Klöckner & Co - Global Steel & Mining Conference 2011
1. Klöckner & Co SE
A Leading Multi Metal Distributor
Credit Suisse Global Steel & Mining Conference
September 21 / 22, 2011, London
Gisbert Rühl
CEO/CFO
2. 2
Ein- bis zweizeiliger Folientitel00 Disclaimer
This presentation contains forward-looking statements which reflect the current views of the management of
Klöckner & Co SE with respect to future events. They generally are designated by the words “expect”, “assume”,
“presume”, “intend”, “estimate”, “strive for”, “aim for”, “plan”, “will”, “strive”, “outlook” and comparable expressions
and generally contain information that relates to expectations or goals for economic conditions, sales proceeds or
other yardsticks for the success of the enterprise. Forward-looking statements are based on currently valid plans,
estimates and expectations. You therefore should view them with caution. Such statements are subject to risks and
factors of uncertainty, most of which are difficult to assess and which generally are outside of the control of Klöckner
& Co SE. The relevant factors include the effects of significant strategic and operational initiatives, including the
acquisition or disposition of companies. If these or other risks and factors of uncertainty occur or if the assumptions
on which the statements are based turn out to be incorrect, the actual results of Klöckner & Co SE can deviate
significantly from those that are expressed or implied in these statements. Klöckner & Co SE cannot give any
guarantee that the expectations or goals will be attained. Klöckner & Co SE – notwithstanding existing obligations
under laws pertaining to capital markets – rejects any responsibility for updating the forward-looking statements
through taking into consideration new information or future events or other things.
In addition to the key data prepared in accordance with International Financial Reporting Standards, Klöckner & Co
SE is presenting non-GAAP key data such as EBITDA, EBIT, Net Working Capital and net financial liabilities that
are not a component of the accounting regulations. These key data are to be viewed as supplementary to, but not as
a substitute for data prepared in accordance with International Financial Reporting Standards. Non-GAAP key data
are not subject to IFRS or any other generally applicable accounting regulations. Other companies may base these
concepts upon other definitions.
4. CustomersDistributor/ Service CenterProducers
Products:
Klöckner & Co SE
Largest producer-independent steel and
metal distributor in Europe and America
combined
Distribution and service platform with
around 290 locations
Key figures for 2010
Sales volumes: 5.3 million tons
Sales: €5.2 billion
EBITDA: €238 million
Services:
4
Ein- bis zweizeiliger Folientitel
Machinery
and
mechanical
engineering
Yellow Goods
White Goods
Miscellaneous
Automotive
Commercial/
residential
construction
Infrastructure
01 Klöckner & Co SE at a glance
5. 5
Suppliers Sourcing
Products
and services
Logistics /
distribution
• As a producer-
independent
distributor, our
customers benefit
from our diverse
national and
international
procurement
options
Customers
• Procurement of
large quantities
• Strategic
partnerships
• Extensive product
range
• Excellent product
and processing
quality
• Wide-ranging
service provision
• Local presence
• Individual delivery,
including 24-hour-
service
• More than 170,000
customers
• Average normal
order size approx.
€2,000
• Service and
availability more
important than price
Holistic solution from covering procurement, logistics and processing
Klöckner & Co value chain
01 Business model
7. 7
02 Highlights Q2
• Challenging quarter due to unexpectedly strong price pressure in all markets leading to an
EBITDA of €62m (3.3% margin), negatively impacted by one offs of €10m (3.8% adjusted
margin)
• Sales volumes increased organically less than typical seasonally due to prebuying effect in
Q1 rolling over and a cautious stance of customers in Q2
• Consolidation of Macsteel and Frefer completed
• Integration of Macsteel and Namasco in the US progressing, synergies higher than initially
expected
• Principle agreement to terminate the earn-out for Macsteel will lead to reduced purchase
price by USD60m and earlier realization of synergy effects
• Capital increase with net proceeds of €517m provides strong backing for
Klöckner & Co 2020
8. 8
02 Steel imports caused pressure in all markets
• Orders to the US were placed during Q1 when the spread
between domestic and import prices justified it and
domestic prices were still rising
• Imports rose by 26% in Q2 to an average of 2.4m
to/month compared to 1.9m to/ month in Q1
• HRC price dropped by USD220 per st since peak
• Fewer imports in the coming months expected due to
lower domestic prices and uncertain economic
environment
US imports of steel products (in kto/ month)
EU imports of steel products (in kto/ month)
US
• Flat steel import licenses increased by 67% in H1
vs. last year to an average of 1.8m to/ month
reaching the peak in May
• HRC dropped by €75 per ton since peak
• Eurometal expects imports into EU to grow by
26% in 2011
Europe
Source: US Census bureau, Eurostat/ Eurometal
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jul
07
Nov
07
Mar
08
July
08
Nov
08
Mar
09
Jul
09
Nov
09
Mar
10
Jul
10
Nov
10
Mar
11
Jul
11
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Jul
07
Nov
07
Mar
08
July
08
Nov
08
Mar
09
Jul
09
Nov
09
Mar
10
Jul
10
Nov
10
Mar
11
Jul
11
9. 700
800
900
1,000
1,100
Jan Feb Mar Apr May Jun
Procurement prices in €/ to Inventory value in €/ to Selling prices in €/ to
9
02 Margin squeeze through pricing environment in Q2
H1 comparison of procurement prices, inventory values and selling prices
• Inventory values per ton still increased during the quarter whereas selling prices already leveled off and procurement
prices softened
* Figures not comparable due to adjustments for Frefer & Macsteel, inventory allowances and mix effects
19.4% Gross margin*
11.7% Gross margin*
10. 10
02 Steel cycles get shorter and more pronounced
Source: SBB
HRC price development
-150
-100
-50
0
50
100
150
Q1
05
Q2
05
Q3
05
Q4
05
Q1
06
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
ChangeinUSDperton
• Price volatility increasing due to switch to monthly contract prices, persisting overcapacity and overall lower
inventories compared to pre-crisis levels
• Raw material cost inflation and change to quarterly or even spot basis
• Customers’ price sensitivity increased even pronouncing price cycles due to opportunistic buying behavior with
negative impact on stockholding distribution
HRC price changes since 2005
14. 14
Ein- bis zweizeiliger Folientitel02 Net income and earnings per share
EPS basic (€)*Net income (€m)
* adjusted for capital increase
-23
12
2
47
15 17
44
5
Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
-0.42
0.56
0.02
0.69
0.21
0.25
0.65
0.07
Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
15. -227 -600
-137
Capex Other**
15
Ein- bis zweizeiliger Folientitel02 Cash flow predominantly impacted by acquisitions and capital increase
Development of net financial debt in Q2 (€m)Cash flow reconciliation in Q2 (€m)
** exchange rate effects, interest
Q1 Q2
-137
-591
62
EBITDA Change in
NWC
Taxes Other
CF from
operating
activities Capex
Free
CF
-20
517
-444
Acquisitions*
-10
Capital
increase
Acquisitions*
Assumed
Debt
-43-444
-236
* net of cash acquired / capital increase in Frefer
-10
-188
9
CF from
operating
activities
Dividends
-20
17. 17
02 Integration of Macsteel Service Centers USA progressing
Key facts Macsteel
• Consolidation as of May 1, 2011
• Sales volume contribution in Q2: 223kTo
• Sales contribution in Q2: €211m
• EBITDA contribution in Q2: €8m (w/o PPA €10m)
• Principle agreement to terminate the earn-out for Macsteel
will lead to reduced purchase price by USD60m and earlier
realization of synergy effects
• Continues to be a positive and great fit
• Synergy potential higher than initially expected
• Fields of synergies are marketing and sales, national key
accounts, products and facilities, purchasing, personnel,
cross utilization of assets and logistics
• Integrated entities will be rebranded to Klöckner
• Management team in place
Klöckner
North America Macsteel
Combined
North America
Geographic reach
(North America)
32
locations
30
locations
62
locations
Market position
(North America)
#10 #8
#3 in multi
metal, #2 in
carbon steel
SSC business
expansion
—
Product mix
improvement
Plate and long
focused
Flat products
Improved
sales mix
Plate Processing
Service Center
Plate Processing and
Fabrication Service
Center
Plate Processing Service
Center
Hawaii
Puerto RicoMexico
Macsteel Map
Legend
Headquarters
General Line
Service Center
Flat Rolled
Processing Center
Namasco Map Legend
Plate Processing
Service Center
Plate Processing and
Fabrication Service
Center
Plate Processing Service
Center
Hawaii
Puerto RicoMexico
Macsteel Map
Legend
Headquarters
General Line
Service Center
Flat Rolled
Processing Center
Namasco Map Legend
Combined locations
Update on integration status
18. 18
02 Frefer faced with market in a transition period
Key facts Frefer
Market environment in Q2
• Consolidation as of June 1, 2011
• Sales volume contribution in Q2: 9kTo
• Sales contribution in Q2: €7m
• EBITDA contribution in Q2: €-0.6m (w/o PPA €-0.9m)
• Entry into long steel market in Brazil with preferred supplier
under consideration to broaden product portfolio
Frefer: 14 locations in Brazil
• Difficult situation due to price pressure coming from imports
and overstocking, but mid- to longterm perspectives remain
promising
• Stock ratios steadily decreasing being currently at 3.4 months
of supply pointing to a turnaround
• Longterm prospects of the market being rather incrementally
positive
Source: SECEX, Alice Web, Barclays Capital
Flat steel imports (kt)
0
50
100
150
200
250
300
350
400
450
500
May
08
Jul
08
Sep
08
Nov
08
Jan
09
Mar
09
May
09
Jul
09
Sep
09
Nov
09
Jan
10
Mar
10
May
10
Jul
10
Sep
10
Nov
10
Jan
11
Mar
11
May
11
Jul
11
Headquarters
Branches
19. 02
19
Q2 2011 (in €m) Strong balance sheet ratios
• Net debt €600m
• Gearing* at 36%
• Equity ratio at 37%
* Gearing = Net debt/Equity attributable to shareholders of
Klöckner & Co SE less goodwill from business
combinations subsequent to May 28, 2010
1,268
1,393
1,142
98 / 23*
1,035
€4,936m
1,849
1,943
1,144
Non-current
assets
Inventories
Trade receivables
Liquidity
Other
current assets
Equity
Non-current
liabilities
Current
liabilities
149*
148*
37*
164*
332*
457*
*Thereof MSCUSA and Frefer proportion
Frefer 74
MSCUSA 383
Frefer 2
MSCUSA 21
Impact of MSCUSA & Frefer consolidation
(as of June 30, 2011):
Frefer 45
MSCUSA 104
Frefer 18
MSCUSA 130
• Non-current assets include intangible assets (customer
relations, trade name) of €171.2m and goodwill of
€147.5m as well as property, plant and equipment of
€112.5m
• Net working capital contribution of €383.8m
• Transaction volume €680.2m
• D&A for the Group will increase in 2011 by ~€30m
(incl. PPA) and thereafter annual run rate ~€40m
Frefer 20
MSCUSA 312
Frefer 12
MSCUSA 152
Frefer 33
MSCUSA 4
02 Balance sheet as of June 30, 2011
23. 23
03 Global economies losing pace after strong recovery
• All major indicators across the globe declined
during the quarter, downside risks have increased
again
• US economy on hold while waiting for the outcome
of the governmental budgetary cuts, factory
production is slowing, growth rates and
expectations being reduced
• Northern Europe slowly recovering further whereas
Southern Europe still struggling given the lack of
export oriented industries and ongoing weakness
in construction
• China adjusting growth to higher single digit
percentage points p.a. in order to avoid
overheating of the economy
• Although government has limited loans in order to
avoid inflation, Brazilian economy is still growing
robustly
PMIs
Expansion
Contraction
30
35
40
45
50
55
60
65
70
Jul
05
Mar
06
Nov
06
Jul
07
Mar
08
Nov
08
Jul
09
Mar
10
Nov
10
Jul
11
North America Europe Brazil China
24. 24
03 Construction
• US construction spending in non residential
expected to remain subdued for the remainder of the
year
• Infrastructure spending dependent on budgetary
cuts, but anyhow so far steel exposure limited
• Residential construction seems to have bottomed
but steel intensity is limited
• Early indicators like USA Architectural Billings Index
point to a recovery in 2012 at the earliest
US
• Construction output is recovering in Germany and
the Baltic Sea area, stabilizing in France and
suffering further in Southern Europe
Europe
Eurozoneconstructionindex
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Jan
02
Jul
02
Jan
03
Jul
03
Jan
04
Jul
04
Jan
05
Jul
05
Jan
06
Jul
06
Jan
07
Jul
07
Jan
08
Jul
08
Jan
09
Jul
09
Jan
10
Jul
10
Jan
11
ConstructionspendingsUS
US Residential construction per month in mUSD US Non-Residential construction per month in mUSD
80
90
100
110
Eurozone construction spending Index
Construction in Europe and the US
25. 25
03
• Automotive sales in the US are still robust with H1
being 12.8% above last year, but loosing momentum
with June only being 3.0% above last year
• US automotive production that had been affected by
parts shortages from Japan and seasonal model
year change will return to more normal levels
• Machinery production in the US, esp. heavy,
agricultural and mining equipment has been robust
but the growth rate is slowing; industrial plant
manufacturing has been improving
US and EU domestic car sales
(in thousand units/quarter)
US
Europe
• European car sales are expected to stay on high level
although wreckage premiums caused base effect
• Machinery in Europe still robust but losing momentum
due to spill-over effects for exports fading out
2,000
2,500
3,000
3,500
4,000
4,500
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
EU sales US sales
Source: Bloomberg
Automotive, machinery and mechanical engineering
27. 27
04 Preparing for slower growth with profitability action plan
2008 2009 2010* 2011e* 2012e*
Volumes
-27 %
Capacities with
Wave 1+2 -15 %
Reaction to
current market
expectations
• We prepare for slower growth
scenario with profitability action plan
to reach 6% target EBITDA-margin
asap
• Measures focus on admin and
overhead and structural changes in
the country organizations
• Divestment of mid triple digit €m
amount
• Net EBITDA contribution of mid
double digit €m, majority already in
2012
• One-off costs of low double digit €m
fully compensated by disposal
proceeds
Organic volume development
28. 28
04 Outlook
• Q3 2011
• Volumes to be seasonally lighter on organic basis
• EBITDA expected seasonally below Q2 level
• Prices to stabilize during Q3 with upside potential after summer depending on supply balance
and further macro economic trends
• Full year 2011 guidance
• >25% volume and sales growth resulting from acquisitions expected with precondition that world
economies not entering into a recession
• Midterm EBITDA margin target of 6% not realistic to be achieved already in 2011
32. 32
05
¹ Date of announcement 2 Sales in the year prior to acquisitions
Acquisitions1)
Acquired sales1),2)
€141m
€567m
€108m
2
4
12
2
2005 2006 2007 2008 2009 2010
4
€231m
Acquisitionstrategysuspended
€712m
Country Acquired 1) Company Sales (FY)2)
GER Mar 2010 Becker Stahl-Service €600m
CH Jan 2010 Bläsi €32m
2010 4 acquisitions €712m
US Mar 2008 Temtco €226m
UK Jan 2008 Multitubes €5m
2008 2 acquisitions €231m
CH Sep 2007 Lehner & Tonossi €9m
UK Sep 2007 Interpipe €14m
US Sep 2007 ScanSteel €7m
BG Aug 2007 Metalsnab €36m
UK Jun 2007 Westok €26m
US May 2007 Premier Steel €23m
GER Apr 2007 Zweygart €11m
GER Apr 2007 Max Carl €15m
GER Apr 2007 Edelstahlservice €17m
US Apr 2007 Primary Steel €360m
NL Apr 2007 Teuling €14m
F Jan 2007 Tournier €35m
2007 12 acquisitions €567m
2006 4 acquisitions €108m
USA Dec 2010 Lake Steel €50m
USA Sep 2010 Angeles Welding €30m
2011
2
€1.15bnBrazil May 2011 Frefer €150m
USA April 2011 Macsteel €1bn
2011 2 acquisitions so far €1,150m
Strong Growth: 24 acquisitions, 2 in 2011
33. 33
05 Balance sheet as of June 30, 2011
(€m) June 30,
2011
Dec. 31,
2010
Non-current assets 1,268 856
Inventories 1,393 899
Trade receivables 1,142 703
Cash & Cash equivalents 1,035 935
Other assets 98 98
Total assets 4,936 3,491
Equity 1,849 1,290
Total non-current liabilities 1,943 1,361
thereof financial liabilities 1,519 1,021
Total current liabilities 1,144 840
thereof trade payables 102 585
Total equity and liabilities 4,936 3,491
Net working capital 1,713 1,017
Net financial debt 600 137
Comments
Shareholders’ equity:
• Stable at 37% despite NWC
increase, benefitting from capital
increase
Financial debt:
• Gearing at 36%
• Net debt position due to acquisitions
increased business
NWC:
• Swing mainly driven by acquisitions
and also due to increased business
34. 34
05 Statement of cash flow Q2
Comments
• NWC changes due to
increased business and
acquisitions
• €444m were cash outflows
for MSCUSA and Frefer
(€m) Q2 2011 Q2 2010
Operating CF 64 99
Changes in net working capital -188 -170
Others -13 14
Cash flow from operating activities -137 -57
Inflow from disposals of fixed assets/others 0 1
Outflow for acquisitions -444 0
Outflow for investments in fixed assets/others -10 -6
Cash flow from investing activities -454 -5
Capital increase 517 0
Changes in financial liabilities 430 196
Dividends -20 0
Net interest payments -21 -16
Repayments of financial liabilities in connection with
business combinations
-196 0
Cash flow from financing activities 710 180
Total cash flow 118 118
35. 35
05 Segment performance Q2 2011
(€m) Europe Americas*
HQ/
Consol. Total
Volume (Ttons)
Q2 2011 1,192 571 - 1,763
Q2 2010 1,162 286 - 1,448
Δ % 2.6 99.6 21.8
Sales
Q2 2011 1,365 520 - 1,885
Q2 2010 1,180 236 - 1,416
Δ % 15.7 120.4 33.1
EBITDA
Q2 2011 50 23 -11 62
% margin 3.6 4.4 3.3
Q2 2010 93 13 -6 100
% margin 7.9 5.4 7.1
Δ % EBITDA -46.6 81.7 -38.3
Comments
• Excl. MSCUSA, Frefer and Lake
Steel volume increase in Americas
was 14.4% and sales increase was
23.5% yoy
• Without acquisitions total volume
increased by 4.9% and total sales
by 17.0% yoy
* in 2010 North America
36. 36
05
Geographical breakdown of identified institutional investors
Current shareholder structure
Comments
• Identified institutional investors account for 50%
• German investors incl. retail dominate
• Top 10 shareholdings represent around 26%
• Retail shareholders represent 20%
37. 37
05
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
Our symbol