klöckner & co - roadshow presentation august 28, 2007
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RoadshowAugust 28,2007
Gisbert Rühl
CFO
Klöckner & Co A Leading Multi Metal Distributor
2
Agenda
1. Overview, market and strategy
2. Financials and outlook
Appendix
3
Klöckner & Co at a glance
CustomerDistributor
Klöckner & Co highlights
Products:
Services:
Producer
Construction: Structural
Steelwork Building and civil
engineering
Machinery/MechanicalEngineering
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 million- EBITDA: �395 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
> 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:
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 (August 2007)
28 Locations USA5 LocationsCDN
48 LocationsE31 LocationsCH76 LocationsF25 LocationsD
11 LocationsEastern Europe7 LocationsNL
1 LocationIRL24 LocationsGB
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
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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 & 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%
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Industry trends supporting Klöckner�s strategy
Positive impact on distribution
industry
Globalization and consolidation
Stable global demand growth
Far quicker destocking High 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 earnings and cash flows for distributors
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Profitable growth
Grow more thanthe market
Continuous businessoptimization
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
10
�36 millionMetalsnabAug 2007
�108 million4 acquisitions2006
�537 million9 acquisitions 2007 ytd.
�35 millionTournierJan 2007
�14 millionTeulingApril 2007
�360 millionPrimary SteelApril 2007
�17 millionEdelstahlservice April 2007
�15 millionMax CarlApril 2007
�11 millionZweygartApril 2007
�23 millionPremier SteelMay 2007
�26 millionWestokJune 2007
�141 million
Sales
2005
Acquired CompanyCountry
2 acquisitions
Acquisitions driving market consolidation1
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
StrategyFocus on targets at attractive valuations in 3 directions
Expansion in new regions Extension of product portfolio Extension of customer base
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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 an 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 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
12
Next steps
STAR: Status quo H1 2007 and next steps3
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 restructureddistribution 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�
Distribution
13
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 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
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Agenda
1. Overview, market and strategy
2. Financials and outlook
Appendix
15
Summary income statement Q2/H1 2007
-126103-7535Income before taxes
--35-33--22-12Income taxes
-1510-94Minority interests
1.28
59
166-63
1956.1
63519.8
3.199
H1 2007
0.41
19
87-52
1036.2
32819.8
1,650
Q22007
-1.63-0.97EPS �
-76-45Net income
+5.6-9.6
60121.9
+3.7-10.9
31622.3
Gross profit% margin
89-14
1047.3
1,418
Q22006
+7.7-
154-28
-2.2 -
EBITFinancial result
+6.4-8.9
1836.7
-1.1-15.0
EBITDA% margin
+16.72,741+16.4Sales
Ä%H1 2006Ä%(�m)
16
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 Premier
3,199
-
486
2,713
Sales H1 2007
+6.4183195+16.72,741Total
--25-16--HQ / Consol.
-16.43933+8.5448North America
+5.6169178+18.42,292Europe
Ä %EBITDAH1 2006
EBITDAH1 2007Ä %Sales
H1 2006(�m)
17
Balance sheet H1 2007
9961,5313,234
-776
1,243936
1,277714
3,2348574
1,2121,095
768
June 30, 2007
933Trade receivables841Inventories579Long-term assets
130Cash & Cash equivalents69Other assets
639- thereof trade payables-Other liabilities
1,009Total short-term liabilities
744Total long-term liabilities799Equity
2,552Total assets
416- thereof financial liabilities
December 31, 2006(�m)
2,552Total equity and liabilities
365Net financial debt1,135Net 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 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
18
Statement of cash flow
Comments
101-Proceeds from capital increase
-3-25Others
-10-140Cash flow from operating activities
3415Inflow from disposals of fixed assets/others
-16-366Outflow from investments in fixed assets
18-351Cash flow from investing activities
-186-303Changes in net working capital
61531Changes in financial liabilities
179188Operating CF
145-56Total cash flow
137435Cash flow from financing activities
-6-45Dividends
-19-51Net interest payments
H12006
H12007(�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
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General financial targets and limits
139%< 150%Gearing (Net financial debt/Equity)
2.4x< 3.0xLeverage (Net financial debt/EBITDA LTM)
6.1%> 6%Underlying EBITDA margin
16.7%> 10% p.aUnderlying sales growth
ActualH1 2007
Generaltarget/limit
Challenging financial targets throughout the cycle
20
New holding facility and convertible bond increase scope for further acquisitions
325+325-Convertible bond
1,785+6951,090Total facilities
--170170High yield bond
980+500480Total senior bank facilities
380-100480Bilateral credit agreements
600+600-Syndicated loan
480+40440Total
60-60ABS USA
420+40380ABS Europe
New debtstructure
Change indebt structure
Old debtstructure(�m)
21
Outlook / guidance 2007
At least 15% top line growth mainly driven by acquisitions EBITDA approximately on reported 2006 levelDividend continuity: 30% payout ratio after deduction of extraordinary income
Positive prospects for the steel industryEconomic growth in relevant markets of about 1.8% to 5% in 2007Stable and increasing demand especially in the construction and machinery
industriesPrice development stable or better
Basic assumptions for 2007
Outlook / guidance
Again strong results in 2007
22
Q3 Interim ReportNovember 14:
Analysts� and Investors� MeetingSeptember 19:
Financial calendar 2007 and contact details
Financial calendar 2007
www.kloeckner.deInternet:
+49 203 307 5025Fax:
+49 203 307 2050Phone:
Claudia Nickolaus, Head of IR
Contact details Investor Relations
23
Agenda
1. Overview, market and strategy
2. Financials and outlook
Appendix
24
Appendix
Table of contents
Quarterly/FY results 2006/2005
Steel cycle and EBITDA/cash flow relationship
Convertible bonds � terms and conditions
IPO on 28 June 2006 followed by free float increase
25
812735075105436835Income before taxes
-29-39-13-22-2016-22-12Income taxes
1628698564Minority interests
0.41
19
-52
87
6.2
103
19.8
328
1,650
Q22007
-4.44-0.971.641.160.86Earnings per share in �
362063145765440Net income
-54-64-14-14-24-12-10Financial result
13533764891285578EBIT
4.07.16.07.310.34.95.9% margin
197395791041437092EBITDA
19.921.821.522.322.521.019.8% margin
9871,208285316313294307Gross profit
4,9645,5321,3231,4181,3941,3981,550Sales
FY2005*
FY2006
Q12006
Q22006
Q32006
Q42006
Q12007
(�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).
26
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*
Windfallprofits
Windfall losses
(�m)
Margin
Margin
12
3
4
4
5
6 6
*Assuming stable inventory volumes
Steel price SalesCost of material EBITDACash flow
27
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)
Listed on the �Freiverkehr� segment of the Frankfurt Stock Exchange (Open Market)
28
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 HighlightsIssue 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.)
LGB/Manage-ment
29
Our symbol
the earsattentive to customer needs
the eyeslooking forward to new developments
the nosesniffling out opportunitiesto improve performance
the ballsymbolic of our role to fetchand carry for our customers
the legsalways moving fast to keep up withthe 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 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.