outlook / guidance
Q3 Interim Report
November 14:
Analysts
’
and Investors
’
Meeting
September 19:
Financial calendar 2007 and contact details
Financial calendar 2007
www.kloeckner.de
Internet:
claudia.nickolaus@kloeckner.de
E-mail:
+49 203 307 5025
Fax:
+49 203 307 2050
Phone:
Claudia Nickolaus, Head of IR
Agenda
1. Overview, market and strategy
2. Financials and outlook
Appendix
Table of contents
Quarterly/FY results 2006/2005
Steel cycle and EBITDA/cash flow relationship
Convertible bonds
–
terms and conditions
81 273 50 75 105 43 68 35
Income before taxes
-29 -39 -13 -22 -20 16 -22 -12 Income taxes 16 28 6 9 8 5 6 4 Minority interests 0.41 19 -52 87 6.2 103 19.8 328 1,650 Q2 2007 -4.44 -0.97 1.64 1.16 0.86 Earnings per share in €
36 206 31 45 76 54 40 Net income -54 -64 -14 -14 -24 -12 -10 Financial result 135 337 64 89 128 55 78 EBIT 4.0 7.1 6.0 7.3 10.3 4.9 5.9 % margin 197 395 79 104 143 70 92 EBITDA 19.9 21.8 21.5 22.3 22.5 21.0 19.8 % margin 987 1,208 285 316 313 294 307 Gross profit 4,964 5,532 1,323 1,418 1,394 1,398 1,550 Sales FY 2005* FY 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 (€m)
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).
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 6Steel price Sales Cost of material EBITDA Cash flow
Convertible bonds
–
terms and conditions
Size:
€
325 million
Shares underlying: approx. 4 million
Denomination:
€
50,000
Maturity date: July 27, 2012 (5 years)
Coupon: 1.50% p.a.
Reference price:
€
59.81
Conversion price:
€
80.75 (35% above reference price)
Conversion ratio: 619.1950 shares per bond
Conversion right: September 6, 2007 until July 18, 2012
Early redemption at the option of the issuer: from August 15, 2010 onwards only
possible if share price exceeds approx.
€
105 (= 130% of the conversion price)
IPO on 28 June 2006 followed by free float increase
Current shareholder structure
Mainly large European institutional investors
Increasing share of US investors
Growing share of retail investors April 2007 sell-down 100% January 2007 sell-down 84.5% October 2006 sell-down 55% Post-IPO 35% 15.5 % 45% 65% Free float
IPO Highlights
Issue price: €16 per shareOffer 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.)
LGB/Manage-ment
Our symbol
the ears
attentive to customer needs
the eyes
looking forward to new developments
the nose
sniffling 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
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.
