Kloeckner & Co Ag

Joseph from Investor Relations. On behalf of my entire team, I would like to welcome you to our Q3 2025 conference call. Joining me today are our CEO, Ido Kerkhoff, our CFO, Oliver Falk, and our CEO, America, John Gannon. They will guide you through the presentation, and afterwards, we're happy to answer your questions. To ask a question, please press the live Q&A button, and we will then open your live.

With that, I'd like to hand over to you, Ido. Yes, thank you, and welcome to our Q3 25 conference call. We're looking back at a quarter characterized by persistently challenging market involvement and decreasing steer prices in the U.S. Despite these developments, we delivered another solid performance. This confirms our strategic path and our successful development. I will now begin with the financial highlights of the quarter. Shipments came in at 1.144,000 tons, showing a slight year-over-year improvement. This development was mainly driven by the continued positive performance of our segment Plutner Metals in Americas, but still supported by shipments in our segment Plutner Metals Europe, which increased slightly, which is pretty different to what the market outcome overall is in Europe, but we could increase slightly after a couple of quarters where we were shrinking. Sales came in at 1.6 billion, which is a slight decrease year over year, despite the positive level compared to the same quarter last year. We achieved a considerable year-over-year increase in gross profit, whereas gross profit of last year's quarter was particularly affected by windfall losses due to the significant steel price correction in Q3-24. Gross profit margin also improved considerably compared to the previous year's quarter. EBITDA, therefore, before material special effects, came in at $43 million, a considerable increase year-over-year and results in line with our guidance. Despite the ongoing challenging market environment in Europe, our segment Platinum Metals Europe generated a positive EBITDA contribution for the first time since 2023. We'll take a closer look at the segment's performance afterwards. Due to temporary networking capital increase, especially at our segment Platinum Metals Americas, Operating cash flow came in negative at $118 million in the third quarter. I would like to highlight that this negative OCF is driven neither by weak operating business nor by higher inventories. This development is rather driven by trade payables and trade receivables to some degree, which we expect to reverse in Q4. It was largely driven by orders on material end of Q2 where the payables and the cash outflow came in in Q3. So Q2, was comparatively a bit overstated in Q3, is weaker. So you should look at the quarters rather together than just look on Q3. And you'll see in our guidance for Q4, it will reverse and we'll be on a track like in our guidance so far. Consequently, our net debt, financial net debt increased compared to a level in Q3, but will come down then in Q4 again. Let's have a look at our performance in Q3, 25 by segment. Now, segment of Collections Metals America's shipments increased slightly year over year in Q3. After reaching a record level in Q2, shipments decreased slightly quarter over quarter, which is largely attributable to seasonality. Nevertheless, the volume was the highest we've ever achieved in the third quarter and would be even stronger if we excluded shipments from our divested Brazilian entity in Q3 24. We're moving on a constant high level, demonstrating that our North American growth strategy really works. However, due to the lower average price level year over year, sales Q3 came in slightly below previous year's quarter. Prices have decreased significantly compared to the temporary repeats in Q2 and remain volatile. EBITDA before the material special effects came in at $44 million in Q3, which is a considerable increase compared to last year's pool. In our segment, Klugner Metals Europe, shipments came in slightly increased, sales slightly down compared to previous year's quarter. For the first time since 23, our Klugner Metals Europe segment achieved a positive EBITDA contribution despite the persistently weak demand and increased economic uncertainty. This clearly demonstrates that our consistent strategy implementation and optimization efforts are really paying off, strongly in the US, but even to see in Europe. We're on a better track and can our self-help measures help us to get out of it? Now, let's have a look at our strategy implementation during third quarter. We further intensified our focus on higher value added and service center business as becoming the leading metal processor and the leading service center company in North America and Europe by 2030 is our strategic goal. First, let's have a look at our second Plutner Metals Americas. In the United States, we announced divestments of eight distribution sites of Plutner Metals, seven of which we intend to sell to Russell Metals and one to Service Steel Warehouse. For the seven sites, Intended to be sold to Russell, we agreed on a purchase price of approximately 119 million US dollars based on a networking capital as of June 30th, 25, which would result in a book profit of over 20 million. The final purchase price remains subject to closing, networking capital and other normal cost adjustment. Mutually agreed not to disclose details, the sale of service to your warehouse. The fact that we are able to sell business at a premium that are on group level, on the lower end of profitability, demonstrates the underlying value of our assets. In the fiscal years 23 and 24, the seven sites contributed an average annual FABA before material special effects of around 9 million per year to our consolidated financial statements. As this number roughly matches the future EBITDA contribution planned internally for these sites, we believe this should represent a performance indicator for them as well. Investment not only allows us to reduce our group debt level, but also creates the opportunity to reallocate capital towards our higher value-added and service-centered businesses. We expect to close the deals in December of this year. In our segment, Climate Metals Europe, we further expanded our defense and infrastructure footprint. We received an official certification for processing armor materials for the German Federal Armed Forces at our site in Kassel, Germany. By doing so, we complete our existing approval for Ambrose Steel, successfully integrating the company after its acquisition earlier this year. With that, we're preparing for upcoming large-scale defense orders in Europe by leveraging our capabilities and also our financial strength, providing a clear advantage over smaller competitors. Now let's have a closer look at our improved earnings profile following the closure of eight U.S. distribution sites. Following recent successes, the U.S. divestments marked the next step in our transformation to the leading service center company and metals processor in North America and Europe. positioning us for higher profitability and sustainable growth. Over the past years, we have strengthened our higher value added and service center business to lower our exposure to steer price developments and thereby reduce the volatility of our results while increasing our underlying profitability. We improved our earnings profile by increasing the share for our higher value added and service center business. The acquisition of specialized North American companies, such as NMM, IMS, Soul Components and AmeriNuts enhances our capabilities and precision metal processing, component supply and service center operations, making them strategically valuable additions. NMM complimented our already existing footprint within the automotive industry in North America and also gave us access to electrical steel. With IMS, we significantly expanded our metal fabrication business in the U.S. Sol Components is a U.S. market leader in integrated structural solutions for solar installations. The acquisition positions Glockner Metals to play a bigger role in North America's transition towards renewable energy. Further, we extended our service portfolio with a marionettes and polishing and high gloss finishing in order to support the development of more competitive global supply chains. Also, we divested part of our European distribution business, which by the time of the divestment accounted for 10% of group sales, but 20% of RFTs. Our latest achievement on our way was the aforementioned divestment of the eight sites in the US, with which we focused on selling distribution sites with a low EBITDA contribution throughout the cycle. Our portfolio optimization is complemented by organic initiatives. To targeted investments, we have developed selected sites from sole focus on distribution to high-quality processing and metalworking. Our strategic shift towards higher value-added and service center business is clearly reflected in the numbers. In 2019, 63% of our sales came from these businesses, and as of the first nine months of 2025, the share has increased to $81. If we exclude the sites in the U.S. that we agreed to sell, the sales share of higher value added and service center business would be at 87%, an increase of 24 percentage points compared to the starting base in 2019. These businesses offer higher profitability while significantly reducing our exposure to steep price developments together with the volatility of our results. With that, over to you, Oliver, for further financial insights.

Yes, thank you. As Guido said at the beginning, steel prices in the U.S. were subject to a considerable decrease during the quarter, as illustrated in the upper part of the slide. At the beginning of the year, hot oil coal prices in the U.S. increased significantly following the introduction of new tariffs. After reaching a temporary peak in the second quarter, they started decreasing due to weak underlying demand. In Europe, new tariffs are currently awaiting approval by the European Commission. The measures would pass the tariff-free import quotas and double tariff rates for quantity exceeding these quotas. Prices could therefore continue to increase. As part of our Local for Local business model, we do not import significant volumes from third countries. Therefore, We do not expect direct effects from those tariffs. Coming to our EBITDA before material special effects, we achieved a considerable increase year over year. In total, we generated 43 million euros in the third quarter. In the first nine months of 2025, EBITDA before material special effects came in at 150 million euros, which also represents a considerable increase year over year. As Guido mentioned beforehand, our strategy continues to focus on higher value added and service center business with increased profitability and reduced dependence on the volatile steel prices as demonstrated by our latest divestment. Our networking capital came in elevated quarter over quarter. According to IFRS 5, Positions linked to the planned sale of eight distribution sites in the U.S. amounting to 68 million euros are already excluded. The temporary high net working capital, especially in the segment Cocteau Metals Americas, is the main driver for our negative OCF of 118 million euros in the third quarter of 2025. Nevertheless, we expect a significantly positive operating cash flow for the full year 25, driven by a strong cash flow in quarter four of this year. As part of our operational excellence pillar within the Klöckner & Co. leveraging strengths step-up 2030 strategy, we continue to leverage our extensive expertise in automation and digitalization. With our efforts, we have been able to increase the number of our digital quotes by 8.9% year-over-year in the first nine months of 2025. Let's take a look at our shipment sales, gross profit and gross profit margin for the third quarter of 2025. Shipments came in slightly above previous year's quarter, mainly driven by our segment Procna Methods Americas. Sales decreased slightly year-over-year, due to the overall lower average price level and came in at 1.6 billion euros in Q3. Gross profit came in at 295 million in Q3, up to 262 million in Q3 2024, a considerable increase year over year. Also, gross profit margin increased considerably year over year from 15.9 to 18.3%. We will now turn to the EBITDA development in quarter three. The volume effect was positive, contributing 5 million euros in the third quarter as shipments increased slightly year over year. We also benefited from a positive price effect of 36 million euros compared to the same quarter last year. which contributed significantly to the result, as negative windfall effects of last year's quarter have not recurred. OPEX increased by 16 million year-over-year, mainly driven by higher personal and transportation costs. We experienced negative APEX effects of 3 million euros year-over-year, mainly driven by the weaker US dollar, which impacted the translation of earnings from our US operations. Consequently, EBITDA before material special effects came in at 43 million euros. Material special effects of minus 7 million euros mainly relate to restructuring initiatives. Therefore, EBITDA after material special effects came in at 36 million euros. We are now coming to cash flow and net development. In the third quarter of 25, we had a networking capital increase of 144 million euros year over year, mainly due to the trade payables and trade receivables in our America segment. I would like to highlight again that this networking capital build up is temporary and will reverse in quarter four. Taking into consideration interest, tax payments and other items, totaling to 10 million euros Our cash flow from operating activities came in negative at €118 million in quarter three. Including net capex of €23 million, free cash flow was negative at €141 million. Let's have a look at our net financial debt. Positive effects were visible for leasing and FX translation. Taking our negative free cash flow into account, our net debt consequently increased from 870 million at the end of the second quarter to 1 billion and 3 million in quarter three. Nevertheless, we continue to process a diversified financial portfolio with a total volume of 1.3 billion euros, excluding leases, with more than 0.4 billion euros unused lines available. In July 25, we renewed the European ABS program ahead of schedule, extending it until 2028 with improved terms and an adjusted volume reflecting the sale of parts of the European distribution business. This improved our maturity profile further. Additionally, we expect a significantly positive operating cash flow for the full year 2025, which will be further supported by the proceeds from the sale of the eight U.S. distribution sites, leading to a reduction in net debt. I now hand over to John to have a closer look at our markets in North America.

Thank you, Oliver. Let me start with a general overview of the market situation in North America. The U.S. economy is forecasted to have expanded again in the third quarter of 2025, but the forward outlook remains somewhat uncertain and difficult to assess. Stubborn inflation, weak consumer confidence, and a slowing labor market all pose risks for short-term economic growth prospects. Despite a still expanding economy, the metals intensive manufacturing sector continues to face significant pressure with the ISM index indicating contraction now for eight consecutive months. As such, demand for metals in both the U.S. and Mexico has been constrained over the first nine months of 2025. And this is likely to persist through the end of the year. This is evidenced by the latest industry benchmark. Third quarter service centers industry shipments declined by 2.9% year over year and 4.3% quarter over quarter. These negative trends are likely driven by aggressive de-stocking across most middle supply chains as OEMs and other major steel buyers work to rebalance supply lines with expected future demand. As a result, we now expect North American uh real metals demand excluding the temporary impact from destocking to be generally flat year-over-year now looking at the expected development in specific market segments construction activity is moderating and both residential and non-residential buildings square footage are forecasted to be generally stable to sling down in 2025. however non-building investment in infrastructure of course grows strongly and will continue to provide an offset to the flat year-over-year trends in the building sectors. All segments expected to return to a positive growth trajectory heading into 2026 and lower mortgage rates. Manufacturing activity continues to be under pressure, as previously mentioned. We expect the changing situation to persist in the short term. New orders for industrial and off-highway equipment are expected to be down up to 5% in 2025, depending on the specific segment. However, current forecasts from key large OEMs are actually improving modestly in the second half of 2025, as supply chains now appear well balanced after a significant destocking cycle that began in the second half of 2024. Trade policy clarity and lower interest rates should help these key steel-consuming segments regain even more positive momentum in 2026. Turning to transportation, this segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. As a result, North American production has been declining. It is now expected to be down by approximately 1% year-over-year in both the U.S. and Mexico. Auto sales have been fairly resilient, so we expect positive growth in production to return once automakers can adjust tariff impact to supply chains and implement new production strategies in response to changing consumer demand and trade policy dynamics. On the defense shipbuilding front, activity remains very positive, with Klockner's current defense program set to grow strongly with large contract commitments recently awarded. We also continue working closely with key mill partners to position ourselves strategically to support and benefit from what is expected to be a massive increase in defense shipbuilding investments over the next decade. Demand from appliance, HVAC, and electrical, which are key segments for KMC Americas, has come under some pressuring in Q3 2025 due to destocking after holding somewhat steady through the first half of the year. For the full year, these segments are now expected to be stable to down slightly. We'll note, however, that 2024 was a very strong year for these industry segments, meaning that despite the flat growth expectations for 2025, overall demand will remain at strong levels in absolute terms. Energy continues to be the most active steel-consuming segment with positive growth expectations for extraction activity and a solid pipeline of both renewable power and power transmission projects. While renewable growth may come under pressure in future years due to recent changes in government policy, it continues to be a significant growth driver in 2025. Additionally, power transmission related growth is expected to remain extremely strong and should be up approximately 20% year over year. Modernizing and expanding the North American transmission infrastructure is critical to support the expected demand increase for electricity across North America, especially in support of data centers. I will end with a few final comments. Despite short-term market demand headwinds, the clock in America's business generated record three-quarter shipments, as Guido previously mentioned, as we continue to grow and gain share in a market where service center shipments have been consistently declining. Excluding discontinued operations, our third-quarter year-over-year growth was greater than 6%. These strong growth trends are driven mainly by large energy projects and new automotive and industrial contractual programs, which required a pre-build of inventory in late second quarter. This caused a temporary increase in third quarter account payables and receivables that both Oliver and Guido mentioned earlier, and this negatively impacted operating cash flow temporarily. The new projects and programs are now ramping up to full production and inventories have already been reduced by greater than 10% and more significant reductions planned. This positive development will generate the strongly positive operating cash flow in both 4Q and the full year, as previously mentioned. So in conclusion, despite recent market challenges, we remain very optimistic about the long-term demand fundamentals in both the U.S. and Mexico. Our positive and resilient year-to-date results are clear proof that our high-value-add investment strategy is working and has allowed KNC Americas to deliver a solid overall performance despite weaker than expected demand and continued price volatility. We are confident our positive results will continue and even accelerate as we head into 2026 as already approved investments come online and begin contributing in a more meaningful way. I will now turn it back over to Guido for some final comments.

Thanks, Tom. Overall, here in Europe, short-term, we don't see a significant change in expected real steel demand in Europe. Therefore, we reiterate the stable to slightly negative development of around minus 1% in 2025, which is unchanged from our last conference point. However, if we take a look at a slight look into 26 and the sentiment. And out of there, based on the slight improvements we've seen on our self-help measures and growing, it seems that the underlying sentiment here in Europe and especially in Germany is slightly improving and doesn't continue to be as negative as we've seen. So it might be that we've seen the bottom right now and can start to develop from the market and especially from our own position. as it seems we're slightly growing again here on volumes. Together with that, as we mentioned before, the European Commission proposed doubling import tariffs on steel and reducing the duty-free import quota. Approval from the European Parliament and EU member states is still pending, but let's continue, therefore, with an outlook on our coal industries, but the price hikes that are coming out of that and the stabilisation of the tariffs should help on the market to develop a bit better going forward as well. They're now coming to the sectors, starting with construction industry. We continue to expect a broadly stable development into 2025, consistent with the outlook provided in our last call. Effects of past monetary easing are beginning to feed through, while weaker economic conditions continue to weigh in construction activity. However, structural growth drivers remain supportive of German infrastructure spending, providing Manufacturing, machinery, and mechanical engineering continue to expect a slightly negative sector outlook for 2025, which is consistent with the Q2 call, reflecting mild contraction as uncertainty and softer external demand weigh on activity. Tariffs and ongoing competitive pressures from ALA are dampening production and investment, particularly in Germany's export-oriented machinery industry. Monetary easing provides some short-term support but elevated uncertainty limits firms' willingness to invest. Germany's fiscal stimulus package and rearmament initiatives will support medium-term growth in defense-linked sectors. We continue to position ourselves to benefit. Transportation, its first focus on automotive sector, will also see no major change since our last call. We continue to expect slightly negative development in 2025. Its uncertainty remains elevated and consumer confidence a little higher. The export ban on the next period ships from China poses a threat to supply change with the potential for short-term production costs and rising input costs in the automotive sector. Downside risks to our outlook. Now coming to shipbuilding. While the outlook for the commercial shipbuilding segment improved slightly compared to last quarter, substantial upturn is not expected until late next year. For the great ship sector, we are well positioned to benefit from upcoming defense-related demand, but no notable uptick is expected before late next year. and spending will begin to increase. Household and commercial appliances, a segment with marginal impact on our European businesses. No major changes since last call and continue to expect a slightly negative development. The energy industry, this sector is expected to have constant development in 2025, with no major changes since our last update call. However, long-term demand remains supported by the electrification of transport and heating. Let's now turn to the financial outlook for the full year 25. We still expect EBITDA before material special effects to come in between 170 and 240 million, a considerable increase year over year. The guidance is unchanged compared to our Q2 call. However, given the performance that we have now on the lower end of the guidance, we would expect for the full year in line with the quarter to be there. Further, we continue to expect operating cash flow to be significantly positive, driven by a strong operating cash flow in Q4. We're now happy to answer your questions.

If you'd like to ask questions, please press the live Q&A button and we will then open your line. Let's wait some minutes. Do not see a question right now. Once again, if you would like to ask a question, please press the live Q&A button and we will then open your line. There's still no questions, so the final reminder, if you would like to ask a question, please press the live Q&A button. There's still no questions, so I will then give the video for final remarks.

Yeah, thank you all for listening. It obviously looks like we've answered everything in advance, but in case it is not, don't hesitate to call us or Fabian and the whole IR team. So thank you very much and talk to you soon.