Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Salzgitter AG (SZGPY, Financial) has successfully integrated a group-wide occupational health and safety strategy, including temporary workers, leading to a more robust safety framework.
- The company has made significant progress on the SALCOS project, which is on time and on budget, with the first delivery of main components already on-site.
- The Technology segment, particularly KHS, has shown strong performance with a high order backlog, supporting capacity utilization and contributing significantly to earnings.
- Salzgitter AG (SZGPY) has secured an extension of its syndicated loan worth EUR 1 billion until August 2029, providing financial stability.
- The company has implemented a comprehensive cost-saving program, including reductions in CapEx, personnel costs, and maintenance, to safeguard its cash position and improve financial resilience.
Negative Points
- The steel production segment has faced significant challenges, with earnings tumbling due to weak demand and pressure on steel prices.
- The Steel Processing segment has experienced a significant decline in demand, particularly in the Plate business, and faces challenges in the precision tubes market.
- Trading has been hit by weak demand and low prices, with persistently weak demand expected for the rest of the year.
- The company has had to adjust its outlook for the full year 2024, anticipating sales around EUR 10 billion and EBITDA between EUR 400 million and EUR 500 million, with a pretax result at breakeven.
- Salzgitter AG (SZGPY) is facing high energy prices in Germany, which remain a competitive disadvantage for the steel industry, despite prices returning to pre-Ukraine war levels.
Q & A Highlights
Q: The first one is on the Steel business. You mentioned that you expect steel spread to come down into H2. I think in the past, when the market was in poor shape, when the outlook was not great, you used to adjust capacity lower and I wonder why not this time?
A: (Gunnar Groebler, CEO) Of course, we have looked into capacity adjustments, and we have made some analysis back and forth. Our conclusion is that we will not adjust the capacity in a sense of taking out one of the blast furnaces. Of course, blast furnaces are not running at full capacity right now. We have reduced capacity, but we are not considering taking one of the blast furnaces out of operation as it stands now just given that current way of operation is more cost effective than taking one of the blast furnaces out.
Q: Your major partner at HKM has been talking over the weekend about exiting this JV if no viable restructuring plan is agreed. Where do you stand vis-a-vis their position? And how would the potential closure impact your business?
A: (Gunnar Groebler, CEO) We are in constructive dialogues with them on a potential sale. If a sale is not possible, they think about a closure, but that needs to be further refined in terms of timing. If thyssen is looking at a closure, we will not take over HKM and run it ourselves. So we most probably then go along with them on a closure scenario.
Q: What are your very early thoughts on '25, '26 spending at the group level? And do you have a net debt limit after which you will need to take more drastic measures regarding spending?
A: (Birgit Potrafki, CFO) Concerning SALCOS, the years 2024, '25, and '26 are the major spending years for SALCOS Phase 1 concerning the CapEx, roughly EUR0.5 billion spending each year. We haven't set a hard limit internally. However, we are already taking countermeasures right now. We are looking into the individual business areas whether there's more we can also do on the structural side.
Q: Could you maybe just confirm last -- one more time that the actual net cash out basically for CapEx this year is going to be EUR850 million after the adjustments you have done? Is that net of funding support also in terms of the government help you'll get?
A: (Birgit Potrafki, CFO) Yes, EUR850 million is the right number.
Q: On SALCOS Phase 2 and 3, just to dig a little bit deeper. You mentioned your flexibility, but are really all options on the table? For instance, would you be comfortable looking at option outside Germany? Would you be comfortable not owning the iron-making part or the DRI part and source it externally?
A: (Gunnar Groebler, CEO) For the HBI, we very closely monitor how that market further develops. Right now, it's not a liquid market. However, we see projects developing and materializing. We have taken the conscious decision for SALCOS Phase 1 to build the direct reduction facility on-site because we believe this is the best option. However, things might change and we might reconsider for the next phases.
Q: Can you say something about the price structure of the electricity deal you had with RWE going forward?
A: (Gunnar Groebler, CEO) When looking at PPAs, we normally look at a fixed price PPA for a certain period of time. In some occasions, you have a corridor in which the price can fluctuate according to the EEX. But there's very seldom that you have a green PPA that is market price based.
Q: What is the current time table for any kind of decision going forward for SALCOS Phase 2?
A: (Gunnar Groebler, CEO) I don't expect a decision to be taken this year. Given the modularity of SALCOS, we are very flexible in how we actually proceed and we can react to market developments. I will not exclude that we may take a decision in the next year, but it's by no means necessary for our strategic development.
Q: Can you remind us your exposure to the US, how much volumes you currently export to the US?
A: (Gunnar Groebler, CEO) US is not a big market for us. It's a relatively low market share, especially looking at steel, I think we're talking less than 10%. Predominantly, it's line pipe, so midsized-diameter pipes that we are providing to hydrogen or natural gas companies. For KHS, US is an important market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
