Kloeckner & Co Ag

Hello everyone, this is Fabian Josef from Investor Relations. Also on behalf of my entire team, I wish you a very warm welcome to our full year 2025 conference call. With me today are our CEO Guido Kerkhoff, our CFO Oliver Falk and our CEO Americas John Gannem. They will guide you through the presentation and afterwards, we are happy to take your questions. In order to ask a question, you have to press the live Q&A button and we will open your line. With that, I'd like to hand over to you, Guido.

Yeah, thanks Fabian. And welcome to our full year 25 conference call. Before I dive into the highlights of the past financial year 25, let me start with a brief and important update regarding the voluntary public takeover offer by Worthington Steel. As announced by Worthington Steel yesterday, the company has decided to adjust the terms of its offer. Specifically Worthington Steel has lowered the minimum acceptance threshold to 57.5% and extended the offer period to March 26, 2026. We understand the step and consider it a logical and common procedure for further increasing transaction security. With the total number of shares currently secured by Wirthing Steel, including acceptance and some direct holdings, standing at 56.92% as of yesterday. The transaction is now very close to reaching this new threshold. Please always keep in mind that the management shares, which account for around 0.5% will be tendered, but due to the quiet period, they can only be tendered from now on. I want to emphasize that this technical adjustment does not change the compelling strategic rationale for the business combination or the attractiveness of the offered price of 11 euros in cash for Kleppner and Co's share. Therefore, our management board and supervisory board of Kleppner and Co's will perform a detailed review of the amended offer document and update their joint response statement in a timely manner. Both remain convinced that the offer by Worthington Steel is in the best interest company and its stakeholders. All shareholders who have not yet tendered their shares now have time until March 26th, 2026, 24 hours local time in Frankfurt online to do so. I will now begin with the financial highlights of the year. We have delivered a solid performance for the full year 25, despite tariff and trade related uncertainties. Also, the forex effects have negatively impacted our own results. Despite the aforementioned difficult environment, we were able to grow our shipments on group level slightly to 4.528,000 tonnes. The slightly negative development in the Quirkman Metals Europe segment was overcompensated by the continued strong performance Fletman Metals Americas driven by further market share gains. Sales came in at 6.4 billion, slight decrease year over year in both segments, as well as on group level, largely price related. This development was a result lower average price level over the year compared to the previous year, as well as negative Forex events. We achieved a considerable increase in gross profit despite the volatile steer price development in full year 2025. Gross profit in the previous year been heavily impacted by windfall losses caused by the substantial steep steer price correction over the course of 24. An effect that did not repeat itself in 25. The gross profit margin also improved considerably compared to the previous year. The PTA before material special effects came in at 171 million euros, a considerable increase year over year, and a result within our guidance range for the fourth consecutive year. And as we guided, we achieved a positive operating cash flow. Full year 25, operating cash flow came in at 110 million. Consequently, and also positively affected by the proceeds from the eight distribution sites in the U.S., we were able to considerably reduce our net financial debt year-over-year, reaching the lowest net financial debt level since Q2 2023. We will propose to the Annual General Meeting to pay a dividend payment of €20 per share. steady and consistent dividend play throughout the cycle. Let's now have a look on our performance at our performance in Q425 by segment. Our segment proclamant of America's shipments increased slightly year over year, Q425, continuing the positive trend seen throughout the previous quarters of the full year 25. Therefore, volume was the highest we've ever achieved in the fourth quarter, which underscores the success of our North American growth strategy. However, due to the lower average price level year-over-year sales in Q4 came in slightly below the previous year's quarter, further impacted by adverse Forex effects. Prices remained volatile after the temporary repeats in Q2-25. EBITDA before material special effects came in at 19 million in Q4. In our second Plutner Metals Europe, shipments increased slightly, while sales remains constant compared to the previous year's quarter. EBITDA before material special effects of second platinum metals Europe was approximately breakeven, which is a considerable improvement compared to the last year's quarter and a constant development consistent to last quarter. This demonstrates that our consistent optimization efforts are continuing to pay off. In the recent month, we made important steps in our company development in the region Stoch in North America. On January 15th, we announced the intended divestments of the Becker Group in Germany. Prior to this, we conducted a comprehensive analysis of all strategic options. This will enable Becker to participate in an industry consolidation in Europe under new ownership, allowing us to place a sharper focus on higher value-added products and services. Becker delivered an improved performance in January and February this year, reflecting the solid foundation we've built together and demonstrating that the business is well positioned to accelerate its growth even further under new ownership. In Switzerland, we completed the acquisition of Locher Bewerung to further strengthen our regional footprint. efficiency gains by leveraging the asset base in the existing network. Acquisition was closed in December 25 and the integration process has already been completed. We continue to expand our production and processing footprint across North America. With targeted investments that strengthen our higher value edit and service center business, these investments ensure that we can meet growing customer demand with expanded production processing capabilities. As you know, we're constructing a new aluminum flat roll processing facility in Columbus, Mississippi, rapidly located at Aluminium Dynamics' new production site. During the fourth quarter, we reached a milestone by breaking ground on the construction site. Building completion is planned for late Q4 26, with equipment startup expected in Q2 27. By adding a dedicated cutting edge aluminum process NMM acquisition and accelerate our automotive growth in North America. In Payton, Iowa, we started a new heavy fabrication operation after agreeing to release the former Bowerbill manufacturing site. By bringing the entire Bowerbill team into Plattner, preserving their long-standing expertise and ensuring a seamless transition, the site significantly expands our heavy fabrication capability, including welding, assembly, complex finishing services, cultural and industrial customers who rely on advanced fabrication and large-scale production capacity. In Queretaro, Mexico, we're installing a new coil-fed Schuller laser blanking line to meet rising demand for aluminum blanking, especially from automotive customers. This line is being installed at our new facility and scheduled for commissioning in the second quarter of 26. Technology delivers superior consistency and cut quality compared to traditional blanking Custom inquiries from automotive OEMs in Mexico are already increasing as the startup approaches. Following these steps, we've generated around 44% of our sales with HVAC when considering our group excluding VA distribution sites in the US that we sold. This business is responsible for the majority of our FBA, which clearly proves that we're on the right track in our strategy. Going forward, we will capitalize even more on our strong presence in North America and the duck region and press ahead with our group strategy. With that, over to you, Oliver, for further financial insights.

Yes, thank you. As Guido stated, the market environment continued to remain challenging in 2025, with a volatile steel price development following the US tariff announcement in February. Despite these steel price volatilities, Coupled with the ongoing challenging macroeconomic environment, we achieved an EBITDA before material special effects of 21 million in 4.25 and 171 million in full year 25. A result within our guidance range. In addition, we delivered a significantly positive operating cash flow for the fourth year in a row. Solid results taking into account the macroeconomic environment we operated in. Although steel prices remain volatile, we are seeing an upward trend in the US and Europe right now. This trend was already visible in Q4 2025 as well as in the first two months of Q1 2026 based on higher expected demand. We are confident to translate the positive pricing trend into strong operating results in quarter one, phase six and beyond. In addition, we continue to leverage our digitalization and automation initiatives. The number of digital quotes increased by around 13% year over year in full year 25. Therefore, we continue to release salespeople for manual work related to quotes. Let's take a look at the development of our shipments, sales, gross profit and gross profit margin for the fourth quarter 25. Shipments increased slightly year over year, driven by a strong performance of both segments. Sales decreased slightly year over year due to the overall average price level and unfavorable FX effects despite the positive shipment development and came in at 1.5 billion in quarter 4.25. Gross profit came in at 272 million in quarter 4.25. after 261 million euros in quarter 424, a considerable increase year over year. Gross profit margin also increased by 17.6% to 18.6% year over year. We will now focus on the EBITDA development in the fourth quarter and in the full year 25. In quarter 425, EBITDA before material special effects came in In the fourth quarter, we recorded positive price and volume effects, adding up to a total of 19 million euros year over year. OPEX in quarter 4.25 were in total 26 million euros higher year over year. In addition, we experienced negative year over year FX events of 3 million euros in quarter 4.25. Material special effects mainly consisted of gains related to the divestment of our eight distribution sites in the US, partly of that by restructuring costs coming to a net total of 30 million euros for quarter 425. For the full year 25, EBTA before material special effects amounted to 171 million euros. Over the year, we benefited from a positive volume effect of €90 million and a positive price effect of €89 million. The results of full year 24 were burdened by windfall losses related to steel price corrections that did not occur in 25. OPEX increased by €65 million year over year. Further, we recorded negative FX from US translation. Lastly, material special effects came in negative at 20 million euros with the non quarter four impact, primarily driven by the deconsolidation of our resilient entity and restructuring costs. We're now coming to cash flow and net debt development. In the full year 25 reported EBITDA was 152 million. Further, we had a net working capital release of 63 million euros. Taking into consideration interest, tax payment and other items totaling 106 million euros, our cash flow from operating activities came in positive at 110 million euros in the full year 25. Including net capex of 5 million, free cash flow was positive at 105 million euros for the full year 25. This also includes the proceeds of 96 million euros from the divestment of eight US distribution sites. Let's have a look on our net financial debt. Negative effects were visible for leasing and dividends. Leasing totalled an amount of 71 million euros. and are mainly related to the execution of our strategic projects, such as our on-campus partnership with Nucor in Granville, Kentucky. Dividends, of course, 20 million related to the dividend we paid to our shareholders in full year 25. Positive effects of 57 million euros were visible for FX and other, including effects from divestments. Accordingly, our net financial debt decreased considerably year over year to 709 million euros after 780 million at the end of the previous year. This is the lowest level of net financial debt since quarter 2023. We will now focus on the group's financing. We continue to possess a diversified financing structure with credit facility of approximately 1.3 billion euros. Excluding leasing, we are very solidly positioned, including contractual terms and financial covenants. Overall, we maintain a total financial headroom of around 0.8 billion euros. Netdex came in at 709 million euros for the full year 2025, a considerable decrease year-over-year end, as mentioned beforehand, the lowest level since Q2 2023. Further, leverage came down considerably and will continue to do so as we execute our strategy. I now hand over to John to have a closer look at our end markets in North America.

Thank you, Oliver. After a fairly challenging demand environment in 2025, we now expect a decent recovery in 2026 with North American real steel demand increasing by 1% to 2% compared to the prior year. Of course, there remains significant uncertainty related to the current conflict in the Middle East and continued unpredictable trade policy that can impact the outlook. Also critical for North America will be a positive outcome to the USMCA review, which is now underway. This would provide more clarity for all participants within the metal supply chain and may help kickstart many investments that are currently on hold, giving a potential boost to steel demand starting at some point in the second half of 2026. Now, looking at the expected development in specific market segments, construction activity is expected to recover with total building starts expected to improve between 1.5% and 2% in 2026. This is after both residential and non-residential square footage contracted by approximately 3% in 2025. Lower mortgage rates could provide further upside on residential. Non-building and infrastructure investments should continue to grow in 2026, albeit more moderately than they did last year, which saw these segments surge by more than 15%. Data centers as well as power utilities should continue to lead the way for the next several years. Manufacturing activity, as indicated by the ISM manufacturing index has expanded during the first two months of 2026. This is a very positive development considering this index indicated contraction for almost all of 2025. In line with this indication, after two consecutive years of negative growth, we now expect overall new orders for industrial and off-highway equipment to increase between 2% and 3% in 2026, with some variation depending on the specific segment. I would also note that current forecasts from critical large OEM customers are indicating even stronger growth rates heading into the second quarter of 2026. Trade policy clarity and lower interest rates could help these key steel-consuming segments regain even more positive momentum as the year develops. Turning to transportation, the automotive segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. This resulted in auto production declining by approximately 1% in 2025. For 2026, current forecasts indicate flat to slightly lower production in North America, with Mexico recovering slightly and the U.S. potentially contracting modestly. On the defense shipbuilding front, activity remains positive, and Klockner's current defense programs are set to grow strongly with multiple large program 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 significant increase in defense shipbuilding investments over the next decade. Demand from appliance, HVAC, and electrical, which are all key segments for KMC Americas, were flat to down in 2025 as many companies worked to reduce inventories and rebalance supply chains, especially over the second half of the year. The situation for 2026 is now expected to be fairly stable, with production at key OEM customers normalizing at more consistent levels by the second quarter. Improving conditions in residential construction could provide some additional momentum in the second half of the year as well. Energy continued to be the strongest steel-consuming segment in 2025, and this trend should continue in the current year. Power transmission growth will remain extremely strong in 2026, increasing by over 15% year over year after achieving a similar result in 2025. Modernizing and expanding the North American transmission infrastructure is imperative in order to support the significant forecasted increase in demand for electricity across North America. This is especially critical for data center investments. While renewable growth rates have come under pressure due to recent changes in government policy, we are still expecting modest growth again in 2026 of between 1% and 2%. So with that, I'll quickly summarize the North American outlook as follows. While risks and uncertainty remain, we are firmly optimistic when it comes to both steel demand and market price fundamentals in 2026. Market cycles are setting up somewhat more favorably than the past two years, and as previously mentioned, a positive outcome on the USMCA review will provide some much-needed clarity and further upside potential for North American steel demand. With that, I turn it back over to Guido to provide an update on Europe.

Thank you, John. In total, we expect real steel demand in Europe to increase by 1 to 2% in 26 compared to the previous year. However, it's too early to assess the economic consequences of the escalating war in Iran. Disruptions to trade and surging energy prices could add to global uncertainty with adverse effects. Activity in the sector will be supported by elevated infrastructure spending, while structural drivers such as pent-up demand also remain in place. Let's continue with manufacturing machinery and mechanical engineering. Mechanical engineering is expected to grow slightly in 26, also supported by increased German infrastructure and defense spending. However, capacity limits, labor shortages, In the defense sector, we're seeing a surge in demand that considerably outpaces previous year's demand growth. We continue to benefit and capitalize from our active positioning in the sector by leveraging our capabilities and also our financial strength, providing a clear advantage over small competitors. Transportation, let's first focus on automotive. The industry association expects a slight increase in 26, though absolute volumes will remain far below 2019 levels. Demand is expected to remain on rather low levels for as long as there is no significant improvement in the broader economic output, including global trade and consumer sentiment. Now shipbuilding. While the commercial segment in shipbuilding could face increased pressure due to economic uncertainty, we're positioned in the grey ship sector to benefit from upcoming demand. Household and commercial appliances, a segment with marginal impact on our European business, is expected to develop reduce uncertainty marginally. However, customer demand remains rather subdued and will restrain activity in the sector. The energy industry is expected to grow slightly supported by ongoing electrification, transport and heating, which will provide structural support to electricity demand over the medium to long term. Let's now come to the financial outlook for the first quarter of this year and the full year 26. As John and I pointed out, we expect the macroeconomic environment to remain challenging, especially in Europe. For the current quarter, we expect a considerable increase of shipments and sales each quarter over quarter. EBITDA, before material special effects in Q1, is expected to come in between $20 and $60 million. In full year 26, we forecast shipments and sales to develop on a constant level year over year. As you know, we closed the divestment of eight US distribution sites at the end of last year. We're therefore forecasting a constant development for the full year 26 without these locations. Consequently, these sales are also expected to come in at a constant level. In total, we expect a strong MTA before material special effects. the full year 26 and considerable increase year over year. Moreover, we also expect operating cash flow to come in significantly positive above full year 25 figures. We're now happy to answer your questions.

Once again, if you would like to ask a question, you have to press the live Q&A button and we will then open your line. Once again, if you would like to ask a question, please press the live Q&A button. The first question comes from Boris Boudet, Kepler-Schebrue.

Boris, are you open now? Yes. Hi. Can you hear me? Yes, we can hear you. Perfect. Thank you for the presentation and thank you for taking my question. So the question would be maybe the first one on Iran. I noticed that you considered it a bit early to assess, but I would be interested in getting your thoughts on the potential impacts on your clients and on your site, if any. That would be the first question. And then regarding the outlook, So you're building an outlook with volumes and sales pretty flat. So I was wondering how much of that is linked to the deconsolidation of your distribution sites and what would be the underlying assumption. And regarding prices, obviously US prices have been moving up quite substantially as well as the European prices. So, what could we expect as a positive? We've seen that prices have been a positive contributor, a tailwind of 89 million euros in 25 versus 24. So, what would be the bridge on current prices for 2026? And maybe the last one on Europe, do you see that... you've elaborated on your expectations, but do you see early signs of rebound in demand with the CBAN and the coming UTRQ? Thank you.

Yeah, well, let me start with Iran. As you know, we're largely supplying and I will start with the direct effects for us locally. So therefore, our direct impact that our supply chains will be affected we don't foresee anything there. So we can continue. And I think within the steel supply chain overall for our suppliers, we don't foresee anything. Whether there will be any impact on our clients remains to be seen. And I think it's rather a question of how long the conflict will remain and the Strait of Hummus will be closed. If not, and the oil prices will recover and customers that would be the ideal case. If it takes longer and uncertainties prevail, that could impact us. But so far we don't see it indirectly, there will be no real impact. Now, Outlook, the flat, the eight sides, I mean, it was distribution business, therefore that was, V8 sites that was quite some revenue and some shipments that were affected. That's why in total, indeed, our guidance clearly is an increase that will be above the 1.22% you see that we see in the markets. And our current performance we've seen in January and February proves that. so that doesn't look too bad. The prices in the EU and in the US lately as well are supportive of all that development and the increase in the demand that we see. Now how the second half will turn out, John has talked about USMCA, we have the Iran conflict, you know it's all a bit too early to really say how the second half will look like. That remains to be seen but otherwise underlying, I think we might So what we see is order intake and development of the business is organically better than last year.

And the project which we are ramping up right now in the US, like Brandenburg, New Mexico,

They will be supporting. And CBAM, as you rightly mentioned, these things will help that, especially here in Europe, we have continued support from that side, that this might continue and we might have seen the trough now and see an increasing recovery. Not coming back to 2019 levels, but still recovery.

I would only add on the pricing front, with the divestment of the distribution sites, Our portfolio is much more contractual in nature than it was previously. And I think that somewhat, it doesn't eliminate exposure to market price volatility, but it certainly mitigates it to a fair degree. So I think the current pricing environment is quite positive for our contract business into the second quarter and likely into the third quarter.

Okay. And may I ask another one? I don't know whether there are other people in the queue or not. Just looking at the consensus, because you provide guidance for the qualitative guidance in terms of you expect to consider the build growth, which in your vocabulary means more than 5%, so that lets a lot of options open. Consensus is currently at 233. Are you comfortable with that level?

If we did not, we would have to stay there.

Okay.

Fair enough. Thank you. 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 seems to be no further questions at this time, so I hand back to Guido for some final remarks.

Yeah, thank you very much. And if there are additional questions that will come up, just don't hesitate to contact Fabian and his team. We're available for that. And thank you very much and talk to you next time.