Kloeckner & Co Ag

Hello everyone, this is Fabian Joseph from Investor Relations. Also on behalf of my entire team, I wish you a warm welcome to our Q2 2016 conference call. With me today are our CEO Guido Kerkhoff and our CFO Oliver Falk. They will guide you through the presentation and afterwards we're 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.

Yes, thank you and welcome to our Q2 26 conference call. Let's begin with the financial highlights of the quarter. I'd like to remind you that at the end of the full year 25, we successfully sold eight US distribution sites in order to focus even more on higher value-added products and services. As in our previous analysts and investor presentations, we also included the deltas for a divestment-adjusted baseline to enable a true year-over-year comparison. At the group level, shipments in the second quarter decreased slightly year over year. Negative development is mainly driven by the aforementioned sale of eight US distribution sites at the end of fiscal 25. However, this was partly offset by positive momentum in our segment, Clarkland Metals Europe. Excluding the divestment, shipments increased by 4.3% year over year. This is proof that our growth strategy remains intact and that the implemented strategic initiatives are gaining traction. Sales increased slightly by 3% on a year-over-year basis due to a higher average price level. On an adjusted basis, excluding the divestment, sales increased by 12.1%. Gross profit decreased considerably year-over-year, largely attributable to the write-down at Becker, which affects the comparability of the year-over-year development rather than reflecting a deterioration in the underlying business. We achieved an EBITDA before material special effects of 60%. and others, all of whom have contributed to the second consecutive quarter, marking another important milestone in the segment's turnaround. I will provide a bit more detail on the key drivers behind this performance on the next slide. Positive operating cash flow of 10 million was achieved, though it was considerably lower than the previous year's quarter. As a result, net financial debt increased to 1.108%. Million Billion at the end of the second quarter of 26. Let's have a look at our performance in Q2 26 by segment. Starting with Kleptometals Americas, reported shipments declined considerably year-over-year by around 8%, primarily reflecting the divestment of the eight US distribution sites as discussed earlier. The result reported sales were also slightly below previous year's level. However, on a like-for-like basis, the underlying business continued to develop positively. Excluding the divestments, shipments increased slightly by 4.7% compared with the second quarter of last year. Sales grew strongly by 13.5% year-over-year, supported by a favorable pricing environment. EBITDA before material special effects reached 42 million euros in the second quarter of 26, demonstrating the resilience of the segment despite the still challenging market environment. Turning now to Kleptometals Europe, the segment continued its positive momentum. Shipments increased slightly by 3.6% year-over-year, while sales rose 10.4%, mainly reflecting the high average price level. At the same time, the consistent execution of strategic initiatives continued to support profitability. As a result, EBITDA before materials special effects increased to €20 million, marking the highest quarterly level since the first quarter of 2023. This also represents the second consecutive quarter of positive earnings contributions from the segment. With that, I'd like to hand over to Oliver to have a closer look at the financials.

The favorable pricing environment we saw in the first quarter continued into the second quarter of 26, particularly in the US, providing ongoing support for our business. Against this background we achieved an EVTA before material special effects of 63 million euros representing a considerable increase compared with the previous quarter and only a slight decline year over year despite lower shipments. This performance demonstrates our ability to translate supportive market conditions into strong operating results. Operating cash flow was positive at 10 million euro during the quarter. Further, the number of digital quotes increased by around 9.5% year over year. We continue to reduce manual processes, enabling our sales team to focus more on value added activities. Let's take a look at the development of our shipment sales, gross profit and gross profit margin for the second quarter of 26. To provide a meaningful comparison, We are also showing the figures excluding the 8 US distribution sites that were divested at the end of 2025, allowing for a like-for-like view of the business. Reported shipments decreased slightly year-over-year, mainly due to the divestment of eight US distribution sites at the end of 2025, primarily reflecting the impact of the divestment, partly offset by a stronger demand in Europe. In contrast, sales increased slightly year-over-year, mainly due to the overall higher average price level compared with the prior year quarter. As Guido already highlighted, the underlying performance of the business remains strong. On a like-for-like basis, excluding the divestment, shipments increased by 4.3%, while sales grew by considerable 12.1% year-over-year. This demonstrates that our strategic initiatives continue to support our growth. Gross profit amounted to 243 million euros compared with 320 million euros in the second quarter of 2025. The year-over-year decline was primarily attributable to the write-down at Beckham, which weighted on the reported gross profit. As a result, the gross profit margin declined to 14.4%. We will now focus on the EBITDA development in the second quarter of 26. We have adjusted the EBITDA for the quarter 2025 for the divestment of eight US distribution sites to enable a like-for-like comparison. Therefore, starting with an EBITDA before material special effects for quarter 2025 of 56 million euros. All year-over-year effects visible here have also been adjusted to enable the like-for-like comparison. In coup 2.26, EBITDA before material special effects came in at 63 million euros, a considerable increase year over year. We faced a positive volume effect which totalled 13 million euros and a positive price effect of 21 million euros supporting our operating result. Furthermore, In total OPEX increased by 27 million euros year over year mainly due to the high personal expenses and higher expenses for shipments and operating supplies. Further, we had no significant FX effects. Therefore, our EBITDA before material special effects reached 63 million euros in quarter 2.26. Lastly, adjusted by material special effects mainly resulting from the planned divestment of Becker, the EBITDA was reported at the negative 108 million euros. We are now coming to cash flow and net debt development. In the second quarter of 26 we benefited from the change in networking capital which amounted to 156 million euros. After interest and tax payments as well as other cash outflows totaling 38 million euros, cash flow from operating activities remained positive at 10 million euros for the quarter. With net capex of 3 million euros we generated a positive free cash flow of 7 million euros. Let's look at our net financial debt. The positive free cash flow was more than offset by several items during the quarter. Negative effects were visible for leases, FX and the dividend payment to our shareholders, totaling 33 million euros. Partly offsetting these effects were the 9 million IFRS reclassification related to the planned divestment of backup and 2 million from other items. Consequently, our net debt increased from 1 billion 092 to 1 billion 108 million in the second quarter of 26. Let's now focus on the outlook for the full year 26.

Thank you, Oliver. Let me now provide you with an update on the market environment and the outlook for our key North American and European markets, starting with North America. After a generally weak start to the year, we've seen improving demand growth trends developing over the second quarter of 2016 in both the US and Mexico. Given the current positive momentum, we continue to forecast a decent recovery in 2016, with North America's real steel demand increasing Thank you very much. Looking first, construction activity. Building starts for both residential and non-residential investments are expected to be modestly higher, 0.6% versus 25%. While underlying long-term demand should remain strong, affordability and persistently higher mortgage will remain growth constraints for the foreseeable future. Non-building and infrastructure spendings are likely to expand by 11% in 26 after increasing by almost 22% in 25. Manufacturing activity, as indicated by the Institute for Supply Management Manufacturing, This is a very positive development considering this index indicated contraction for almost all of 25. In line with its indication, we expect overall new orders for industrial and off-highway equipment to increase modestly by 1-2% in 2026, with some variation depending on the specific segment. Some larger OEM customer forecasts in these sectors continue to indicate even substantially stronger growth rates heading into the second half of 2026. Turning to transportation, the automotive segment has been the most impacted by changing trade policy as well as the removal of the EV tax credits. For 26, current forecasts indicate stable to slightly negative order production growth in both the US and Mexico. Subtuned consumer confidence, higher for longer periods, and the recent spike in gas prices will likely limit growth prospects for the near term for auto. On a more positive note, and after a significant pullback in 2025, we now expect a very positive recovery of above 12% in the heavy truck and trailer segment. On the defense shipbuilding front, activity remains robust. Klöckner has recently been awarded a number of large multi-year programs and remains extremely well positioned to take advantage of what is expected to be a massive increase in defense shipbuilding investments over the next decade. Appliance, HVAC and electrical, which are key segments for KMC America, remain challenging with modestly negative growth expected in 2026. After a significantly slow start in early 2020, a clear signal of production increases and a return to more positive growth trends over the second half of 2026. Energy will continue to be the slow-escape consuming segment in 2026, a major driver of overall steel demand growth. Power transmission will remain extremely strong, generating growth of above 16% year-over-year after achieving a similar result last year. Modernizing and expanding North America's transmission infrastructure is imperative in order to support the significant forecasted increase in demand for electricity across North America. This is especially critical for the previous comment related to data center investment. While renewable energy growth was expected to come under pressure after last year's change in government policy, we are now expecting strong growth of almost 15% in 2026 as both wind and solar continue to be the most immediate solution to help bridge the growing deficit between the surging demand for electricity and constrained supply. With that, I will quickly summarize the North American outlook as follows. The current variance in growth expectations between industry segments is nothing short of unprecedented, and despite potential downside risks that still need to be navigated, we remain optimistic about the overall North American output for 26. Additionally, the significant reduction in imports resulting from the Section 232 tariffs has clearly created a better balance between U.S. supply and demand, which is likely to result in higher for longer and potentially more stable With these positive market dynamics and with our continued focus on higher value-added products and services, we are very confident that Pletna Metals America's continuing operations will once again deliver strong year-over-year growth, record marketable gains, and further improve financial results in 2026. We continue to expect real steel demand in Europe to increase by between 2% and more, unchanged from the output presented during our conference call in March. Nevertheless, the anticipated recovery remains moderate and uneven. European steel consumption continues to be well below pre-pandemic levels, while underlying industrial activity remains subdued, particularly in Germany. In addition, geopolitical uncertainty remains elevated. Coming now to our sectors, starting with the construction industry. No major change compared to our previous conference call. We continue to expect the construction industry to grow slightly in 26, driven by infrastructure investments and pent-up demand. Let's continue with manufacturing, machinery and mechanical engineering, a sector in which we now expect a constant development. Higher defence spending and selected infrastructure investments provide some support. At the same time, trade policy uncertainty, elevated energy costs, weak global demand and challenging financing conditions continue to weigh on investment and production activity. Transportation, starting with the automotive sector. Automotive is now expected to have a constant development in 26. This represents a downward revision from the forecast made last year. Demand is expected to remain on rather low levels for as long as there is no significant improvement in the broader economic outlook, including global trade and consumer sentiment. Shipbuilding. While the commercial segment in shipbuilding could face increased pressure due to economic uncertainty, we are well positioned in the grey ship sector to benefit from upcoming demand. Household and commercial appliances. No major change compared to our previous conference call in March. Segment with marginal impact on our European business, but we still expect production to increase slightly in 2026. Nevertheless, strong competition poses a structural challenge, while high energy prices and uncertainties are weighing on the energy industry. No matter how we look at our previous conference call, the Iranian conflict still weighs on the forecast. However, slight growth is still expected in the energy industry, driven by the continued electrification of transport and heating, as well as further growth in the data center sector. Let's now come to the financial outlook for the full year 26. Based on our performance in the first half of the year and our current market expectations, we forecast a slight decline in shipments and a slight increase in sales for the full year compared to our prior year. In total, we expect a strong EBITDA before material special effects in the full year 26 of 170 to 250 million. Moreover, we also expect operating cash flow to come in positive, however, Below full year 25 figures. With that, 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 open your line. Once again, if you would like to ask a question, you have to press the live Q&A button and we will open your line. The first question comes from Lars von Klett, Deutsche Bank. Lars, your line should be open now.

Yes, thank you very much. Good afternoon. Two quick questions, if I may. I mean, Q2 shipments and especially revenue showed a very solid organic growth. So I would be interested in your view on how Q3 has progressed so far, especially with regards to shipments.

The start of this third quarter was as well in line with what you saw on Q2. So for us, strong start.

Okay, thank you. And combining that with still satisfying steel price level, taking your now quantified EBITDA guidance for this year at midpoint, you would already have reached 52% of that. To me, that looks relatively conservative, so I would be interested in your view on that as well.

Well, I mean, you never know what happens in the near future, so there is always a lot of uncertainty, but the start into Q3 was pretty promising.

Okay, understood. I'll go back into the line then.

Thank you, Lars. Once again, if you'd like to ask a question, you have to press the live Q&A button. There are currently no further questions, so I would read out questions Boris Boudet from Kepler Sugar sent beforehand the call. I would suggest to read them out one by one and then to answer them. The first question was on Europe. Could you elaborate on the recent improvement in Europe? How has demand evolved and have you observed any changes in customer behavior following the introduction of the TRQs?

Look, not that many changes we have seen. I mean, the TRQs and the rest has all been rather a bit positive. Demand is still not really great, but kind of stable. And I think the growth you've seen in our European business goes more out to our repositioning and all the strategic initiatives we were driving. That was very helpful to really turn it around.

Well, the second one was on Beka. You previously indicated that the divestment process was progressing as planned. Could you provide any update on the process on when could we realistically expect a disposal to be completed?

Well, our target is clearly that we have it completed, meaning closed in this fiscal year. We're well on track. There's nothing more I can say, but we're really well on track with that one.

I'm pretty confident. The next one is on the TK Axelis IPO. How do you view the planned IPO of ThyssenKrupp Axelis? Do you see it as more of a competitive threat or an opportunity for the sector? More broadly, how do you expect the competitive landscape to evolve over the next few years? Well, I think we have to see how that works out.

I mean, what Thyssen is doing, split or spin or IPO, whatever, remains to be seen. But that won't change the competitive landscape. I think it's good that this company then is standalone so that it can run and compete with us the way it does already today. So therefore, from that move alone, I don't see and expect any changes. But it's a clear focused company then and we will have a stock listing from that. So we can see how they perform and I think it's a good move. Overall competitive landscape I think will remain where it is. What we see in Europe is indeed with a weaker demand, especially compared to pre-COVID levels, that there is some mobile capacity still.

And the last one on the Worthington Steel. Could you update us on the situation with Worthington Steel? What are the next steps?

Nothing really new to add there. Everything's working well. I mean the transaction closed. We're now working on the listing to be expected well sooner than later and we're working on the DPLTA as they announced. So it's all in line and planned. Nothing new there.

At the moment there seem to be no further questions at this time. Thank you very much for joining the call today. If you have any question during the day or after, then please contact the investor relations team. Thank you and have a nice day.