Post on 14-Apr-2017
Klöckner & Co AG
1st Klöckner & Co
Analysts' and Investors' Meeting
Switzerland, September 19, 2007
Dr. Thomas Ludwig, CEOGisbert Rühl, CFO
2
Agenda
1. Multi metal distribution – value chain and customerrequirementsDr. Thomas Ludwig
2. Acquisition processGisbert Rühl
3
Overview multi metal distribution
Important mediator between producer and customer
Bundling of needs, purchasing in bulk
Via processing / sale of customer specific products
Operating in local markets close to the customers
Competition primarily via service, availability of products and short lead times
Servicing small and medium-sized enterprises of all industries
Steady demand over the price cycle
Ability to pass on price changes of the market to customers
Not affected by more cyclical end-user businesses, e.g. automotive
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Function of a multi metal distributor in the value added chain
Requirements of theend- users:
Offering of the multi metaldistributor
Requirements of themulti metal producers:
High sales and accessto new customers
Adequate lead time
Increased capacityutilization
Long term customerrelationships
Simplified logistics
“One-stop-shop”
Availability of a broadrange of multi metalproducts
Services generatinghigher value added
Reduced purchasingand stocking costs
Warehouses nearby
Quality assurance
Purchasing in bulk fromproducers
Handling of small customerorders
Further processing of thematerial according tocustomer requirements
Stocking to ensure shorterlead times
Continuous purchase
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Products and services
Products
Long products Sectionalsteel/Tubes
Stainless andaluminum
Flat steel
Services
Blanking/Flame &Plasma cuttingCut and slit from coilCut to length/
Mitre cut/BendingShot blasting/
Priming/Conservation
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Steel distribution and market supply
About two thirds of market supply in Western Europethrough steel distribution and service centers
40 to 80% of the steel consumption (depending on the individualmarket) served through distribution and service centers
Steel distribution is partly linked to mills through same shareholderstructure
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Steel distribution and market supply
Share of steel distributionTotal market supply
Direct deliverythrough
producers Steeldistribution
Flat SSC
Independent smalland medium sizeddistributors
Source: www.metalbulletin.com
30%
20%Mill-tied
distribution
Independentbig
distributors
50%
27%
33%40%
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Requirements of the customers
Market oriented price policy
Access to global sourcing through distribution
Availability of broad range of multi metal products
Manifold processing available
On-time delivery within 24 hours guaranteed
Increased outsourcing of processing
Smaller and more complex order sizes
Tailor-made logistics
Full service offering
Quality control
9
Customer decides!
Processes are getting more complex
The most convenient solution for the customer will be the most successful
Distributor has to ease complex structures for the customers:
Customer
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Broad rangeof products
Stockholding(Full range of
products)
Processing/Services
Distribution/Information/
Logistics
One Stop Shopping
A comprehensive service chain = One Stop Shopping
Tailor-made logistics for the customer includingon-time delivery (24 hour delivery) and high quality
+++
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Need to grow
Consequences for the distribution:
Know-how,competences andservices required
to serviceproducer and
customer at thesame time
Expandgeographic reach,as distribution hasto be close to thecustomers also toensure supplier’smarket coverage
Services linkedwith logistics
require criticalmass in order tomake the system
profitable
The systemrequires volume –
to realize“Economics of
Scale”
Preconditions to achieve cost and price leadership
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How will the supplier-distributor relationship developin the future?
Increasing consolidation of the steel producers
Risk of market dominating positions for steel producers inindividual markets
Increasing need of size in the steel distribution sector toprove benefit for the steel producers
Global sourcing is compulsory for the steel distribution
Global sourcing results in new challenges for an optimizedsupply chain and capital as well as price risk management
Further consolidation of the steel distribution is required
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No shift of the market allocation between producers and steeldistribution in Europe
Producers will further invest in globalization
Backward integration – access to raw material – is of high strategicimportance for the producers
Steel distribution is – like in other industries - not the logical part of thevalue chain of steel production
Service centers for key accounts remain business segment of theproducers
Integrated strategic concepts of production and distribution will loseimportance as a result of increasing product specialization (e.g. qualitysteel flat only) and globalization
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Full lineproduct portfolio
for material group(e.g. stainless)
Competition of distribution concepts: who will be the winner?
Specializeddistributor insingle product
categories(e.g. heavy plate)
Multi metaldistribution
(steel, stainless,non-ferrous metal)
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Our answer: multi metal distribution
Buy global
Sell local
As a full product range supplier
For a broad range of metal consumers
Requires a network of branches
Thus decentral organization
With strong central functions – sourcing, IT, finance, etc.
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Klöckner & Co at a glance
CustomerDistributor
Products:
Services:
Producer
Construction Structual
Steelwork Building and cvil
engineering
Machinery/MechanicalEngineering
Automotive Metal products/
goods, installation Durable goods etc.
Klöckner & Co Leading producer-independent steel and
metal distributor in the European and NorthAmerican markets combined
Distribution network with approx. 250warehouses in Europe and North America
Key financials FY 2006- Sales volume: 6.0 million tons- Sales: €5.532 million- EBITDA: €395 million
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Distributor in the sweet spot
Local customersGlobal suppliers
Suppliers Sourcing Productsand services
Logistics/Distribution Customers
Global Sourcingin competitivesizes
Strategicpartnerships
Frame contracts Leverage one
supplier againstthe other
No speculativetrading
One-stop-shopwith wide productrange of high-quality products
Value addedprocessingservices
Quality assurance
Efficient inventorymanagement
Local presence Tailor-made
logistics includingon-time deliverywithin 24 hours
> 200,000customers
No customeraccounts for morethan 1% of sales
Average ordersize of €2,000
Wide range ofindustries andmarkets
Service moreimportant thanprice
Purchase volumep.a. of 6 milliontons
Diversified set ofworldwide approx.70 suppliers
Examples:
Klöckner & Co’s value chain
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CDN
B D
F
E
CH ACZ
PL
LT
RO
NL CN
USA
GBIRL
Global reach with broad product and customer diversification
About 250 locations
28 LocationsUSA5 LocationsCDN
48 LocationsE30 LocationsCH76 LocationsF25 LocationsD
11 LocationsEastern Europe7 LocationsNL1 LocationIRL
24 LocationsGB
BU
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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/BelgiumSpain
Nether-lands
EasternEurope
USA(incl. Primary
17%)
Switzerland
Canada
5%Steel-flatProducts
Steel-longProducts
Tubes
Specialand
QualitySteel
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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Agenda
1. Multi metal distribution – value chain and customerrequirementsDr. Thomas Ludwig
2. Acquisition processGisbert Rühl
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Profitable growth
Grow more thanthe market
Continuousbusinessoptimization
1 Acquisitions drivingmarket consolidation
Organic growth andexpansion into newmarkets
2
3 STAR Program:- Purchasing- Distribution network
Profitable growththrough value-addeddistribution and serviceswithin multi metals tocompanies in Europeand North America
Profitable growththrough value-addeddistribution and serviceswithin multi metals tocompanies in Europeand North America
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€36 millionMetalsnabAug 2007
€108 million4 acquisitions2006
€537 million9 acquisitions2007 ytd.
€35 millionTournierJan 2007
€14 millionTeulingApril 2007
€360 millionPrimary SteelApril 2007
€17 millionEdelstahlserviceApril 2007
€15 millionMax CarlApril 2007
€11 millionZweygartApril 2007
€23 millionPremier SteelMay 2007
€26 millionWestokJune 2007
€141 million
Sales
2005
Acquired CompanyCountry
2 acquisitions
Accelerating numbers of acquisitions
Acquisitions
9
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2005 2006 2007
Number Sales
€141 million€108 million
€537 million
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North America (2006)
Companies: ~1,300 only independent distributors
Europe (2006)
Companies: ~3,000 few mill-tied, most independent
Huge opportunities in fragmented markets
Source: Purchasing Magazine (May 2007)Source: EuroMetal, company reports, own estimates
ArcelorMittal AM3S Division(Distribution approx. 5.5%)
ThyssenKrupp
Corus
Otherindependents
Othermill-tieddistributors
Klöckner & Co
Olympic Steel
Namasco(Klöckner & Co)
Ryerson
Other
Reliance Steel
Samuel, Son & Co
ThyssenKrupp Materials NA
Russel Metals
WorthingtonSteel
MetalsUSA
CarpenterTechnology
PNA Group
McJunkin
O'Neal Steel
Mac-Steel
AM Castle72.5%
Namascowith Primaryapprox. 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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Strong acquisition criteria
Further 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
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Efficient acquisition process
Approach• 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 iseither run locally or lead by the headquarters
• Duration of the projects between 3 to 6 months (firstcontact to completion)
• Due diligence is focussed on the areas of finance, sales/marketing, logistics/distribution/stocks, personnel andlegal/environmental
CountryOrganization
Group
Joint effort
Size of the project
Com
plex
ityof
the
proj
ect
Process run by…
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Namasco Gen. line
Namasco Processing
Example: Primary Steel
Geographical Scope Facts (2006)Sales: $467m (€360m)Employees: 412Customers: 2,500
Sales split: Plate (89%)Light flat rolled (8%)Pipe (3%)
Segments: Heavy Equipment (29%)Oil & Gas (16%)Power Generation (6%)Ship Building (5%)Transp. Equipm. (5%)Metal builders (3%)Construction (3%)Service Centers (33%)
One of the leading suppliersof heavy plates in the US withan excellent reputation
Primary outlet
Primary Sales office
Oakland
Houston
Missouri
Chicago
Tampa
CharlotteArizona
Arkansas
Iowa
Alabama Georgia
SouthCarolina
North Carolina
Indiana
Maryland
Maine
Connecticut
Florida
Louisiana
Illinois
Texas
CaliforniaDubuque
Louisville
Indianapolis
AtlantaB´ham
CharlestonDallas
AustinNew Orleans
Jacksonville
Orlando
Pompano
Santa Fee Springs
Phoenix
Santa Fee Springs
Tulare
West Memphis
Savannah
Portland
Middletown
New Castle
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Selection and processing
Contacts
Selection
Processing
Klöckner & Co was approached by investment bank acting for the seller Limited auction process
Local team with close co-operation with headquarters Duration approx. 5 months including negotiations Intensive due diligence including all areas
Further strengthening of market position in the area of heavy plates Expansion of geographic reach Access to new customer groups Improved basis for further acquisitions Significant synergy potential Reasonable valuation
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Integration will be fully completed until Q1 2008
Title May Jun Jul Aug Sep Oct Nov Dec Jan
Transfer of ownership 11.05.
Integration of central functions:
11.05.Cash Management01.07.Reporting finance01.07.Creditors
01.01.AccountingPersonnel
30.09.Debtors
01.06.Health & safety
24.06. 20.08.Integration of sites (> 400 employees):West Memphis
Co-ordinationQ1 2008
Centralization/IntegrationPurchasing (locally)
01.08.Financing (ABS)
Q1 2008Remaining locations
29.07. 20.10.Oakland05.08. 14.11.Santa Fe Springs
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Oakland
Houston
Missouri
Chicago
Tampa
Charlotte
Arizona
Arkansas
Iowa
AlabamaGeorgia
SouthCarolina
North Carolina
Indiana
Maryland
Maine
Connecticut
Florida
Louisiana
Illinois
Texas
CaliforniaDubuque
Louisville
Indianapolis
AtlantaB´ham
CharlestonDallas
AustinNew Orleans
Jacksonville
Orlando
Pompano
Phoenix
Santa Fe Springs
Tulare
West Memphis
Savannah
Portland
Middletown
New Castle
Integration of the location Santa Fe Springs (1)
Primary outlet
Primary Sales office
Namasco Gen. line
Namasco Processing
• New geographicdimension
• 86 employees• €73 million sales• 89 Kto sales volume
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Integration of the location Santa Fe Springs (2)
Organization ProcessTeam
Site Manager (1.0)Assistants (2.0)Purchasing (2.0)Sales (1.0 + 12.0)Warehouse (1.0 + 32.0)Processing (2.0)Logistics (2.5)Debtors (1.0)Creditors (0.5)Quality management (0.5)Accounting (1.0)IT (1.0)Personnel (1.0)Total: (86.0)
Minimal complexity
Total integration completedwithin 12 weeks
• IT network, dataand IT system 8 weeks
• Training newsoftware 8 weeks
• Intensivesupport 2 weeks
Fast process
2 Project managers(Namasco)
18 Team members(Namasco+Primary)
2 Data transfer(Namasco)
3 Network/IT-support (Namasco)
Experienced team
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Significant synergy and scale effects
Integration
Primary Steel will be managed as additionallocations with partial back office integration
• Finance functions and purchasing will be fullyintegrated into Namasco’s headquarters inAtlanta
• Stock management will report to headquarters• Billing and Credit Management will remain local
but report into same function in headquarters• Sales remains under local management• Namasco’s flat rolled SE division will be
reporting into a new sales division “Primary “• Primary’s brand name be maintained for the
nearer future
Implementation would take until Q1 2008 withsystems’ integration as main challenge
• Estimate 6-8 weeks per location required• Approximately 50 weeks to fully integrate into
Namasco’s systems
Synergies (in $000’s)
Area
Additional rebates from includingPrimary into Namasco’s rebateschemes and vice versa
Reduction of management andadmin headcounts
Sale of Namasco’s productsthrough Primary’s warehouses
Increasing value added services
IT Integration cost
Total
2,500
1,000
2,000
1,500
7,000
AdditionalEBITDA
p.a.One-timeexpenses
500
500
750
1,750
Expected margin improvement of 1.5%
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Strong acquisition criteria fulfilled
Further 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 ✔
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Clear target
Finally the target of driving consolidation is clear
Increase volume and scaleto improve purchasing conditions
to improve logistics and stockholding
to improve coverage of fix costs
to improve local market share
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Our symbol
the earsattentive to customer needs
the eyeslooking forward to new developments
the nosesniffing 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 andother 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 thesestatements. 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-lookingstatements. We assume no liability whatsoever to update these forward-looking statements or toconform them to future events or developments.