SCHMOLZ + BICKENBACH Hans-Jürgen Wiecha, CFO UBS Best of

SCHMOLZ + BICKENBACH
Hans-Jürgen Wiecha, CFO
UBS Best of Switzerland
Conference
19 September 2014
1
CONTENT
1
2
3
4
2
KEY INVESTMENT HIGHLIGHTS
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
FINANCIAL OVERVIEW Q2/H1 2014
OUTLOOK AND GUIDANCE 2014
3
1
KEY INVESTMENT
HIGHLIGHTS
KEY INVESTMENT HIGHLIGHTS
Key investment highlights
1
2
3
4
5
6
Leading global producer, processor and distributor of special long
steel products, operating with a global sales and services network
in an attractive niche market
Strong customer relationships, well diversified customer base in
various application industries and strong global footprint with
presence in all relevant geographic markets
The Group offers a comprehensive range of approximately
60,000 products to nearly 30,000 customers around the globe
Stable gross profit margin with the ability to pass on raw
material price volatility to a large extent
State-of-the-art production facilities and equipment in capitalintensive industry
Strong brand names with complementary product portfolio
4
KEY INVESTMENT HIGHLIGHTS
5
1 Attractive niche market
Global finished production, 2013
In percent, 100%1) = 1 439 mtpy
Carbon long steel2)
38%
Global special long steel production, 20131)
SCHMOLZ + BICKENBACH’s core market; in percent, 100% = 104.5 mtpy
Engineering steel2)
(~41.5 mtpy)
Stainless flat steel
40%
2%
Special long steel
Stainless long steel
(~5.2 mtpy)
7%
5%
Tool steel
(~1.7 mtpy)
Carbon flat steel2)
53%
1) Percentages of special long steel based on midpoint of respective ranges
2) Bearing steel is considered part of Engineering Steel
Source: SMR; expert estimates; SCHMOLZ + BICKENBACH
Quality steel
(~56.1 mtpy)
54%
2%
KEY INVESTMENT HIGHLIGHTS
6
1 Leading global producer, processor and distributor of
special steel long products
PRODUCTION
» Production of special long steel from scrap
»
and alloys
» Six steel furnaces (EAF) in Germany,
Switzerland, France, USA and Canada
» Rolling and forging capacities at nine facilities
covering a wide product range from fine wire to
large forged products
Adj. EBITDA
(EUR m)1)
Revenue
(EUR m) /
Adj. EBITDA
margin (%)1)
284.92)
135.12)
Processing of high-grade steels such as the
» Worldwide sales/trading of special long steel
production of bright steel and special long steel » Inventory logistics and post-processing
to customer specific needs
services
» Drawing
» Distribution Germany full range distributor with
» Sawing
approximately 15 000 articles and a high share
of externally sourced products
» Grinding
» Turning
» Heat treatment services
168.5
125.8
25.83)
15.93)
13.9
19.2
3.5
9.1
8.8
5.3
1)
2)
3)
SALES & SERVICES
6.6
Divisional financials do not add up to group revenue and EBITDA due to consolidation and other effects
Combined figures for former divisions “Production” and “Processing”, not adjusted for consolidation effects
Former division Distribution
1.8
1.2
1.2
KEY INVESTMENT HIGHLIGHTS
7
1 Leading positions in markets with attractive growth prospects
Application examples
Stainless
Engineering
+2.5%
+3.9%
+3.9%
1 762
1 976
2 222
5 069
5 764
6 391
65 000
69 998
75 380
2012
2015
2018
2012
2015
2018
2012
2015
2018
Market
position2)
Consumption in kt1)
Tool
# 2 worldwide
# 2 worldwide
Food packaging
Engine covers Glass processing
Medical
implants
Automotive interiors
Cutting tools
Watches
Forging
1) SMR (Kilotons; October 2012, growth rates confirmed in February 2013)
Aerospace
Engine valves
# 3 in Europe
Common rail injector
Oil drilling
2) By production ktpy (based on SMR 2013)
Bearings
Fasteners
Gears
Fittings
KEY INVESTMENT HIGHLIGHTS
8
1 Leading market positions globally
Top 10 producers of tool steel
Top 10 producers of stainless long steel
Top 11 producers of quality/
engineering steel
regionalcharacter
character
regional
251
Boehler Uddeholm (DE)
S+B
Tsingshan (CN)
580
S+B
194
330
Dongbei (CN)
111
Walsin Lihwa (TW)
Tiangong (CN)
108
Viraj (IN)
310
267
CITIC (CN)
NSSMC (JP)
2 100
Gerdau (BR)
2 030
Dongbei (CN)
1 507
Saarstahl (DE)
1 450
1 440
Qilu (CN)
67
Roldan+NAS (ES+US)
Hebei Wenfeng (CN)
64
Dongbei (CN)
214
JFE (JP)
213
SMI (JP)
1 200
240
Baosteel (CN)
54
Yongxing (CN)
Metal Ravne (SI)
50
POSCO (KR)
182
GMH (DE)
1 110
Hitachi (JP)
47
Outokumpu (FI) 2)
175
Shigang (CN)
1 107
POSCO (KR)
45
SMI (JP)
165
Laigang (CN)
1 028
S+B
Additional direct
competitors
3 924
BGH (DE), Ellwood (US), Daido (JP), Hitatchi (JP),
GMTC Gloria (TW), GMH Gröditz (DE),
AM Industeel (FR)
Cogne (IT), Daido (JP), BGH (DE), Valbruna (IT)
# 2 worldwide
SCHMOLZ+BICKENBACH
# 2 worldwide
Direct competitors
1) SMR 2012
1 028
BU Buderus (DE), BGH (DE), Lechstahl (DE),
Ascometal (FR), Sidenor (ES), Ovako (SE)
# 3 Europe
2) Incl. 50% FSAB
KEY INVESTMENT HIGHLIGHTS
2 Well-balanced revenue streams, strong customer relationships,
wide range of application industries and broad geographic reach
Sales breakdown 2013
» Top 20 customers accounted for only 19% of revenue in 2013, largest customer <3% of total revenue
» Approx. 77% of the German passenger car production and an estimated 76% of German engineering
production were exported in 2012
9
KEY INVESTMENT HIGHLIGHTS
10
3 Present in key markets for Special Long Steel, able to
consistently serve global customers with its global distribution
network
9 steel production sites,
6 with on-site meltshops
>10 processing facilities
More than 30 distribution subsidiaries
(with over 80 branches)
5 continents, 35 countries
~10 000 employees
~30 000 active customers
KEY INVESTMENT HIGHLIGHTS
4 The industry-wide surcharge system allows to pass raw
material price fluctuations largely on to customers
» Carbon steel is facing significant challenges to adapt to spot prices for iron ore and coking coal
» The special long steel industry follows an index system. E.g. surcharge is based on a fixed Nickel price
index1), scrap surcharges follow local surcharge mechanisms
» Customers accept this industry-wide arrangement, as a result, the industry is widely protected against raw
material price volatility
1) Independent from the actual sourcing price of the producer
11
KEY INVESTMENT HIGHLIGHTS
12
5 State-of-the-art production equipment thanks to the
investment of c. EUR 1.2 bn within 8 years
» Current network of facilities allows to grow the business
without any significant increase of capacities
» Key strategic acquisitions in the past increased global
footprint and led to leading position in all sub-segments
» Approx. EUR 1.2 bn investment in value chain between 2005
and 2012 – well above depreciation of c. EUR 750 m in the
same period – led to state-of-the-art production equipment
across all business divisions, an expanded product spectrum
and integrated production capabilities
Expansion of
rolled wire dimensions
(Swiss Steel)
High-bay storage
(Distribution Germany)
150 metric ton tapping
crane
(Swiss Steel)
Descaling systems
(Ugitech)
» Invested even throughout financial crisis as exemplified
by new south Chicago facilities, which became operational
in 2013
Powder Metallurgy
(DEW)
New facility
(Finkl)
KEY INVESTMENT HIGHLIGHTS
13
6 Production business units with strong brand names and
complementary product portfolio form together a leading
market position across all steel segments
Tool
Stainless
Engineering1)
Details of product portfolio
DEW
Wide range of steel grades and dimensions (0.8mm wire
to 1 100mm forged products) allows comprehensive
market coverage
Swiss Steel
Expertise in lead-alloyed free-cutting steel, strong
presence in Germany, Italy and Switzerland with leading
market positions
Ugitech
Clear focus on stainless steel (fine wire, wire rod and
bars), together with DEW European market leader
Finkl/Sorel
Leading position and strong brand with focus North
America; with DEW complimentary product range in key
industries (e.g. oil & gas)
S+B Bright
Bar
Premium range of bright steel products with strong
brand products (e.g. ETG/HSX); key industries
automotive and mechanical engineering
Leading market position across special long steel segments, with complementary product ranges and market access potential
1) Including free cutting steel
KEY INVESTMENT HIGHLIGHTS
14
Swiss listed company with supportive anchor shareholder
Venetos Holding AG1) 2)
Free Float
(Shareholders <3%)
25.51%
54.33%
SCHMOLZ + BICKENBACH
GmbH & Co. KG1) 3)
15.17%
Key facts
ISIN
CH0005795668
Securities symbol
STLN
Type of security
Registered share
Trading currency
CHF
Listing
SIX Swiss Exchange
Membership in indices
SPI, SPI Extra, SPI
ex SLI, Swiss All
Share Index
Number of shares
945 000 000
Nominal value in CHF
0.50
Haefner, Martin
Shareholder Structure
1)
2)
3)
4.99%
Form a group according to stock exchange act.
Member of the Renova Group
Indirectly via subsidiaries SCHMOLZ + BICKENBACH Beteiligungs GmbH and SCHMOLZ + BICKENBACH Holding AG
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2
STRATEGIC
REALIGNMENT AND MIDTERM TARGETS
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
16
SCHMOLZ+BICKENBACH’s positioning in the value chain
Upstream
Production
Processing
Distribution
Downstream
Engineering steel
Stainless long steel
Tool steel
Mining
Scrap
Automotive
Engineering
Energy
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
17
Key results of the strategic review: Focus on core competencies
– SCHMOLZ+BICKENBACH is a production company
Company profile
Guiding principles
SCHMOLZ+BICKENBACH is a
leading producer of special long
steel with a dedicated global
Sales & Services network
focusing on client demands and
product quality
Production is the core of SCHMOLZ+BICKENBACH'S business – Mills allow
differentiation due to know-how, expertise and assets
Entire value chain setup to support production business – Focus on processing
and distribution of own mill products
Product portfolio strategy is to focus on high-margin products in tool, stainless
and quality/engineering steel leveraging strategic advantages of business units
Synergies within the group are captured and joint group strategy is applied to
all business units
Stronger corporate governance and corporate culture, strategic management
holding with strong central functions. Coordinated, appropriate investment
policy
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
18
Product strategy focuses on profit-generating technical products
and specialties – Commodity fillers to secure utilization base load
Specialties
Technical
products
Commodities
Highly specific steels with low volumes but
attractive margins
Generate profits
Niche market with limited competition due to
individual specifications
» Continuous optimisation of product portfolio
regarding strategic products/applications
E.g. mandrel bars, ultra-fine stainless wire
(13µm) for special applications
Products with quality/service differentiation and
relatively high degree of customer interaction
and retention
E.g. pump blocks, high-tensile engineering steel
bars, conrods
Standardised products with low margins, subject
to strong competition
E.g. mesh steel, 42CrMo4
» Develop new steel grades for applications
targeted on growth areas (e.g. oil & gas,
energy)
» Enhance technical customer service
Cover fixed costs
» Fixed cost degression by securing utilisation with
"commodity" segments
» Increase flexibility of production and of cost
structures (especially for commodity products)
» Optimise complexity and technical process
stability
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
19
Distribution Germany and selected European countries not aligned
with future business model – Sales process initiated
Business unit
Share of own
mill products1)
Comment
Distribution
Germany,
Belgium,
Netherlands,
Austria
~ 15% - 30%
»
Sales & Services
International
~ 65%
»
1) 2012: excluding provision based mill direct sales
»
»
Strategic implication
Distribution Germany as full
range provider – High percentage
of “third party products”
Low profitability and limited fit to
future business model
Sales process initiated; in
parallel restructuring ongoing
Focus on own mill products
In addition to stock-taking
distribution, mill direct sales
Continuation of current strategy
− Further increase share of
own mill products
− Reorganization: one face
to the customer
− Growth in emerging
markets
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
20
A detailed performance improvement programme with an
EBITDA improvement volume of EUR 230 million until 2016 is in
implementation
Key facts on performance improvement programme
Systematic tracking of implementation
EBITDA improvement volume of EUR 230 million by
2016 based on > 600 individual performance
improvement measures and > 6 000 single steps
Professional Management: Group-wide programme
management office (PMO) installed, directly reporting to
CEO/CFO
Cost saving measures contribute > EUR 100 million to
the total EBITDA improvement volume: Focus on
personnel cost, efficiency improvements and
purchasing measures
Full transparency/traffic light monitoring on
implementation and effective realisation: Timely
response to deviation from targets enabled by having
full transparency on single step level
via a group-wide project management tool (currently
300 users)
Total FTE reduction (including contract labour) of ~700
FTE; partly already implemented
Top-line measures include volume and price effects,
including an optimised product mix
Accountability: Monthly reports and reviews with
business unit management and Group management
STRATEGIC REALIGNMENT AND MID-TERM TARGETS
21
Mid-term targets
230
Cost
reduction
>300
Mid-term targets1)
» EBITDA
152
Volume/
price
> EUR 300 million
> 8% margin
» Leverage2)
< 2.5x
1) From 2016 on average over the cycle based on current portfolio
2) Net debt to adjusted EBITDA
22
3
FINANCIAL OVERVIEW
Q2/H1 2014
BUSINESS OVERVIEW Q2/H1 2014
23
Improvement in order intake, order backlog and sales volume
Order backlog 2012 – June 2014 I in kt
526 509
379
529 552
416
500 571
417
584
477424
564
448426
539
410402
Jan
Feb
Mar
Apr
May
Jun
2012
381 413
2013
Jul
2014
368 414
337410
323409
416
321
Aug
Sep
Oct
Nov
351
452
Dec
FINANCIAL PERFORMANCE Q2/H1 2014
24
Results of operations – key figures
in EUR m
H1 2014
H1 2013
Change on
prior year (%)
Q2 2014
Q2 2013
Change on
prior year (%)
1 138
1 063
7.1
557
533
4.5
1 729.6
1 740.5
-0.6
858.0
873.1
-1.7
139.4
96.0
45.2
73.8
48.8
51.2
8.1
5.5
260 bp
8.6
5.6
300 bp
Operating profit before depreciation
and amortisation (EBITDA)
136.3
90.4
50.8
72.5
43.8
65.5
Operating profit (loss) (EBIT)
76.5
30.4
>100
42.5
13.1
>100
Earnings before taxes (EBT)
52.2
-14.6
>100
33.2
-10.1
>100
Net income (loss) (EAT)
35.2
-18.9
>100
22.8
-11.2
>100
Sales volume (kt)
Revenue
Adjusted EBITDA
Adjusted EBITDA margin (%)
FINANCIAL PERFORMANCE Q2/H1 2014
25
Margin development
31.7
32.1
33.4
34.1
35.8
5.6
5.1
5.7
7.5
8.6
» Absolute gross margin in H1 2014 increased by EUR 51.3 m or 9.3% to EUR 604.2 m (H1 2013: EUR
552.9 m), in percentage terms, gross margin increased from 31.8% in H1 2013 to 34.9% in H2 2014
» In H1 2014 adjusted EBITDA rose by EUR 43.4 m to EUR 139.4 m (H1 2013: EUR 96.0 m), adjusted
EBITDA margin of 8.1% (H1 2013: 5.5%)
FINANCIAL PERFORMANCE Q2/H1 2014
26
Financial position: key figures
30.6.2014
31.12.2013
Change on
31.12.2013 in %
30.6.2013
EUR m
900.7
889.9
1.2
625.7
%
35.7
37.4
-170 bp
24.5
EUR m
633.7
610.1
3.9
952.7
Net debt/Adjusted EBITDA1)
factor
2.9
3.4
-
8.5
Net working capital (NWC)
EUR m
1 068.8
949.5
12.6
1 057.8
30.9
29.0
190 bp
30.4
1.1.−30.6.2014
1.1.−30.6.2013
Change on prior year
in %
Shareholders’ equity
Equity ratio
Net debt
NWC/Revenue2)
%
Investments
EUR m
31.6
32.3
-2.2
Free cash flow
EUR m
6.4
-2.7
>100
1)
LTM
2)
Annualised
BUSINESS OVERVIEW Q2/H1 2014
Successful refinancing of syndicated loan and ABCP financing
programme
» Attractive long-term financing supports SCHMOLZ + BICKENBACH’s strategy
» Structurally better terms for both instruments
» New EUR 450 m revolving credit facility with maturity in April 2019
» Credit facility comprises a margin grid that rewards the planned further deleveraging
» Syndicated loan was substantially oversubscribed
» Prolongation of EUR 300 m asset-backed securities financing programme (ABCP) until April 2019
» Financing structure now based on three stable pillars, allowing the group to focus on its strategic and
operative goals
27
FINANCIAL PERFORMANCE Q2/H1 2014
28
Net debt and financial headroom
Other fin. liabilities
77.8
Bond
167.7
ABCP financing
programme
222.3
Syndicated loan
One-off fin. exp./acc. int.
Cash & cash equiv.
374.7
633.7
610.1
57.2
167.7
Cash & cash equiv.
68.4
ABCP financing
programme
77.7
327.5
65.7
70.7
229.3
Syndicated loan
221.4
258.8
10.8
13.6
68.4
65.7
228.6
191.2
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4
OUTLOOK AND
GUIDANCE 2014
OUTLOOK AND GUIDANCE 2014
Outlook 2014
» Recovery of global economy should continue but at a slower pace, expected global GDP growth of 2.5% to
3.6% in 20141)
» Eurozone and USA are expected to grow by around 1% and 2% respectively1),
» Worldwide steel consumption is expected to increase by 3.1%2)
» Economic uncertainties and ongoing difficult geopolitical developments could dampen economic mood –
including steel demand – over the coming months
» Stable currency exchange rates for the relevant currency relations CHF/EUR and USD/EUR assumed
» Steel prices seem to have bottomed out. However, base prices remain very low and do not reach the level of
the prior year, yet. We do not anticipate a recovery in base prices across the board.
» Scrap prices expected to stay on low level, nickel price increase should support alloy surcharges and
thereby revenues in the months to come.
» Earnings improvement programme and reduction of indebtedness will support earnings in 2014
1) Source: World Bank, “Global Economic Prospects, June 2014”, Economist Intelligence Unit, OECD, IWF
2) Source: World Steel Association, April 2014
30
OUTLOOK AND GUIDANCE 2014
31
Guidance 2014 – adjusted
2013 reported
Initial guidance 2014
(as at 13 March 2014)
Actual guidance 2014
(as at 21 August 2014)
Sales volume
2 054 kilotonnes
Increase of 2% – 5%
Increase of 2% – 5%
Revenue1)
EUR 3 276.7 m
Increase of 2% – 5%
Increase of 2% – 5%
Adjusted EBITDA
EUR 178.8 m
EUR 190 m – EUR 230 m
EUR 210 m – EUR 230 m
CAPEX
EUR 105.7 m
At prior year level, significantly below
depreciation/amortisation
At prior year level, significantly
below depreciation/amortisation
1) Predictability of surcharges for scrap and alloying elements and exchange rates is very limited
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Q&A
MANY THANKS FOR
YOUR ATTENTION!
DISCLAIMER
Disclaimer
This publication constitutes neither a prospectus within the meaning of article 652a and/or 1156 of the Swiss Code of
Obligations nor a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange. This publication
constitutes neither an offer to sell nor a solicitation to buy securities of SCHMOLZ + BICKENBACH. The securities have
already been sold.
This document shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of
securities referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to
registration, exemption from registration or qualification under the securities laws of any such jurisdiction. The securities
referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), and may not be offered or sold in the United States or to U.S. persons (as such term is defined in
Regulation S under the Securities Act) absent registration or an exemption from registration under the Securities Act.
The issuer of the securities has not registered, and does not intend to register, any portion of the offering in the United
States, and does not intend to conduct a public offering of securities in the United States.
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