Salzgitter AG (SZG) Earnings Call Transcript & Summary

[Interpreted] Good afternoon, ladies and gentlemen, and a very warm welcome to this analyst conference on the financial year 2019. For the first time in 22 years, we are not organizing this as a physical meeting in Frankfurt. Before corona came up, high steel imports into the EU and cost burdens from energy and climate policy were the top topics. And just a few weeks ago, it was still the decarbonization of the European economy, but all of that has taken a back seat now. Still, we want to look back on the 2019 financial year today. Moreover, Professor Fuhrmann will be presenting our measures on improving our results and profits and our 2-pronged strategy on how to address CO2. Mr. Becker will then cover the financials 2019 and also give you the guidance for the current year. Following the presentation, we look forward to your questions during our Q&A session. We will first deal with the questions from the German, then from the English conference pool. [Operator Instructions] Over to Professor Fuhrmann.

[Interpreted] Thank you, Mr. Heidler. Ladies and gentlemen, can everybody hear me? Yes. Great. I'd also like to welcome you most warmly to today's conference via this channel. Looking back on to the 2019 financial year is something which isn't all that easy, but we still, of course, want to do it because truly after a very good 2017 and a very remarkable 2018, it was not a good year. But delayering it somewhat, we get to see that in purely operative terms, we are actually within the original guidance and forecast from February 2019. And that -- beyond that, we have about EUR 400 million almost of nonrecurring effects of a negative nature that we had to digest. Out of those EUR 400 million, there were, as I said, nonrecurring expenses; and 2/3 of that, roughly EUR 260 million are to be attributed to what I'd call preparing one's homework. It is an expenditure, but one which will not be lost to the group. Rather, it will help us moving ahead and doing so with an even better performance than before. EUR 140 million out of that amount were taken from our substance. That's the fine payment to the German cartel authority. Our fitness program was taken further and fine-tuned further, hundreds of measures in all of our major units have been defined and identified. And moreover, the implementation of those measures took place speedily and I can state that here and today have already borne first fruit and shown successes. As for decarbonization, Salzgitter AG has a double net, if you want. And it goes both for the stock of already purchased CO2 certificates or allowances and also regarding the progress of our SALCOS project, which is about future low and eventually CO2-free production of steel on a hydrogen basis. Salzgitter AG is a strong company. On the one hand, we once again addressed all of our issues based on our own initiatives, starting to do so already in the fall of 2018. So well within a period in which worldwide and also within the European Union, there was still rather sound economic activity ongoing. 34% equity ratio, it's also quite a clear proof of the soundness of our group. On that basis and with the measures in place that we initiated on our own and given our financial strength, we considered ourselves in a position to issue a forecast guidance before corona effects which boils down to a pretty much balanced pretax profit for 2020. Certainly, that is something we will need to discuss further. But ladies and gentlemen, we'll also discuss about the fact that, certainly, the next few months will be a period in which it is good and valuable if a company has done its homework in time and properly and following clear but achievable goals and objectives and is at the same time, financially sound. If we translate this into actual terms, it means that KHS group can show the highest pretax profit since belonging to this group. And in very concrete terms already in 2019, we've taken measures from FitStructure and resulted in another EUR 46 million of additional earnings improvement potential, plus an additional EUR 27 million of earnings contributions from the various growth programs. Let's now take a look at the key data as per end of 2019. Obviously, what's striking is the substantial difference between what was a very positive figure at the end of those historic results over the last 10 years, which is the financial year 2018 year-end result, and correspondingly the delta versus 2019. The difference is reflected in that, we've already analyzed as to what are nonrecurring expenses, what's due to ongoing operations and what are nonrecurring items that refer to shaping our future and what of that actually was an outflow of funds. If for a minute, we look at the quarterly results through 2019 regarding the earnings before tax, then we can see that for the first quarter 2019, the situation was still relatively good. On the one hand, we'd already developed our FitStructure 2.0 program of measures. And at the same time, still show a pretax earnings of 129 -- EUR 125.9 million. The second quarter was at least still positive. And for Q3, one has to take into account that, that is where the EUR 140 million one-off expenses for settling the antitrust case with the Federal Cartel authority, and they were already booked in Q3. So adjusted for that, also the third quarter would have been positive. Fourth quarter then reflects all of the other effects and also in operative terms, it was a poor quarter. And we'll come to that in a minute. By comparison and on a daily basis, the effects -- and before corona effects, the situation for the first quarter 2020 actually looks better. Earnings after tax, equally negative, which also goes for the earnings per share and the ROCE. The core workforce has already been reduced slightly. And sales and also crude steel production, naturally, need to pay tribute to the ever more difficult overall economic situation across Europe, in Germany and in the world markets generally. We then move over to the order intake in what's still our home market, the German market, which obviously, also reflects the overall situation in the European Union. One customer sector has kept rather well for Section Steel and some of the Plate Steel products, which are sold directly and also by our trade organization have also remained stable, which is construction industry. Whereas the plant engineering industry in 2018 -- or mechanical engineering, sorry, has kept on for a while, but for 2019, now it's clearly a downward trend. And as for the automotive industry, we're all more than familiar with that. It was particularly during the summer 2018 that there was a decline in production given the WLTP test cycle. And towards year-end, that was then already -- that was then balanced out again. But then in the course of 2019 and now not due to WLTP, but rather due to a general decline in the economic activity. And given the high degree of uncertainty amongst consumers as to which vehicle to buy, all of this combined led to this kind of decline. And also the other metal processing industries show a significant decline over the full year 2019. Looking at raw materials now. We can state that all in all, raw material costs have remained pretty stable for us on a year-on-year comparison versus 2018 because, on the one hand, the iron ore prices significantly increased, whereas, on the other hand, the coking coal prices dropped. And if you look at the effect this has on the cash flow statement or the P&L statement with a certain lagging effect over into 2019, this means that it didn't lead to really a fundamental difference. Obviously, purchasing products has become more expensive. The start into the year 2020 is at a still relatively high price for iron ore, still around about the $90 per ton mark. The coking coal price has also picked up again, but all of that is always an impression of any given moment. For iron ore that can still be a late effect of the dam disaster in Brazil about a month ago, and coking coal is by nature a product which has a rather limited market worldwide. What's going to happen looking ahead? Nobody knows. Now revenues from hot rolled coil started at pretty decent level throughout 2018. And already towards the end of that year, there was a bit of a decline to be observed, and it went down almost in a linear function down to the lowest point, which was roundabout year-end 2019, beginning 2020. The average revenue for 2019 were -- or show a significant difference by about EUR 80 per ton lower than in the previous year in 2018. And you would have seen this. All this against the backdrop of raw material prices not having changed so drastically, this naturally reflects in the results of particularly the subsidiary of Ilsenburger Grobblech and Salzgitter Flachstahl as well as MGB and EUROPIPE within our group. The start of the year 2020 then was pretty decent. The revenue in the spot business increased quite sharply, showing an increase by about EUR 60 per ton versus the low point. So that quite a substantial part of the margin lost versus 2018 in the spot business could be compensated for. In contrast to this, the heavy plate development was also an upwards trend, however, at a substantially lower speed. Steel imports into the EU continue to play a major role. What we see here is a decline versus the peak that we saw in 2018, but essentially, it is happening in parallel to stagnating steel consumption, sometimes even decreasing steel consumption. And against this, the import share of steel consumption within the European Union continues to be very, very high. The sources of the imports have changed slightly. China no longer plays quite that predominant role as it did in 2015 and '16 whereas imports, particularly of Strip Steel, from especially Turkey have begun to constitute quite a substantial problem in the market now. The safeguards that were put in place had a somewhat psychological effect in 2018 and albeit limited factual effect. And for 2019, however, they became pretty much ineffective, simply because the reference quantities that have to be exceeded in order to charge tariffs on them were too high and were usually never ever reached by the importers. Also the maximum quantities were increased a number of times. Currently, there's a review ongoing of those safeguards. And we have certain ideas here as the European steel industry as to how they should be corrected. And that might actually end up being one of the very few points where the issue of corona might actually come in somewhat helpfully. So decrease of imports, but it continues to be substantial problem. Now the situation of our individual business units now. First, Strip Steel. Order incase -- intake by tons has gone up -- sorry, has gone down by about 5%, 4% to 5%. Over the full year, that is relatively little. And also sales hasn't decreased so substantially, but earnings before taxes have dropped quite substantially. However, we also need to see it in a somewhat more differentiated way. The minus almost EUR 43 million shown here reflect a EUR 119 million worth of one-off effects, EUR 100 million impairment and EUR 19 million restructuring expenditure. Both of which you can well consider as an investment into the future. It's not funds lost. So if we hadn't done that, Salzgitter Strip Steel would not necessarily have shown a record result, but still a very decent pretax result. That's something which for Plate and Section Steel, I certainly cannot claim, which closed at minus EUR 124 million. Again, as a consequence of substantially lower employment, particularly in the Plate/Steel segment. Order intake, a far more substantial drop versus Strip Steel and consolidated sales followed suit with also a substantial decline in earnings for Plate/Steel. Looking at earnings again, they also contained EUR 65 million worth of one-off effects, EUR 58 million impairment and EUR 17 million restructuring expenditure. And we shouldn't overlook the fact that Peiner Träger GmbH ended the 2019 financial year at a profit. So this is something which I feel well confident saying here. Given our restructuring activities started in 2013, we've now reaped the benefits also in this respect, which may and should encourage and confirm the measures currently in place and in implementation. Now the Mannesmann business unit. Order intake and consolidated sales do not include EUROPIPE Group, which is only reflected at equity. So when we look at order intake and consolidated sales here, that's all other companies and units. And that shows a relatively stable picture. Especially Mannesmann Line Pipe once again gave us great pleasure, again, after restructuring measures, and the stainless steel tube company MSD stabilized their business. Earnings before taxes in operative terms is virtually 0. It contains EUR 54 million worth of one-off effects or special effects, which are EUR 40 million impairment, mostly that goes for Mannesmann Precision Tubes and EUR 14 million restructuring expenditure. With that, over to Trading. Shipments and consolidated sales have decreased. It's true both for the stock keeping trade and also for international trading. That latter being particularly affected by the trade limitations now in place everywhere in the world and which have even been exacerbated. The result, as such, earnings at a negative EUR 31 million. It would actually have been a pretty much balanced situation if we hadn't needed to do an impairment regarding inventory and receivables in the U.S. And this has nothing to do with the trade policy for a change. So we can't blame the U.S. administration or the U.S. President. But rather, this is an issue to do with an individual customer relationship of our U.S. trading subsidiary. But with that, the whole thing will be done and over with and also EUR 5 million restructuring expenses were incurred here. All in all, what's nice to see is the development of the Technology business unit. In particular, given the very satisfactory development at KHS, which made for order intake and consolidated sales going up. And the 2 DESMA companies were able to link up to the phenomenal years of 2017 and 2018. But given the decline in the world economic activity and also the decreasing developments in the automotive industry, they could not quite live up to past successes. But nevertheless, we have a pretty good result to show of EUR 32.7 million. And again, there are some special effects contained here as well of EUR 3.3 million. KHS actually reported the highest pretax profit ever since joining the consolidated group. And in terms of profit, they are now reaching the kind of category, say, that a company like this should generate on a lasting basis if and when the markets play along. Industrial Participations and Consolidation. The consolidated sales are composed of a number of smaller entities and some semi-finished product entities. The larger part of sales here is either not part of the consolidated group, Aurubis in other words, or is recognized within the group of companies. So logistics, for example, data processing telecommunication. We have 148 -- or EUR 147 million of loss. However, this is -- or reflects a burden of EUR 148.9 million. And again, the lion's share of that is once again the EUR 140 million mentioned before, that is the fine that had to be paid to the German Bundeskartellamt, the federal antitrust authority. The positive effect here was the EUR 100 million at equity contribution from the Aurubis investment, which during the 2019 financial year, we increased to 30% minus 1 share. Let me now turn to strategy. As mentioned previously, in the year 2019, we can already see the results of quite a few effects of about -- worth about EUR 50 million from our FitStructure 2.0 program. But you don't usually give us credit for the past. You're rather interested in potential for the future. And both from FitStructure 2.0 over the years 2020 through '23, there's quite a bit to still be expected, and the same goes for our growth programs, some of which are investment-based, some of which are not investment-based. Taking all of that together, we are looking at another EUR 350 million worth of additional effects from those optimization programs. Back to FitStructure 2.0. The effects of more than EUR 240 million as a full year effect are quite homogeneously distributed across the entire group. Strip Steel and Plate and Section Steel comparable, Mannesmann following closely behind. Obviously, Strip Steel is the largest unit, but it's not a hard case of restructuring, really. Restructuring issues, however, can be found in the Plate/Steel segment and within Mannesmann. Ilsenburger Grobblech GmbH is to be mentioned here as well as MGB. That's our Plate/Steel works at Mulheim. And for Mannesmann, it's the precision pipe group. So we don't use the lawn mower principle across all of our entities, but rather, we take a targeted approach here, which means that those subsidiaries which are in need of restructuring and have options for restructuring and measures going beyond a certain measure are taken into account and are subject to such measures in a particularly high degree and therefore, are reflected accordingly in the percentage figures here. Technology is already doing pretty good, especially in terms of the KHS program. Ladies and gentlemen, climate neutrality. Mr. Heidler just mentioned it in his introduction. That is something which against the backdrop of the corona crisis seems to have disappeared from the headlines at an astounding speed. The Friday demonstrations are also suspended. But obviously, ladies and gentlemen, it's a topic that will stay with us. And by and by, there is an increasing awareness, although corona's at the forefront at the moment, but people are aware that we are facing a transformation of gigantic historic proportions as a Federal Chancellor put it at Davos. And in the industrialized age, starting 1870, 1880, things we've gotten used to since then is something that we want to turn our backs on over the next 30 years, arriving at entirely different ways of value generation. We'll want to and need to do that, which, however, is still to include a certain amount of industrial production. But certainly very true. It's not exaggerated at all, but so far, it is something which politicians haven't -- have failed to grasp in its entire scope and relevance. But there are first hopeful indications also here in Germany that, that will change in the future. Emission allowances. Now the price is likely to decline over the next few months, but that is simply due to the general decline of economic activity due to the corona crisis. It's not something that we expect to last. Once that crisis is overcome and that will happen someday, then also industrial activity will pick up again, resources will be coming scarcer again, and that's what's politically desired as well. So as a trend during the fourth trading period from 2021 through 2030, the CO2 prices will continue to pick up. It's quite fortunate in that situation, but we've essentially made sure that all of the CO2 emission allowances that we require for that fourth period were already acquired a few years ago at relatively low prices. The current market value exceeds the value that we account for in our balance by about EUR 300 million. And I think at times like these, although we might not actually need that many emission allowances in the next few months, it's still a very reassuring indication. And it is a proof of the fact that we make entrepreneurial decisions not based on the dish of the day atmosphere, but rather based on our conviction that Salzgitter as a location will continue to produce steel also in 20 and 30 years' time. And for that reason, we initiated the SALCOS project. It is designed and targets at reducing 25% in the short term and up to 95% in the long term at this location. Ladies and gentlemen, trying to analyze this in more -- in greater detail, I'd like to state the following: SALCOS, that's hydrogen-based direct reduction of iron ore, means that for each megawatt hour of electric power used, contains the highest CO2 reduction potential in an industry and sector comparison. And this is very important to note because the bottleneck to decarbonizing our society, not just energy production, not just industrial production, but of the entire society, and I'm reminding all of us of Angela Merkel's words, that is bound to be electrical power because absolutely everything uses electrical power and in its final stages, then also hydrogen. And hydrogen is made through electrolysis. And at the end of the day, it will be decisive to see how much CO2 can I actually avoid for each kilowatt hour of produced electric power and hydrogen-based direct reduction, not just when comparing concepts within the steel industry, I mean, most have now agreed that SALCOS is the best. But also beyond it, turns out to be the best approach. Salzgitter AG has been operating this concept since 2015. So following that, we are leading in conceptual terms and the required technical individual components are available in the market. However, they need to be orchestrated, they need to be customized to be used in an integrated steel production plant, something which was not done previously. And also they need to be prepared for the dynamic adding of hydrogen. Our location here in Lower Saxony is best suited to become transformation federal state #1 in Germany. Why is that? Because here, we have a comparatively high production of power from renewable resources, offshore and onshore wind mostly. And that's already installed right now, and it's still increasing. And also, this is a state where at least substantial parts of the hydrogen infrastructure, lines and storage in other words, are already in place and owned by us. Salzgitter AG does not plan to shift production outside of Germany and therefore, is not a suspect of carbon leakage. Rather, we have an economic, an ecological and a social concept that we've submitted and presented. Integration with local industrial sectors seems feasible. The automotive industry being one of them, and will then be an important component of a holistic and let me add credible CO2-free product life cycle also for our customers' products. This year is, once again, the gradual conversion or evolvement of the project if and when the corresponding political framework is in place. And by now, I tend to be a bit more optimistic now that also the federal ministry of the economy has presented its concept to that effect, which is not just lip service, but describes the situation and also makes very concrete reference to short-term action. So when that actually materializes, then it will be by the middle of this decade that the CO2 emissions from our Salzgitter plant will and can be reduced by about 1/4, which will continue over time then through the various conversion steps up to a reduction by almost 100% that we aim for by 2050. We are ready to do this. And also, we're not simply waiting for the first subsidiaries to trickle in. We've already done something very important ourselves. GrInHy 2.0 will be already the second high-temperature steam electrolysis plant here in -- at the Salzgitter facilities, which is going to start operation during this year. And this process has an advantage versus competing technologies, which is that it's able to use and generate very high amount of hydrogen and oxygen for each megawatt hour of produced electricity by comparison to other projects. We do research both on the framework conditions and also on adjusting and refining the technology itself. We do so jointly with Fraunhofer-Gesellschaft. And the next hardware will be the installation of wind hydrogen already in this year. And then the industry integration on a real-life scale of steel production, energy production and hydrogen generation. All of that will be here at the Salzgitter facilities with renowned partners. And as I said, that will be the first real life, actually physically tangible industrial integration at a steel making facility. Moreover, we also plan a mini SALCOS demonstration plant for direct reduction using hydrogen, also here at our Salzgitter premises. And we do that not just to demonstrate that it works, but also to do research with this plant and learn from it. Let's briefly return to our investment projects. There's the new heat treatment line at Ilsenburg. And as of next month, it will be assembled and installed and will start production in 2021. The Hot-Dip Galvanizing Line 3, there we are currently building the hole, and it will be commissioned within 2022. Now assuming that the corona crisis will have left us by '21 and '22, this might actually turn out to be a rather fortunate type of anticyclical investment. That's me -- all from me and over to Burkhard Becker.

[Interpreted] Thank you very much. First of all, I would like to give you an overview. And you have heard financial year 2019 had to face a loss of EUR 250 million and one-off effects amounted to EUR 400 million, positively performed a robust KHS and the measures from our programs. And the depreciations, which do not have an impact on cash, will have a positive impact on our consolidated results in the amount of EUR 30 million. Last year, we published a guidance between EUR 150 million to EUR 175 million. But without the special effects, we will have EUR 143 million, which is in the middle of our original forecast. The equity ratio amounts to 34%. You have already heard it. And despite this result, in view of dividend continuity, we decided to pay out EUR 0.20 per share. This is what we would like to propose to the AGM. EBITDA with EUR 354 million is positive. And one important driver, and this was already mentioned, is the impairment with around EUR 20 million. Then the change to the leasing accounting, you might know that according to the new IFRS standard, the leasing objects need to be acquired. And here in the balance sheet as of the 1st of January 2019, we have additional assets in the amount of EUR 120 million. The EBIT is impacted by EUR 66 million interests, 50% of these interests refer to the pensions, and the pension interests were reduced by 175% to 104% as end of 2019, which means this has to be added to the loss. We have a positive tax effect and the result for this positive effect can be seen in the difference between IFRS accounting, the profit and loss statement and tax calculations. Why do we have this positive effect? Well, impairment is anchored in the IFRS world. It is not possible to post that in the tax environment. This is why we have a lower result and the tax result is being reduced by these additional depreciations as a result, which means we will have a tax liability in the IFRS and profit and loss statement environment. Here, the earnings bridge group, you can see EUR 430 million. You can see that the demand and economic situation has had an impact, EUR 347 million of positive effects from our measurement programs; special effects, EUR 333 million, and in order to avoid any misunderstandings, this is something which compared to EUR 396 million is more when it comes to the one-off effects in 2019, which means this is a bridge from 2018 to '19. Then EUR 56 million additional from Aurubis and other effects amount to EUR 35 million. And here, once again, the comparison of the earnings and the forecast, you can see the loss of EUR 253 million reported EBT. This loss comprises EUR 63 million for restructuring, then impairment has an impact of EUR 193 and is also comprising the fine we have to pay to the antitrust authorities, which was paid in January 2020, which means as far as cash is concerned, everything is settled in Q1, which means we're talking about EUR 143 million positive EBT before special effects. Now this is our dividend proposal. You can see the time line starting at the year 2010. Our policy has always been to dampen the ups and downs, which means participate in the good times, not too much, however, but also making sure that bad years like 2019 should not mean that no dividend is paid, which means we're going to pay EUR 0.20, and this is something we could also see in the years 2013 and '14, where we had losses, too. Now let me take a look at the income statement. If you take a look at the changes in our sales, you can see a reduction of EUR 900 million. Now take a reduction of the material expenses and the gross sales, you can see EUR 390 million less compared to the previous year, which means we have an important factor. We have less sales, we have lower volumes, and this is something which could also be seen in the bridge. Then personnel expenses have increased here. I would like to mention once again the restructuring provisions, amortization and depreciation is higher, think of the impairment. Other operating expenses, you can see once again, a slight deviation, and I've mentioned the cartel penalty. And result from impairment losses, Mr. Fuhrmann already mentioned, the EUR 30 million depreciation and impairment from a liability from the U.S. Then result from investments accounted for using the equity method with EUR 125 million characterized by the Aurubis with EUR 100 million. Now let's take a look at the consolidated balance sheet. Our assets have increased, think of Ilsenburger Grobblech. The balance sheet total has only changed by EUR 300 million, and this goes back once again to the impairment. Then at equity investments here. Again, I would like to mention Aurubis, the acquisitions which were made in the last quarter of 2019, apart from 1 share. I already mentioned the income tax assets. Then we have here the trade receivables, which went down and also the other receivables and other assets containing investments which were not made in view of the cartel penalty we had to pay in January 2020. Equity, reduced because of the lower sales but also with regard to the profit neutral provisions for pensions and the reduced interest rate, 175% to 104%, as I already mentioned. Then financial liabilities. Here, we have a bond of EUR 390 million with long terms, we're talking about terms of 5 years. Then liabilities M&A also went down and then we have other liabilities, which contain once again the cartel penalty, which was not paid at the 31st of December. Then here, the cash flow statement with -- here you can see EUR 194 million, which is quite high. We have EUR 700 million cash and cash equivalents and EUR 194 million cash flow from financing activities. Now the outlook. We have the coronavirus and so far, we have not mentioned it with all effects, and this is understandable. You can see that Volkswagen Group has also reacted on the economic crisis caused by corona. They pointed out that a guidance, a precise forecast is almost impossible at the present time. And we at Salzgitter try to elaborate different scenarios, try to assess the situation. However, we have not finalized this work yet. We are optimistic, however, that we will overcome this crisis as a company, as a group. And let me mention just briefly, as an example, the European Commission, the German ministry of economics, all kind of government organizations are also making their contributions and making similar statements. However, as far as the next months are concerned, this will have impacts of all kind of sectors and industries. And at the moment, we are evaluating all that, evaluating that before we make our own evaluation. So if you take a look at this slide, before the corona crisis, we had a very balanced guidance, earnings before taxes around breakeven, an increase in sales to EUR 9 billion, a return on equity -- on capital employed, the ROCE that is tangibly above the previous year's figure. And this, ladies and gentlemen, brings me to the end of my short presentation. Thank you very much.

[Interpreted] Okay. We can now take the questions. As announced previously, we'll start with the German pool. Ms. Sanders, could you be the moderator, please?

[Interpreted] Thank you. I'm happy to do so. We have a first question by Bastian Synagowitz of Deutsche Bank.

[Interpreted] I have a number of questions, actually. Firstly, regarding the current situation. You just mentioned also yesterday that you don't know what to expect. Then there are others or some of your customer segments that have spoken out. So what's your emergency plan really on your side? So if and when the potential closures on the side of the automotive clusters actually do materialize, would you consider taking out more production capacity even or is it too early days yet to comment on that? That would be my first question.

[Interpreted] It's a very dynamic situation. And therefore, the current situation today is not necessarily what to be expected for tomorrow and the day after even. At the moment, our order intake is pretty sound, but also true for Strip Steel. Of course, given the automotive share that we have for our Strip Steel products and also for precision tubes, let me add those right away, given that it cannot be expected that when substantially fewer vehicles get produced that steel consumption within the automotive industry is to remain constant. In other words, it will have to be expected that the production of our automotive-related subsidiaries and that mostly goes for Strip Steel and then precision tubes, and then also the 2 smaller automotive suppliers that we own, that there, we will need to make adjustments for a decline in demand for a given period. We've done this exercise before. That was during the economic crisis that set on as a consequence of the financial markets crisis in 2008 and '09. And if things were to turn out to be that substantial, something which, at the moment, we do not see reflected in our order intake and also not in our order book, but in that case, we'd be handling it likewise.

[Interpreted] Next question. On Plate Steel and Trägers where I think quantities went down drastically. Was it mostly due to -- what was it mostly due to? Could you repeat that? And what do you make of the current market dynamics for price and volumes? I think there were quite some price adjustments, did you see that for Träger as well? And a comment on the guidance maybe. In your base scenario, do you assume that in 2020, you will improve versus the actual result, in other words, better than the EUR 6 million pretax losses, which you saw this year, if we take out the one-off effects? I mean, obviously, there's a lot of uncertainty, but I'd still like to know what you assume in a general nature?

[Interpreted] Partially, all of this is already the case. We have to see. Grobblech and Träger has nothing to do with the automotive industry. For 10 years or longer, that was a bit of a strategic disadvantage of our product portfolio versus some of our competitors within the EU that our automotive share wasn't that high. At the moment, I'd rather say it's an advantage. Because the market for beams has always been relatively volatile by nature, but in other -- on the other hand, is relatively independent of the automotive industry. And the margin situation, as I said, there are short-term fluctuations usually caused by the scrap price, which is highly volatile, but overall, relatively stable. Plate Steel, that's where, as we know, during the year 2019, we've seen quite a sharp decline in prices and the upward trend since year-end 2019 is something that we can observe. However, it wasn't quite as dynamic as we've seen for Strip Steel so far. Plate Steel within the European Union in terms of demand has suffered, particularly from very low volumes of large tube orders coming in -- or not coming in. So large diameters, in our case, mostly with EUROPIPE themselves. In case of the overall product range, it also goes for the shipment of pre-materials for the large diameter tube facilities outside of Germany. And that's the situation to which nothing much has changed. But again, it hasn't deteriorated either. So we've got a relatively stable situation, albeit at a low level for Plate Steel. It's rather about infrastructure really and not so much about the question whether people would rather buy a car or a fridge.

[Interpreted] Next question, a follow-up question. What you assumed for your base scenario, for your guidance on Plate Steel and beams, do you assume that you'll see improvements there versus the EUR 60 million if we take out the one-off effects we saw last year? Or...

[Interpreted] Yes, that's exactly what I meant. Yes, is the answer.

[Interpreted] Okay. Then one final question on financials. Looking at the cash flow, the restructuring and the cartel fine topic is something -- a lot to digest for the current years and from the operating business for the current financial year, given the situation right now, one might not be able to expect all that much. So are you confident that net debt over the next 12 months will tend to be below the EUR 450 million threshold? Or do you assume that you might not reach it?

[Interpreted] Mr. Synagowitz, we have to stay realistic here. Let's look at the about EUR 150 million net financial debt versus the end -- at the end of 2019. Let's deduct from that the EUR 210 million fine payments, then we are already more or less close to those EUR 400 million that you mentioned. What we plan to do and what we believe is prudent and correct is to look at investments, particularly the 2 large projects, the Hot-Dip Galvanizing Plant 3 and the finalization of the heat treatment plant at Ilsenburg, we plan to not stop those projects. So as is pretty well known everywhere, investment expenditure despite trying to economize for the other companies and other investment projects, these investments will occur and they will at least be to the amount of the regular depreciations and amortizations. The ongoing operating business will, all in all, certainly not generate such a relentless amount of cash unless, Mr. Synagowitz, all activity takes such a dip that we end up reducing working capital to a substantial extent. But that's a blessing in disguise really or rather not because it's definitely something we wouldn't wish for. So when it comes to cash flow and development of our net financial position, we can't promise any miracles. What we do expect, though, and the only thing we are certain of is that -- what we do expect for the next few months is something that we go into as an intact company and we'll make it through, which I think is saying a lot.

[Interpreted] [Operator Instructions] The next question comes from Rochus Brauneiser, Kepler Cheuvreux.

[Interpreted] I have a few questions. You talked about the fact that you're still analyzing the corona situation and the impact on the company. Now I would like to know from you how much flexibility is there when it comes to adapting investments -- reducing investments in this environment?

[Interpreted] Mr. Brauneiser, it's very difficult for me to understand you. I only hear a few words. There are some technical interferences. Maybe you try to grab another phone and then it might be better.

[Interpreted] We unfortunately don't hear you. Mrs. Sander, can we carry on with the next question?

[Interpreted] Yes, of course. We have David Varga from Bankhaus Metzler.

[Interpreted] Now we can feel the impact of coronavirus in Europe. Now KHS has many clients, not only in Europe, but also outside of Europe. I would like to know whether KHS even if they had a very strong order intake situation in 2018 and '19, they see a change of behavior in their Chinese customers.

[Interpreted] Well, everything is slower, definitely slower than without the crisis, but we do not see any order cancellations in great numbers, not at all.

[Interpreted] At present, we do not have any further questions in the German channel. Now I would like to suggest to move on to the English channel. Just a second, please. The first question in the English translation is from Luke Nelson, JPMorgan.

[indiscernible]

It's not possible to understand it.

[indiscernible]

We don't understand you.

Mr. Nelson your line is very, very bad. Maybe you try another carrier system or a land line because the telephone conference can't hear you at the moment very well.

Okay, no problem. I'll try then.

Then the next question is from Seth Rosenfeld, BNP.

This is Seth Rosenfeld, Exane. If I could just ask a couple of questions with regards to your exposure to the energy end market. Can you comment on any impact to your various products and the sharp decline in oil prices? In particular, how secure and how long is your order backlog for line pipe via EUROPIPE? And also, what would the implications be for your various Plate businesses?

Yes, the order backlog in the EUROPIPE group from orders, both for the German plant and for both plants EUROPIPE Germany owns in the United States, is about 5 to 6 months. In line pipe business, the order backlog is around 3 to 4 months. Yes, the dependence on the oil price for business of both companies is given but not so much exposure here. We have projects. We are confident that for the line pipe business, the positive situation is sustainable for the next month.

Can you please provide any color with regard to current bidding activity? Those lead times of 3 to 6 months, if I remember correctly, are significantly shorter than what you've seen in past years. What efforts have Salzgitter and EUROPIPE begun to make either with regards to bidding or preparing to adjust your cost structure going forward? And I can also please ask a fully separate question. With regards to the carbon transition and the new focus with SALCOS, can you please just give us a bit more color with the expectations for your blast furnace footprint? If I'm reading the slides correctly, am I correct that you're planning for one blast furnace to be shut down by the mid-2020s in order to hit your 2025 CO2 target?

Yes. Generally, also, this line is quite bad. I suspect some of you are talking from your home offices, whereas we are sitting here in the company, and that seems to be a little mismatch in terms of quality of the line. So as far as I took it, the question is about a downsizing the production in our integrated steel mill in Salzgitter. And once again, we did so 11 years ago after the bankruptcy of Lehman, the financial crisis and then the economic crisis in the European Union. We operated at that time. We shut down as we have done so now for a couple of months the smaller blast furnace in Salzgitter, this is -- but it can be put again into operation. It is not finally shut down. And the 2 large blast furnaces were put into a, say, slow motion operation that is technically possible that is sustainable over many months. And this is one opportunity. The other opportunity is to have an operation with one large blast furnace in operation, the other 4 days in standstill and then to switch for another 4 days to the other blast furnace and then to switch back. But this is only the option if the production would be, say, less than 2/3 of what it is today. And personally, I don't believe that the situation will develop as such, but it is possible.

[Interpreted] The next question, Marc Gabriel, Bankhaus Lampe.

[Interpreted] Welcome back to crisis mode. My question goes to the possibility of enforcing a situation in which there might be thought given to a larger consolidation, say, in the German steel industry. Now that one of the largest competitors, if that deal go through, is in a financially stronger position. Would it make sense in a situation like this, given the low valuations at the moment? And also taking into account the say, governmental interest. I mean there's rumors already as to which industries may be needed to be government-supported. To me, it sounds like they might become government-run and operated right away. I mean, crisis scenario, and we all know that when 25% of sales disappear, that's something which you can survive for a year or so, but is rather a question of what follows and if anything that follows will also suffer from it. And therefore, it might be worth a thought that politicians might actually focus again on reforming what we term Deutschland AG. What do you make of the options there? I mean, we read in the media recently that generally, you'd be open to at least conducting talks.

[Interpreted] Well, Mr. Gabriel, emergency turning into a governmental operated company. That is always bad advice for any kind of entrepreneurial decision, which is to make sense also at good times. I need -- we need to distinguish here, I believe, and we all assume I'm certain that the corona crisis will end sometime. I mean, even the plague in the Middle Ages ended eventually, and we should well be able to look at the situation like this, which can't be compared to it at all, even in medical terms, and to deal with it quicker. Especially since seeing that what authorities are doing here in Germany at the moment seems to be very right and proper and appropriate. So having said that, any kind of corporate strategy operations, which need to make sense for the next 20 to 30 years, that is something where a corona crisis is certainly not the right occasion to base a decision on because that will be nonpermanent. But I read your question as also suggesting that what if corona crisis never happened and even then I would, of course, have been ready to answer your question. So now, look, it's like this. There can be no doubt that ever since our IPO in 1998, over 22 years, our course towards independence that we've always pursued with our corporate strategy has proven to be the right one. I don't think anybody has serious doubt about that anymore. And at the same time, I'm saying this requires a certain sovereignty, a certain ability of dialectic thought and analysis. But I'm saying that in the same way that I'm stating the one thing, one can, on the other hand, not say in apodictic terms that that's a cause that will definitely also hold true and prove to be the best for our company over the next 22 years and for all of its premises and locations and all of its staff and employees. So one thing is as true as the other. And people simply need to be able to sit it out, say, and digest it also in terms of coming to terms with it conceptually. I can also state though that so far, we haven't seen any single concept that turns out to have been better than standing it alone. Obviously, we're not blocking our eyes and ears. And naturally, we are ready and willing to communicate and able to communicate. And we are open-minded people. But it's not as if any kind of perceived because it's not a factual situation of need that would drive us into any kind of massive emergency situation. That would be my answer to that.

Next question, Christian Obst, Baader Bank.

[Interpreted] I have a very brief question once again. With thyssenkrupp and Vallourec and the HKM shares, I mean, it's not all that easy to make changes. But at times, where you also have some structural thoughts, things might be worth reviewing. So my question, are you currently talking to the 2 other partners regarding potential changes of the shareholding ratios? Might Salzgitter be interested to make any changes there? And what do we use the HKM-produced raw steel primarily for within the Salzgitter group at the moment?

[Interpreted] Well, there's always somebody to sell and somebody to buy. At the moment, and purely hypothetically speaking, we are obviously not speaking about this with our partners.

[Interpreted] But let's follow this imaginative thought a bit longer. Who do you have in mind? Who would have any major interest in HKM quantities? It will hardly be Vallourec, will it? [ Perhaps anybody ].

[Interpreted] No, I agree. They wouldn't be interested.

[Interpreted] Professor [indiscernible], I don't think so either.

[Interpreted] And with thyssenkrupp, I think the interest is rather moderate, if any. So obviously, we are not talking about this with our partners, and that's not a big deal secret either. And secondly, I also see very little reason to do so. And the volume supplied by HKM, that's what's largely used for Plate Steel and also some precision tubes and sometimes some of the material goes here to Salzgitter or Ilsenburg.

[Interpreted] But an alternative of taking out a small furnace maybe and getting more from HKM because the others don't need, even that's not an option?

[Interpreted] We've taken the small furnace out of it Salzgitter already. We've done so long ago.

[Interpreted] Also, long term, an option?

[Interpreted] No, it's certainly not a long-term option to take out the melt furnace [ 10 ] here at Salzgitter. That's something we decided to do over the last year as part of an optimization of our volume ratios, but I don't see it as a long-term situation. It is to start operation again as well eventually in order to get around the overall situation again.

[Interpreted] The next question, Rochus Brauneiser, Kepler Cheuxreux.

[Interpreted] Yes, this is Brauneiser, and I hope you can hear me better now. My first question was regarding investments. I'd like to know given the worst-case scenario you described at the beginning, how much leeway do you have? How much discretion do you have to keep investments below the level that you're currently aiming at for 2020? So reducing investment, you said the major investments are not negotiable, which is understandable. But how about other smaller scale projects which are not quite as prominent, so how much discretion do you have there? Some of the competitors have already clearly downward corrected their investment total. And my question would be how much downward breathing space do you have, if needed? That was first question. Second, the restructuring measures you are initiating, what kind of staff reductions do they contain and to what extent would such a worst-case scenario make you increase those measures even further?

[Interpreted] We were able to hear you excellently just now. So first of all, on investments. In a worst-case scenario, we'd certainly be able to revise the cash out for 2020 and reduce it by another roughly EUR 50 million to EUR 55 million. And on restructuring, as you know, we are not the ones who go out there, proudly claiming record figures of personnel reduction in order to get the share price to increase by 5%. We'd rather go for a 5% lower share price and instead have measures in place that work well without burning oil barrels and strike measures out there. We'd rather accept that we get labeled as relatively passive, which is actually anything but true. I'll give you a figure now. We'll be reducing by substantially above a number of 1,000 FTEs versus the initial situation as per 31st December 2018. So we are doing quite a bit, but we do this low profile because we wanted to be speedy and smooth. And for that, we are willing to allow for certain misinterpretations of how insistent we can be, say.

[Interpreted] That's very helpful. And also, could you imagine that under a crisis scenario?

[Interpreted] No, no, I cannot imagine to go for extra redundancies. Mr. Brauneiser, there's other means actually. Let me remind you that the new regulations on short-term work are aiming at exactly the situation, the federal government and the Federal Ministry of Labour want to prevent exactly this from happening. But for a few months of corona crisis, there are mass redundancies in the industry nationwide. Normally, those in power get criticized all the time, and I'm no stranger to criticizing politicians. But I think in this instance, they acted rightly and they acted speedily. The threshold to apply for short-term work has been reduced from 30% of the workforce for a given company, down to 10% now. So in other words, you can apply for those benefits far earlier and to a far more tangible extent. And that is something that if that situation should occur, we would certainly go for. But additional lasting redundancies going beyond the program, which is already quite far-reaching, is something which I certainly do not see.

[Interpreted] Okay. The last question on furnace [ 10 ]. I'm not sure if I understood you correctly. Your comment on furnace [ 10 ]. Do I read that correctly that it's hot idled at the moment and not fully decommissioned?

[Interpreted] Yes, totally correct. It's not fully decommissioned. It is hot idled, as you said. So it's addressed and we can bring it back up within 2 to 3 weeks if needed. You understood it absolutely correctly, that's the case.

[Interpreted] And what do you think will it be fully operational until 2025 in view of ArcelorMittal having mentioned that they are done with reducing the capacities and that the aggregates would be increased again. And now in view of the corona crisis, the timing is far from being easy.

[Interpreted] Well, I don't see that either to have the blast furnace C commissioned until autumn this year. Well, this is why I now understand the question of the previous speaker on the HKM, I mean, it's a difficult scenario to have blast furnace C being hot idled. But at the same time, you have to acquire the products from HCM.

[Interpreted] And do you know the Vallourec and the thyssenkrupp crisis? Now what has to be done in your point of view, to consider HKM and the future potential of this steel plant?

[Interpreted] Well, let me put it the other way around. If there was no HKM from now onwards, then all 3 shareholders would be in trouble, in severe trouble. HKM is needed by the 3 shareholders. And this is something which needs to be our guidance for the future. Of course, if we think of 2017 and 2018, there was a rush to buy more from the volume which was anchored at the contract with HKM, but this is, of course, the normal deviation, the normal fluctuation you have. And from our own experience, I can say that we have a spirit of partnership and in this spirit of partnership, we have overcome bottleneck situations. And this spirit of partnership will also be the basis for the next months, which will have a surplus of capacities, and we will tackle these surpluses, and it's not the first time, by the way.

[Interpreted] And my final question is about the working capital. I assume that in Q4, more of the working capital could have been set free. Now I would like to know what do I have to expect for Q1 in view of the present situation. Do you see the normal increase, the seasonal increase of the working capital or do you believe that this increase might be slightly lower in view of the present situation?

[Interpreted] Well, let me answer. Without the corona crisis, the increase in the working capital would be there. But if you take a look at the figures for January and February, you will see that the increase we had in Q1 2019 will not be seen in Q1 2020, we will rather see a horizontal development.

[Interpreted] We have a follow-up question from Christian Obst, Baader Bank.

[Interpreted] I have a few questions on the balance sheet. First of all, the intangibles. Here, we mainly talk about the CO2 allowances. What else is comprised here? And the associated companies at equity, EUR 120 million, but the Aurubis share amounts to EUR 350 million. Now is there any regulation or rule for a depreciation on the precise value or is there any risk contained? And when it comes to the deferred taxes, Mr. Becker, you mentioned why the impairments went up, and I would like to know, is there any risk you see, especially against the backdrop of the indebtedness of EUR 440 million with the announced cash out for cartel and CapEx, which will probably be higher in the course of this year.

[Interpreted] First of all, let me comment on the intangible assets. Apart from the CO2 allowances, we have here, first and foremost, the licenses for software like Microsoft and SAP, this needs to be taken into account. Now Aurubis here, the valuation was not made on the basis of IFRS. It is not based on the stock value. And I mean, this is what we are doing in order to assess the assets and the values of the assets we have. We do not only look on the book value, we also focus on the forecasted future cash amounts based on the medium and long-term planning. We're talking about the EBITDA ratio, referring to the sales ratio. And at the moment, it is as such. Due to the fact that the share price of the Aurubis share went down, this is not triggering a different valuation compared to 2019. And as far as the next plan is concerned, we are going to analyze the situation again. In the long run, Aurubis has, and this is something you can also see if you look back on the results, has had an excellent business model, and this is why I do not see any risk. Now deferred taxes, as far as the antitrust penalty and the cash out are concerned, this has nothing to do with these deferred taxes because we have a permanent difference, and the penalty cannot be deducted from our taxes, which means the valuation in the balance sheet has nothing to do with the antitrust penalty, and this is why no change has been made.

[Interpreted] And what about the increase of EUR 100 million year-on-year? Where do they come from?

[Interpreted] You have to see the following. The impairments we have made and this is one item on the IFRS balance sheet is also something which is contained in the trade balance sheet but not in the tax balance sheet because this is not allowed to deduct it from the taxes. This is why it is a depreciation volume for the next years. And this is why the tax balance sheet is higher as a consequence. And if we take a look at the IFRS, we can see a claim, but the IFRS is lower. But in future, it will be mentioned as an item in the tax balance sheet. That's the point, but this is something which is true each and every year. It applies every year. And of course, there is a difference between IFRS and the tax balance sheet. And the assessment of inventories are being evaluated on an average when it comes to IFRS. And when it comes to the tax balance sheet, the valuation basis is a different one. And the impairment is something which is a higher amount according to IFRS in 2019. Mr. Obst, ladies and gentlemen, Mr. Becker sits next to me. And I think in my next life, I will be an auditor. I definitely will because it's great. Apart from the fact that I have a wonderful colleague who can explain it so excellently, I'm really thrilled that this industry has so much imagination to develop all kind of scenarios and explanations to cope with the situation. These artificial pictures drawn by Mr. Becker and me have to be unfortunately left. We have to focus again on corona and coping with the crisis. Having said that, I would like to thank you very warmly for attending this press conference in very special circumstances. I'm deeply convinced that the measures we have taken are the right one. And I do believe that we will manage to overcome them in a much better way than many people who rather believe in the Cassandra prophesies. Of course, Salzgitter AG will suffer, nobody will be spared from this suffering, but we will survive, and we will carry on. And last year, in good times, we already started to take strong measures. And these measures are being implemented no matter whether we're talking about restructuring or any other earnings improvement measures or we're also making investments. And after corona, we will still be a healthy company. And having mentioned health, we wish you all the best, stay healthy, stay safe. And if you get infected, maybe you won't even notice and then you're immune at the end of the day. So thank you very much, and goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]