Journal: Euro am Sonntag, Issue 06/2010
(Translated from german original version)
Journal: Euro am Sonntag, Issue 06/2010
(Translated from german original version)
Due to the difficult economic situation, it will probably not be possible to avoid a credit crunch in the industry, believes KlöCo CEO Gisbert Rühl. It would affect the large majority of steel and metal distributors that are not exchange-listed.
Euro am Sonntag: Mr. Rühl, why are steel distributors, whose business model so far has been considered to be crisis-resistant, now finding themselves in trouble?
Gisbert Rühl: During the first phase of the economic and financial crisis, distributors could significantly reduce their working capital by sharply reducing inventory levels. By doing so, they were able to significantly increase free cash flow. Because the situation for financing ongoing business continues to be difficult, the free cash flow of some distributors might run out soon. Thus, they lack the cash to increase their inventory levels when business picks up again.
Euro am Sonntag: Klöckner & Co reduced its own working capital by €1 billion from €1.7 billion at the beginning of the crisis to €700 million by September 2009 and was able to increase its cash flow from €32 to €541 million. Are you planning to maintain this level to preserve cash flow?
Gisbert Rühl: With expected revenue growth of at least 10% for the current year, net working capital is also growing, albeit, at a much slower pace in relation to revenues than in previous years. Before the crisis, the ratio of working capital to revenue was between 21 and 27%. It is now at 15%. Based on the optimizations conducted along our value-added chain, we assume that we can keep the ratio below 20% in general.
Euro am Sonntag: Klöckner's added benefit as an exchange-listed company in acquisitions is its good capital market access. Most competitors lack this access because they are not stock market listed companies.
Gisbert Rühl: This is an important aspect. Due to the general economic situation, a credit crunch in the industry can probably not be avoided in the coming months. This could affect the large majority of steel and metal distributors in Europe, where only three are exchange-listed, as well as the U.S., where the shares of more companies are traded on stock exchanges, but in total still only account for a small percentage of all distributors.
Euro am Sonntag: Is that why you were able to make the most recent purchases of Becker Stahl-Service with €600 million revenue and Bläsi with €32 million?
Gisbert Rühl: Becker Group as well as Swiss Bläsi AG are two companies that managed to come through the crisis in very good shape. Becker Stahl-Service Group even improved its profitability in this period. We began negotiations with both before the crisis had even started. When the crisis did start, however, we first had to put our own company into a crisis-resistant position.
Euro am Sonntag: As a result of the financial crisis, in the future will Klöckner & Co utilize the capital markets more intensely for refinancing?
Gisbert Rühl: We continue to cover our working capital via bank loans and asset backed securities. Acquisitions, however, will be financed through the capital markets, meaning long-term, via bonds or capital increases.
Euro am Sonntag: So far Klöckner & Co's customers have predominantly been in the construction as well as machine construction and plant engineering sectors. The Becker Stahl-Service Group gets 60% of its €600 million revenue from the automotive sector. Do you plan to further expand your sector spectrum with your acquisitions?
Gisbert Rühl: With the Becker Stahl-Service acquisition, we doubled our presence in the automotive sector from 6 to 12% of revenue. The proportion of customers from the construction sector thus falls below 40%. It is imaginable, that this proportion will further decrease through additional acquisitions. However, we do not search for our acquisition candidates in Europe only by customer segment. In Europe, through acquisitions we plan to achieve, above all, a greater depth in the value-added chain and higher margins.
Euro am Sonntag: Please explain!
Gisbert Rühl: Previously, we had to buy flat steel products from service centers and then, mostly without creating any added value, resell with low margins. With Becker Stahl-Service, in the future we will be able to supply our own locations and thus integrate a part of the value chain targeted at manufacturers, which allows us to supply our storage facilities more efficiently and achieve higher margins due to higher level of preprocessing.
Euro am Sonntag: What will the integration of the Becker Stahl-Service Group additionally change in the Group?
Gisbert Rühl: Due to their special expertise and high degree of competence in individual solutions, the company will remain an independent component within the Klöckner & Co Group and will achieve great synergy effects through a targeted supply of our locations in Germany and parts of Europe with thin sheet. Because we can supply our locations faster and more flexibly through Becker, we will be able to optimize our inventories in the flat steel segment over much of Europe.
Euro am Sonntag: With the acquisition of a U.S. competitor of the Becker Stahl-Service Group, will you transfer your European strategy to North America?
Gisbert Rühl: It does not yet necessarily need to be a steel service center such as Becker over there. In the U.S. market, we are now only number 10, whereas in the European countries we are always among the top 3. However, medium-term, we also want to be among the top 3 in America.
Euro am Sonntag: Is an acquisition in the U.S. in the magnitude of Becker Stahl-Service with €600 million revenue realistic in 2010?
Gisbert Rühl: If the right opportunity presents itself, it would be feasible. But as always with acquisitions, it depends on the resulting opportunities.
Euro am Sonntag: The automobile manufacturers in the steel business are really covered by large producers such as Arcelor or ThyssenKrupp.
Gisbert Rühl: That is definitely true for the vehicle body panels, but not the interior and structural components. Moreover, the Becker Stahl-Service Group has a special role here. The company runs one of the largest and most modern steel service centers in Europe and can also flexibly react to its customers' requirements.
Euro am Sonntag: Does this mean the steel and metal distributor Klöckner & Co has surprisingly and successfully penetrated new territory for steel makers?
Gisbert Rühl: Many companies, also producers, were interested in the Becker Stahl-Service Group. Nobody had us on their list until the very end. In Germany, Becker Stahl-Service is in second place after ThyssenKrupp and before ArcelorMittal and Salzgitter. With our investment, the company basically remains in “neutral hands”, which everyone can live with.
Euro am Sonntag: Why?
Gisbert Rühl: First, Becker Stahl-Service is respectively an important customer of the major flat steel producers in Europe. Aside from the potential buyer, all other producers would have lost business. Second, Becker Stahl-Service would have lost some of its flexibility during its integration into the service center organization of a steel producer. This was ultimately also an important reason why the sellers sold the company to us. They wanted to ensure that the company's successful strategy of the past decades could be continued. Within the Klöckner & Co structure, Becker Stahl-Service Group can remain independent and continue developing its own strategy. Its specialization and problem-solving competence remain intact.
Euro am Sonntag: Does this mean that the acquisition of Becker Stahl-Service means more for Klöckner & Co than a sustainably higher operating margin?
Gisbert Rühl: Yes. We can utilize the aforementioned synergy effects in our internal supply and procurement areas and also continue to expand the company.
Euro am Sonntag: Although China dominates the steel market in the region, Klöckner is not present in Asia.
Gisbert Rühl: We have had an office in Shanghai for the past two years to monitor the Chinese market and to purchase steel as well.
(Source: Euro am Sonntag, Issue 06/2010, author Klaus Schachinger)