Competitiveness & Profitability in steel distribution

Transcription

1 Competitiveness & Profitability in steel distribution Eurometal Steel Net Forum Stockholm / May, 2014 Research & Consulting Group AG Gwattstrasse Pfäffikon SCHWEIZ Tel: +41 (55) Fax: +41 (55) info@rcg-ag.com

2 Agenda 1. Short introduction of Research & Consulting Group 2. European steel market outlook 3. Steel distribution managing profitable growth 4. Operating steel distribution RCG approach 3

3 Key attractions for the cooperation with RCG in the field of management consulting 1 Globally active management consulting company with representative offices all over the world. 2 Worldwide expertise in the different segments of the metallurgical market with core competence in the steel industry value chain References from the leading producers and distributors of metallurgical raw materials, different types and grades of steel, non-ferrous metals and high performance alloys Comprehensive experience in internationally and regionally/locally-focused projects related to strategy evaluation, feasibility studies, market analysis and forecast and other areas. Profound industry knowledge and understanding of the best available practices based on more than 20 years of expert experience of the team. Source: RCG 4

4 Worldwide expertise in the different segments of the metallurgical markets, core competence in the steel industry value chain Raw materials/ Semi finished Flat products Long products Tubes and pipes High quality / Stainless steel Steel processing and distribution Europe North America South America CIS Asia / Middle East Africa Source: RCG 5

5 Agenda 1. Short introduction of Research & Consulting Group 2. European steel market outlook 3. Steel distribution managing profitable growth 4. Operating steel distribution RCG approach 6

6 [Finished steel use, Mt] RCG Research & Consulting Group Current / pre-crisis demand gap in EU is the most significant among all regions. Emerging market are in better dynamics Steel consumption by main mature and emerging markets in [Mt, %] provisionally, forecast Source: RCG analysis, Worldsteel 7

7 Global overcapacity worsened in 2013 Global steel capacities vs apparent steel use in and future projections [Mt] Supplydemand gap (not in scale) Supplydemand gap at utilization 85% (not in scale) Consumption (crude steel eq.) Capacity Notes: Excess capacity = Steelmaking capacity Apparent consumption (liquid steel equivalent) Source: RCG analysis, worldsteel, OECD 8

8 The biggest European economies are turning to rather positive economic development expectations European economies 2015 forecast [y-o-y, %] +0.5 GDP growth projection for 2015/14 [y-o-y, %] Observations: European economic outlook is turning more positive with 1.8% of GDP growth projection for The most countries are still below 3.8% world average, but many economies are not far away from the figure. Biggest regional economies expected to grow around 1.5%. Leading EU market growth Germany is average with 1.6% projection. Smaller markets on the east and north of the region are generally more positive with GDP grows projections close to 3% value ,9 Based on April 2014 projections; Figures are rounded Source: RCG analysis, IMF 9

9 [business climate index] RCG Research & Consulting Group Production expectations from consuming industries in EU keep the positive sentiments Business confidence of EU metallurgical industry and production expectations of customers Mach.&Equipment Metal prod. fabrication Motor vehicles Metallurgy (confidence) Latest indication for April 2014; All segments excl. Metallurgy production expectations, Metallurgy - business confidence Source: RCG analysis, EC 10

10 Source: RCG analysis, Eurofer, Eurostat 11 RCG Research & Consulting Group Consuming segments are turning positive in 2014 Demand drivers trends in EU for Observations: All key steel consuming segments were decreasing their output through most In Q3-Q4 some of them like automotive, metal goods and white goods segments came back to the positive dynamics. Most segments expect to have positive dynamics in Construction remains large-scale stagnating area. Mech. eng Automotive Construction White goods Metal goods Tubes Others

11 Agenda 1. Short introduction of Research & Consulting Group 2. European steel market outlook 3. Steel distribution managing profitable growth 4. Operating steel distribution RCG approach 12

12 MARKET RCG Research & Consulting Group The role of distribution function of market maturity and supply/demand ratios add Role: conduction & delivery Profile: high role of mill-tied distribution, strong entry barriers Service: stocking & logistics Role: conduction & delivery Profile: fragmented, low entry barriers Service: stocking & logistics Emerging Developing Mature Role: conduction & processing Profile: consolidated, highly segmented product specialists, longs from stokiests, flats from SSCs Service: deep profiling and value added services Markets are ranked by GDP per capita Source: RCG research, worldsteel, IMF D<S Sweden SUPPLY/DEMAND (S/D) BALANCE D>S Role: conduction & processing Profile: lower consolidation, longs from stockists, flats from SSCs Service: deep profiling and value added services 13

13 Data as of RCG Research & Consulting Group Tight competitive enviroment in the steel industry in general and in steel distribution in particular Top-10 companies shares: Iron ore: (total) Iron ore: (seaborne) Met coal: (seaborne) Steel: Steel Distribution: Automotive:?? Fragmentation of the industry over-intensifies competition and leads to destructive profits erosion Source: RCG analysis, worldsteel, worldcoal, OICA, companies data 14

14 Upstream RCG Research & Consulting Group Overcapacity problem is spreading within the value chain, re-shake of the market requires strategies re-consideration Financial performance of the steel value chain in Mining ROCE 1) 24% 33% 13% 26% 25% 10% 10% Steelmaking 18% 20% 5% 9% 8% 3% 2% Downstream Distribution 23% 24% -1% 8% 10% 4% 3% 1) EBIT/ Capital Employed Based on available companies reports Source: RCG analysis

15 ROCE [%] RCG Research & Consulting Group Performance of steel companies in different regions concentrates near world average figures. Only a number Indian producers outperforms Steel producing companies ROCE in 2012 and Revenue CAGR 2012/2008 [%] Ø Ø -39% Revenue [CAGR 2012/2008] FY s of TATA, Sail, Essar, Welspun, BPSL, Bhushan, JSW, JSPL end on 31-mar Source: RCG analysis, companies data 16

16 Ø EBITDA Margin 2012, [%] RCG Research & Consulting Group In 2012 distributors performance largely depends on the regional focus. The US companies are able to maintain high margins Distribution companies. EBITDA Margin in 2012 and Revenue CAGR 2012/2008 Ø Salzgitter Mannesmann Handel Revenue [CAGR 2012/2008], [%] Jacquet Metals acquired IMS service in 2010 Source: RCG analysis, Companies reports 47% 17

17 Source: RCG 18 RCG Research & Consulting Group Business models in global distribution differ in the regions Key patterns US model High margins Consolidation processes in the industry High market protection and entrance barriers for products from abroad High influence of non-mill-tied distribution EU model Low margins Importance and share of non/-mill tried distribution differ from country to country Companies from both groups can be often considered among largest in class BR/RU model Medium/High margins High Market entrance barriers Prevailing role of mill tied distribution

18 111 /t 102 /t 110 /t 258 /t 173 /t 283 /t /kwh 0.12 /kwh 6.2 /mmbtu 8.9 /mmbtu RCG Research & Consulting Group Key steelmaking raw materials and energy prices are in contrary dynamics Key steelmaking raw materials and energy costs dynamics in [index] Observations: Key steelmaking raw materials prices faced downtrends in the last years. Iron ore price decreased by ~7.5% since Despite rather negative long-term projections, due to growing overcapacity, the raw material price picked up slightly in Scrap cost ~9% higher than in 2010, but in price has been decreasing since Coking coal prices are falling remarkably, coming down from 160EUR/t export price from Australia in 2010 to ~100EUR/t currently. Index, 2010=100 Calculations are based on EUR-valued prices Iron ore world import price, CFR Scrap shredded, N. European, delivered Coal Australia HCC export, FOB Electricity - average industry EU27 price N. Gas average European EUR/ mmbtu price Source: RCG analysis, Platts, Worldbank, Eurostat, Eurofer Energy costs are just in the opposite trend with remarkable increase of electricity prices and input materials like natural gas. 19

19 Prices are decreasing dramatically in all core representative regions European, American, CIS and Chinese steel price dynamics in YtD [EUR/t] 2011->2014YTD domestic EXW Ruhr EXW Indiana FOB Shanghai EXW NW Europe EXW US Southeast export FOB China export FOB Tangshan (incl. 17% vat) YtD May, 2014; Source: RCG analysis, Platts 20

20 Illustrative example SBQ price is decreasing faster than weighted price basket of key raw materials Key steelmaking raw materials production process based price baskets Price baskets [index, 2010=100] Steel price vs weighted basket EAF-route price basket index [2010=100] Weighted average price basket index BOF-route price basket index SBQ price, Europe, delivered [EUR/t] SBQ price index [2010=100] Share of weighted raw materials in SBQ price [%] Price baskets were estimated based on assumed use ratios per t of finished or intermediary products (e.g. 10% yield loss on scrap in EAF route). BOF-route materials mix turned almost 10% cheaper in 2013 comparing to 2010, backed by lower iron ore and coking coal prices. EAF-route costs are still higher. SBQ/Engineering steel - HR round bars C45, mm dia Source: RCG analysis, Platts, Worldbank, Eurostat, Eurofer Finished product (SBQ) negative price dynamics of the is outperforming weighted average decrease of material costs. The effect might be even stronger considering high impact of EAF-based capacities. 21

21 Automotive companies are successfully implementing price increases for their products (illustrative example) Prices for basic models of vehicles in [EUR] Observations: Audi A4 1.8 Attraction: VW Golf Trendline: +5% +3% Car manufacturers continually increase prices for their base models. More additional options drive prices further up. For our brief analysis, we considered the base price for two models which represent different segments of the market: Audi A4 1.8 liter petrol engine and VW Golf with 1.2 L engine. The base Audi increased its price by> 5% in the last 4 years. The increase in VW was +3%, slightly less. Quelle: RCG analysis, ADAC, auto producers 22

22 Agenda 1. Short introduction of Research & Consulting Group 2. European steel market outlook 3. Global perspective managing profitable growth 4. Operating steel distribution RCG approach 23

23 Source: RCG 24 RCG Research & Consulting Group How are you shaping you future in the market? What shall be a future business model? How to manage volatility of volume and prices? Profitabilty How to segment clients and apply price differentiation? How to optimize working capital, logistics and operations? How to increase the share of high value segments?

24 The value driver tree links financial ratios to specific operational improvements in the steel industry ROCE EBITDA % Sales Costs Product Volume Price Personnel Material Maintenance Logistics Energy Steel Value Drivers (examples) Cross-sales potentials, additional services Economies of scale and scope Distribution channels, selling proposition Process improvement, employee development Charge optimization, substitutes Decrease of unplanned shut-downs Re-engineering of product flow Efficient processes Capital Employed Fixed assets + Net working capital Fixed assets Non-operating assets Inventories Payables/Receivables Corporate Asset Management Disposal Forecast/monitoring system, route optimization Payment conditions and control Source: RCG 25

25 Price structure and pricing mechanisms contain many action areas for the distribution company performance improvement Price structure and action areas (illustrative) Price increase Cost reduction Material cost - Margin Add value potential Cost cutting potential Yes, price management Yes, proper procure. strategy Product cost Handling/processing Logistics Yes, process optimization Yes, logistics optimization Other services Yes, value creation Order slots Customer class Other surcharges Yes, customer classification Yes, product/ service mix Total price Source: RCG analysis, Sample client

26 Source: RCG 27 RCG Research & Consulting Group Major insights for managing steel distribution four main views 1 2 Market view Customer view Market development, structure and procurement cycles Demand allocation patterns (geographic, industry clusters) Competitive landscape and business models Opportunities and threats for business development Consuming segments dynamics, demand forecast and early warnings Existing customers cross-sales potential and new clients identification Buying patterns and procurement strategies 3 Service view Opportunities for value-added services Steel processing requirements 4 Coptetion view Share warehousing with your competitors Share processing facilities Install steel distribution networks

27 Importance for business RCG Research & Consulting Group High Critical success facts for distribution companies and action areas Ranking Action required Costs Pricing No action HR Products Low M Services Neutral Keep positions Bad Avg Good Company performance (interview based) Source: RCG, Market interviews 28

28 Source: RCG 29 RCG Research & Consulting Group Key questions for your successful future strategy in distribution What is a company performance in the core markets and what actions are required to shape its future there? What business conditions are within particular products and geographic markets? What is the current competitive scenario? What is the basis of competition in the product-markets served? What business models will be applied from mill tied and independent distributors as well as product specialists? What are a company s strengths? How is it comparing vis-à-vis competition by country and region? Can it sustain with its current business model? What are capability gaps and how to manage them? What are the critical success factors (CSF) for business in Europe and world-wide? Which products/services should it invest in and in which markets/customer segments should it be present? Can it substitute volume business with project business and how will this impact its cross selling? How far is strategy aligned to its long-term cost structure/ stakeholder requirements? What should the road-map to success? What kind of budgets are required to meet the strategy?

29 Research & Consulting Group AG Gwattstrasse Pfäffikon Switzerland Tel: Fax: info@rcg-ag.com 30