Salzgitter AG (SZG) Earnings Call Transcript & Summary

[Interpreted] Hello. Very nice. Good morning from Salzgitter. My name is Markus Heidler. I welcome you most warmly to our today's analyst conference on the financial year 2020. And you will be told what you are to expect from us this year. On the 21st of January, we presented the preliminary figures of last financial year and gave you an outlook. Pretax profit between EUR 150 million and EUR 250 million were published, and the final figures were published yesterday. And we received already the first questions from you and answered them by telephone. We are sitting here in Salzgitter with hygiene rules fulfilled, together with the CEO, Heinz Jörg Fuhrmann; and the CFO, Burkhard Becker. We are looking forward to answering all your questions. I hand over to Professor Fuhrmann.

[Interpreted] Thank you very much, Mr. Heidler. And ladies and gentlemen, this financial year is one that we didn't simply just survive one way or other, but actually, it wasn't a lost year for us. We've achieved quite a bit actually. Our decisive strategic investments were made, which is the Hot-Dip Galvanizing Line 3 at Salzgitter and the heat treatment line at Ilsenburg. So we've continued those. And apart from that, we also continued a series of other highly interesting projects and finalized some of them, such as the expansion of the Mexico plant. And at the end of the year 2020, we had the first green strip steel with the CO2 footprint, which, per slab, amounts to 75% less than from integrated steel production. And we've shipped that slab and a great many other things. Obviously, the result for the year is not one that we can be overly happy about at minus EUR 196 million before tax, but it's still better than the EUR 253 million of last year. Nevertheless, it's been a tremendously difficult financial year, a year which was one in which we had to make it through the most severe economic crisis across the European Union and Germany since 1945. We managed to do that, ladies and gentlemen, without putting at risk the substance and the future fitness of the group, quite on the contrary. In terms of figures, crude steel production was at about 580,000 tons lower than in 2019. External sales decreased by almost EUR 1.5 billion, down to EUR 7.1 billion. Earnings after tax are at minus EUR 274 million, and that is the result compared to the earnings before tax because there is a payment, including here, of capital revenue tax. However, we've already filed a complaint against that payment. Earnings per share are at minus EUR 5.13, so negative, just like the ROCE, which is at minus 3.9%. And the core workforce was also reduced by about 750 employees. Now ladies and gentlemen, what we were confronted with in the year 2020 can be best seen by looking at the development of steel demand of the key customer segments and also across the EU as a whole. The first quarter 2020 wasn't a good quarter. We'll all remember that steel demand already with the upcoming consequence of the diesel crisis across the year 2019 was continuously on the decrease, and thus, also, the first quarter 2020 was very much characterized by that effect. However, in Germany, when it comes to the immediate economic impact, we saw virtually no COVID effects for the first quarter. Still, across the European Union, and let us consider the situation in Italy, for example, remembering that there were already the first COVID effects to be felt in the public life, but also in industry and economy. But in contrast to that, steel demand versus previous year quarter decreased by 12%. The second quarter then, as I'm sure we will all recall, was the most difficult one. In Q3, things saw -- or went up again, but still at minus 10% versus the already not great previous year's quarter. And then for the fourth quarter, we had reached pretty much the same level again. What you can then see following that, in this chart here, obviously, our forecast, in this case, of the industry association, EUROFER, for seeing 5% growth versus previous year for the first quarter; second quarter, 36%. And from a current point of view, because that forecast is already a few weeks old today, I personally have certain reservations when it comes to this 36%. But there will certainly be a significant growth from Q1 to Q2. Possibly, if we look at it in more optimistic terms, the third and fourth quarter might then turn out to be a bit better than forecast. So that overall, there should be considerable growth, but possibly a bit more stretched along the time axis, if you want, of the entire year 2021. The customer industries that are most relevant for our group in 2020 developed in rather different ways. Relatively stable was the construction sector. And in contrast to that, metal processing and mechanical engineering were quite substantially more affected, and especially, obviously, the automotive industry. We'll all remember that, while at normal times, in Germany, roughly 400,000 passenger vehicles are produced each month. In contrast to that, in April 2020, after this sudden disruption of business activities, after the lockdown and so on and so forth, it was down to 11,000 vehicles for the whole of Germany. Now how about our revenues from steel and for rolled coil and the raw material prices? Let's first look at the iron ore price here. That increased rather sharply, particularly during 2020. The coking coal price, however, decreased. Now if I look at the current situation, ladies and gentlemen, and that is not on the chart, unfortunately, but I've got it in my mind, nevertheless. If I compare it to 2018, that is, which wasn't a super year, but still a relatively good year for the steel industry, then we've got to state that when it comes to raw material price development, to the extent used for integrated steel production and also taking to account the most recent increase in scrap prices, then ballpark figure-wise, we have a cost increase of EUR 100 per ton compared to 2018. And if you look at the revenue increase for rolled coil and heavy plate, we'll see quite easily that for strip products or hot-rolled coil here, this price increase was passed on and added on. And also versus 2018 and 2019, an additional margin improvement was achieved. For plate steel, that's a different situation. The EUR 100 per ton-plus have not yet been counter-effected, but still, it's a positive total revenue only. We still have some homework to do here. And I wasn't talking about the Peiner Träger, who, in their development, very much depend on the scrap material price as the sole material used for production, but we had a more or less parallel development here with a certain time lag, as always, of a few weeks, sometimes even a few months. But all in all, we were successful, since this is not such an import-affected product, to keep the margin as is. And that takes me to the topic of steel imports. Indeed, imports in absolute terms in 2020 in the EU market as compared to 2019 decreased. That, however, is not true for the market share of imports, which continues at 16% for the year 2020 to be at a level which we saw for the first time in 2015. And we'll remember, in 2015, those were the times where, from summer onwards, we saw this China import tsunami. And that really brought the entire European steel market to the brink. So the import market share makes for a situation that is still comparable to the one in 2016 and 2015, only that it's now distributed across different countries. The role of China has become substantially lower. In comparison, that of Turkey, for instance, has been on the increase recently. And also importers, such as South Korea, for example, who used to play no major significant role, are now indeed a presence on the European market. With that, let us talk about the business units. Order intake for Strip Steel, expressed in 1,000 tons here, 2020 versus 2019, and the figures here don't quite reflect what I might expect after what I just said. And that is mostly due to the fact that the last months of 2020 saw an order intake, which was substantially above production capacity. And therefore, the order books, which were totally empty in July, had filled up pretty nicely. And that made for rather good capacity utilization in working off the orders in the book. External sales or consolidated sales are markedly lower and also earnings before tax due to the general earnings situation at EUR 87 million, minus. It was worse than in 2019, the earnings before taxes, that is. But nevertheless, here, just like for all of our business units, compared to the overall situation, this result is still one of which you could say we've made it through halfway unscathed. And that's not because we were overly lucky, but it was because the immediate measures that we took also took an effect across the board in a way that is actually reflected in the results. Mr. Becker will talk in more detail about the effectiveness of these immediate measures. I mentioned the Hot-Dip Galvanizing Line 3 earlier. That is a line that will go live, go into production as of next year and will thus increase our hot-dip galvanized capacity by about 500,000 tons per year, and therefore, segmenting or cementing our position in the automotive segment. And we'll have then 3 and not just 2 hot-dip galvanizing lines here at Salzgitter, and that will allow us, more than before, to combine quality grades and batches and distribute them across the different lines. That is something which, in the past, with only 2 lines, we naturally could only do to a limited extent. And also, this does not mean any market-relevant excess capacity. To a certain extent, we are replacing the decrease in demand for electrolytically galvanized sheet metal by now supplying hot-dip galvanized material. Next unit, Plate and Section Steel. Order intake in 2020, slightly better in tons than 2019. Sales, because of the revenue situation, visibly lower. And earnings before taxes, as recognized in our books, have improved. However, it needs to be pointed out here that the previous year had quite a series of one-off effects in purely operative terms. And that is what you would expect the earnings for 2020 are worse than they were in 2019. And that is a statement that applies particularly to the Plate Steel side of it. Sections also in 2020, ended up at a pretty much balanced result versus previous year. That takes me to the new heat treatment line at Ilsenburger Grobblech. This line, and this, again, is positive news. Despite of the COVID-related obstacles in setting up and installing the line, it could still be finalized in December, that is, when the very first section came through it -- sheet came through it. And by now, we are in the ramp-up operation, which is going smoothly. And already for this year, we'll be able to produce quite a substantial amount of that material and bring it into the market. And we believe that the range of grade segments, not just at Ilsenburger Grobblech, but also for our entire group, will thus be expanded quite substantially. And with that, Mannesmann. Firstly, let me point out here that the Europe group is not consolidated in our books. And therefore, order intake and sales are shown here, excluding the EUROPIPE Group. Order intake, again, substantially lower this year. Indeed, there was a decrease in demand up to actual slumps in demand for pretty much all product segments here. On the one hand, like on the precision tube side, that was pretty substantial. And it is indeed comparable to Salzgitter Flachstahl. They are very much dependent on the automotive industry. On the other hand, given the lower oil and gas prices, exploration also went down. And that, in turn, affected those companies, which have a focus on oil and gas exploration, and also short, medium and long distance transport of those substances. Sales, again, lower and, equally, earnings before tax at minus EUR 62 million, around about EUR 20 million less than previous year. But still, here, too, it wasn't a lost year. The expansion of the Mexican plant was finalized. And that, although, in Mexico, some of you will know that the COVID pandemic was particularly severe, and the country was affected by it very strongly. On the other hand, we've got the largest cold pilger mill now installed at the Remscheid plant for the production of large seamless stainless tubes and that, too, is a measure indeed pointing us into the future. As for Trading, here, too, when the consumption of steel product decreases and if there are substantial trade barriers internationally, this will greatly affect this business segment, resulting in shipments, which are about 20% lower than in 2019. And adding the revenue component, we end up at consolidated sales, which are only just above EUR 2.2 billion. The fact that the earnings before taxes still show a positive figure, that is due to the fact that there was a sale of a property, which led to an extraordinary proceed of EUR 47 million. And Trading is going to move from Düsseldorf to Mülheim an der Ruhr . At the beginning of 2020, there was another smallish, but still very reasonable and good acquisition in the Netherlands. That's Statendam Steel Plates, a specialist for plate steel. And it is quite obvious that this will result in synergies, both with our existing trading organization and also our plate steel productions at Ilsenburg and Mülheim. Now Technology as a business unit. Here, too, there is a decrease, however, not quite as significant as on the steel side, in part, and also on the tube side. So slightly lower order intake, down from EUR 1.37 billion to EUR 1.25 billion. Consolidated sales have developed accordingly. And you can see, in terms of proportions here, that towards the end of the year, we were able to collect more order intake again. That is true for all 3 companies here, both for KHS Group, which, across the entire year, stood its ground rather well, and is also finishing the year with a positive result. And it's equally true for the 2 DESMA companies: KDE, also pretty dependent on the automotive and supplier industry; whereas, KDS, as the world market leader for highly automated shoe machines, and the shoe stores have been closed, not just in Germany. And that is why it wasn't quite such a major driver in 2020, but a certain catch-up effect will certainly be observed that will resolve that situation. The black zero, as we call it, for the overall year-end result is something we can indeed be satisfied with, even if we -- and also, if we look at competitors. And looking ahead, things certainly look a lot better. That's also true for these entities. So not a lost year, I'd like to repeat that, and come back to it here. When commenting on 3 major projects acquired by KHS and, in part, they've already been finalized. Within here, only 280 days, a massive project in the U.S. was finalized down to start of production, from breaking ground to completed factory, which is quite a laudable achievement. And also, for one of our traditional large-scale customers in the beer industry, we set up a new line for a Canadian brewery, again, up to final assembly. And finally, the third one here, a can line for soft drinks in Nigeria. And that, too, was done without the option of being physically on the ground there locally. So all of that, quite a tremendous achievement of the KHS workforce. And finally, let's look at industrial participations and consolidation. Traditionally, there's only smallish sales figures here with half-finished products, more important here, the earnings before taxes figure. And on the whole, what is it? 2018 and '19, it says here, that aren't quite the right figures. Somebody just pass me the right figures because I wouldn't want to give out any wrong figures here. There seems to be a small mistake in the chart here. So just testing whether the CEO is awake while presenting here. Okay. The figures are the right ones. It's just the wrong years stated here. So it's plus EUR 21 million versus minus EUR 47 million in the previous year. So apart from the special effects that Mr. Becker will elaborate on in a minute, for 2019, we also had the EUR 140 million that had to be accounted for the cartel fine. In 2020, there were lower positions. And also, importantly, there's the at-equity contribution of our 30% Aurubis investment. In both years, roughly worth EUR 100 million, and therefore, rather positive. Ladies and gentlemen, and with that, I'd like to move over to the topic of green steel. I've mentioned that earlier that after in August of last year, we announced and decided to do so, we went for a speedy investment in our Peiner facility or refitting casting line there, which can now make slabs ready for use for green strip steel. In November, we were then enabled to produce that. And we are thus the first producer of such a product to receive the certification of TÜV SÜD in Germany, confirming this is a product which has a significantly lower CO2 footprint versus integrated steel production. The customers' interest for the first few weeks was moderate, but it has strongly increased since. This here is one such coil that we've by now shipped to [ miller ] company to illustrate that we are not just focusing on the automotive OEMs, who naturally are interested in that product. Ladies and gentlemen, when it comes to decarbonization, what we did since 2015, and I don't have to clad that into some kind of attribute, it wasn't more or less right, it wasn't mostly right, it was simply right. On the one hand, we took our need for CO2 allowances, given our current structure, and have fully covered it for the fourth trading period at a price which actually is only a fraction of what is being paid for CO2 allowances these days, which is more than EUR 40. And with that, the immediate concern or worry, about 25% to 30% of our production, which does not come in free allocation, and the same is likely to be for competitors. So we no longer have that concern because the allowances purchased can be used for that. And as it says here on the chart, exceeds the figure account from the balance sheet by more than EUR 400 million. That still holds true. But it's not just EUR 4 million more than EUR 400 million, it's not EUR 40 million more than EUR 400 million, it's actually quite a bit more than that. And at the same time, we did not rely on buying those allowances at a good point in time, which nobody could know at the time when we did it, but rather, we set about shaping our future with the SALCOS project. SALCOS, as you all know, and that's the next page, is based on hydrogen-based steel production and direct reduction. And in a transition period of 1 or 2 decades, it will be supplemented with natural gas or natural hydrogen mixes -- natural gas hydrogen mixes. The advantage of that technology are manyfold. Firstly, it's appropriate when using green hydrogen only to reduce CO2 emissions by 95% eventually. Secondly, it's an investment that can be installed step-by-step. And the direct reduction facilities are appropriate, both to be operated on purely natural gas and also on purely hydrogen and also for mixed operation, hydrogen and natural gas mixes. If and when the political framework conditions are fitting, then we will certainly take up installation and production there. It still requires the formal decisions, of course, of our decision-making bodies, both management and supervisory board. But once the framework conditions are right, we'll initiate that immediately. And we will then be able, from 2026 onwards, to use the first set of electrolysis direct reduction facilities and light arc furnace, and thus reduce the CO2 footprint of integrated steel production by about 30% already. And once we commission, further aggregates or modules and continuing to add hydrogen to the natural gas in the mix, we will then succeed to go via a 50% reduction and end up with a 95% reduction I just mentioned. In the meantime, we haven't remained idle, and have not only made sure that we receive funding for SALCOS installation, rather, we undertook quite a number of activities. On the one hand, in order to demonstrate and prove the feasibility of SALCOS, and on the other hand, to also test first installations, such as, for example, hydrogen steam electrolysis, which has a higher efficacy than all of the systems you can currently buy in the market. But also, there's the first industrial scale sector coupling of renewable and the industrial user here at Salzgitter. So something can really touch and feel the largest onshore wind power plant in Germany, 7 in number, 30-megawatt is the performance, and 30 electrolysis units by Siemens Energy to produce the amount of hydrogen that we already now need for our finishing line at Salzgitter. We'll continue next year, and we'll have a direct reduction facility operate here at Salzgitter as well, which will serve to allow the mixed operation using hydrogen and natural gas in a test operation, help develop it further, thus constituting a preliminary step and testing stage for the massive SALCOS installation. As I mentioned, the wind hydrogen installation that we initiated here last week with, fortunately, participation of federal policy level and also the land of Lower Saxony. Now ladies and gentlemen, what makes me so optimistic to say that, at the end of the day, steel -- the steel industry will be one of those industries which will indeed be transformed? Ladies and gentlemen, that is because, on the one hand, steel has a share of about 7% worth of CO2 emissions in Germany and about 1/4 of industrial CO2 emissions in Germany. On the other hand, though, and that's something which analysts and economists usually find particularly interesting, the specific avoidance costs, both in terms of investments and in terms of power supply needed per avoided ton of CO2 in comparison to other sectors and industry of our civil society, are extremely low. So if all goes right, then steel, and 2030 isn't that far away, minus 55%. That's the figure out there. So steel will then also be amongst the first industries to have been changed over and transformed. And as I said, for the taxpayer, in comparison to other avoidance costs, this costs relatively little. And decarbonization, obviously, doesn't come free anywhere. So I remain rather optimistic that the SALCOS concept that you're familiar with, and that most of our competitors have also subscribed to in Europe under different names, that this will, at the end of the day, be the one that will also be actually implemented. Thank you very much for your attention, so far. And with that, over to my colleague, Burkhard Becker.

[Interpreted] Yes. Hello, ladies and gentlemen. Good morning. I would like to continue with an overview, which summarizes the financial highlights of financial year 2020. The consolidated sales, as shown before, decreased mainly by EUR 1.5 billion because of smaller shipment volumes and also due to dropped average income for steel products. The pretax result ended above the loss-making year 2019, EUR 250 million. And apart from the immediate measures, which I'm going to show you in a second, the contribution of Aurubis was of EUR 104 million and was supportive. Upward developments in the fourth quarter, EUR 28 million, as a result, that's what we managed to reach. The net financial position declined to EUR 432 million in terms of debt. This decrease compared to 2019 is mainly almost attributable to the payment of the fine to the Federal Cartel Office, EUR 211 million, and also due to the tax prepayment in connection with the securities lending transactions. Mr. Fuhrmann mentioned it before, hidden reserves are given in the upper triple-digit million amount due to the CO2 allowances and also because of the participation in our Aurubis AG. The equity ratio was about 33%. It remains solid. In view of the loss, we planned also for 2020 not to pay a dividend. The dividend payment, however, will be resumed in the year 2022. As there were misunderstandings in partial areas that, at least in the media, what we mean here is in 2022, for 2021, we will resume paying a dividend. We wanted to clarify that. Sorry for the interruption. So the group result results from a positive EBITDA of EUR 176 million. The depreciation and amortization, EUR 295 million, is ordinary depreciation in 2019. We had, as you know, EUR 197 million extraordinary depreciations from impairments. In 2020, it was a pure regular depreciation and amortization. And this leads to an EBIT of minus EUR 119 million. Net interest, EUR 77 million, 50% because of pension interest and the other 50% is interests from our financing on the liability side. EBT, EUR 196 million loss. And taxes include, as mentioned in several times, additional payments, capital gains, tax, et cetera, of EUR 71 million. But we have a legal dispute that is still ongoing, and that leads to an EAT of EUR 273 million. What were the drivers? For the year 2020, in the earnings bridge, that is from 2019 to 2020, the loss-making year, that was EUR 253 million in 2019. There were extraordinary nonrecurring effects of EUR 394 million. Catchwords again, impairment, as mentioned before, then the cartel fine, EUR 140 million, and about EUR 60 million restructuring expenses. The operational influence from volume and margin added up to substantial negative effects of EUR 550 million. On the other hand, however, immediate measures were taken. And these are, apart from the introduced short-time work as a response to reduction of work, also a reduction of other personnel expenses that is from working hours accounts and reduction of temporary -- for a temporary period of salaries of the top management, including executive board. And also, there was a substantial contribution from the reduction of material costs and other expenses in sales, in travel expenses, advertising costs, et cetera. So in total, EUR 223 million immediate measures. Our measures from [ structure ], our strategic measures were continued, EUR 33 million contributed to that. And with other influence and smaller adjustments, we amount to the loss of EUR 196 million that I showed before. Now let's have a look at the income statement. And here, first and foremost, I would like to have a look at the changes in finished goods and work in process and other own work capitalized. Here, I would like to state that the total output, minus material expenses, was about EUR 600 million less than 2019, that is, volumes and specific earnings. Our measures, on the other hand, especially personnel expenses and other operating expenses, end in the EUR 221 million. You also have the cartel fine of EUR 150 million. This is included here. Amortizations and depreciations, there is no longer the impairment, therefore, it dropped. But also, we have been really careful with new investments, EUR 246 million less. The at-equity result mainly is due to the good participation of Aurubis. Now let's have a look at the consolidated balance sheet. Here, we can see that the changes in the noncurrent assets were EUR 145 million, and they show an increase, mainly due to the continuation of our investment, as Jörg Fuhrmann mentioned before. On the other hand, however, in the same way, the share in Aurubis, that really helped us to increase our participation income according to the at-equity method investment amounted for using the equity method. In current assets, we have a clear reduction in inventories and trade receivables. That's the management of working capital, mainly, that was used. The liability side in equity shows the burden because of the loss of the year. But also, the pension interest rate that was to be used in 2020 dropped to 1.1% compared to 1.4% in 2019. And that led to a visible change in pensions and capital, on the other hand. Liabilities, larger change, also trade receivables, but apart from that, there is no spectacular change. Now our cash flow statement. We start, worth about EUR 700 million cash and cash equivalents. The cash flow from investment activities, EUR 234 million. And the cash flow from financing activities, that was a loan that would be raised in the first half of the year. And what you also have included, apart from the fine to the Federal Cartel Office, the payment of EUR 71 million from the security transactions, the capital gains tax. So we have very good results, EUR 621 million cash and cash equivalents. And that has become possible because we concentrated very much on the working capital development. You can see here that the position at the beginning of the new year was EUR 2.1 billion. That was a decline compared to the EUR 2.45 billion in 2019. The main reason is explained on the right-hand side chart, that was reduction in Strip Steel and Mannesmann. But all companies and segments really contributed to this very good results of EUR 350 million reduction of working capital. Other contributions for the next years will be offered by our programs. Here, you can see the FitStructure program and the growth programs. As you know, here, we not only consider productivity, which means reduction of headcount and productivity is an important point for us. Now in addition to that, we have several savings in material, in output, logistic costs will be saved, et cetera. This program, as you see on the left-hand side, shall continue till 2023 and help us to save another EUR 30 million. And there is a similar contribution from the growth programs. There was the ramp-up and the finishing and Hot-Dip Galvanizing project. So additional contribution margins are to be expected. With that, I have reached the guidance. We point out, first of all, that the risk situation because of the corona pandemic is still there and very high. So the forecast cannot be very certain. However, we agreed on sales of more than EUR 8.5 billion as well as a positive pretax profit between EUR 150 million and EUR 200 million. Thank you very much, ladies and gentlemen. With that, I'm through with my part. Thank you.

[Operator Instructions] The first question comes from Bastian Synagowitz, Deutsche Bank.

[Interpreted] I have a number of questions. Firstly, about the decarbonization strategy and also what you already did in that respect last year. You said that you've already produced a few tons of this low-CO2 steel and sold them. And I'd like to know whether there's a price or even a margin premium versus the regular spot market as some of your competitors stated? That would be my first question.

[Interpreted] Thank you, Mr. Synagowitz. There is no competitor, actually, who's already been able to sell that product. Could you elaborate on your question maybe?

[Interpreted] I think there are different approaches across all of the companies. Yours is one. And from what I understood, there are others who are using a slightly different strategy. I think it's ArcelorMittal, in that case, who go for CO2 reduction across their entire production facilities and allocated that to the individual ton and then sell that along with allowance in the -- or with that certificate in the market, and they could do that at a margin premium. I think it's a different approach, but it goes in the same direction, I'd say. So I'd like to know what you meant?

[Interpreted] The answer, no, Mr. Synagowitz, it's not the same approach. Look, if between 1:00 and 2:00 p.m., I inject hydrogen from the tank and then declare so many tons coming out of that to be green steel, then that's a slightly different matter. And I think that's something that not all of the customers find so highly fascinating. What we do is that we actually physically, tangibly produce and sell steel, which, itself, comes with a substantially lower-CO2 footprint, was produced with a lower footprint. So I think it's a different quality here as for the entire package. And Mr. Synagowitz, what matters, first and foremost, is that a product like that be presented to the broad customer base and to generate interest and acceptance and so on for it. Whether we can charge or whether we obtain a few euros more or less for that in a first approach, it's certainly not the issue here. We certainly won't charge less. But all the rest will have to be seen over time. It's too early yet to discuss any kind of premium for green steel. There will be one at the end of the day, I'm thoroughly convinced of that. But when -- if this were a marathon, we've only just run the first 120 meters, you could say.

[Interpreted] That gives me a very good impression then. Then my next question is a similar one. I think, for the second quarter, there will be the EU decision on CO2 compensation cross-border? And I'd like to know what are your expectations for what's to come there during the second quarter. And I'd like to know whether there's any mechanism, using the ETS price, for example, on imports. But at the same time, a certain pro rata discount in order to reflect this free allocation to European plants, whether from your point of view, that would be sufficient?

[Interpreted] I have no expectations whatsoever. You do not seriously believe that by the 30th of June, the EU will come up with anything in the least concrete at all that would be applicable going beyond WTO implications and to do with cross-border offsets, I have no expectations whatsoever.

[Interpreted] Follow-up question. Okay, so what you're saying is the decision for expansion stage 1 is one you'd only make once the framework conditions are clear?

[Interpreted] We don't believe in framework conditions that we don't expect ourselves. What we believe in, what we want to rely on our framework conditions that are fulfillable. And framework conditions that are fulfillable include that the funding matters and subsidy matters currently being dealt with, that they lead to notifications and decisions, in that respect, in some kind of foreseeable future. And that is true both for the European and the national framework. And things such as IPCEI would be included here. But beyond that, there are steps, for example, in Germany, for example, the EEC exemption for power used to produce green hydrogen by way of electrolysis. Moreover, there's contract for difference, which I personally believe stands far better chance than this cross-border compensation mechanism. I mean it would be nice if there were such a thing 1 day in the future, but I do not believe that it will get any more concrete until end of June of this year. But to say quite clearly now, but it's not something we speculate on. We're not saying we'll only start marching once miracles happened. And only to then find that the miracle didn't happen after all, and therefore, we can't do anything. Rather, we expect steps on a political stage, which are indeed realistic.

[Interpreted] And a follow-up question, if I may link up to that? When do you expect a decision then for you to make regarding extension stage 1, rough time line?

[Interpreted] Once the entire procedure in Berlin and Brussels takes place slightly more speedily than corona or COVID vaccinations here in Germany, then it might indeed happen and might indeed be possible that in around about 1 year, we will have far more substantial progress regarding decision-making. In other words, I wouldn't rule this out, but once thought to have a situation where everything happens a bit more speedily, that, at some point in 12 to 24 months' time, we would then be able to make such a decision to go for the first SALCOS stage construction. I do believe that to be possible. But as I said, it depends less of our management board and our supervisory board, both of whom are absolutely ready to make the necessary resolutions. It really depends on the political decision-makers.

[Interpreted] And one final question, if I may, regarding the CF -- PFC topic. Is that a purely German thing? Or is it something also at European level?

[Interpreted] No, it's also discussed at the European level, but we have to state, Mr. Synagowitz. After in Berlin now, with respect to the depth of consideration, decarbonization, a lot of positive things developed in the past 2 years: national hydrogen strategy, action concept, steel, et cetera. And in Brussels, we are lagging behind. You see that Brussels is very good in adopting targets. I appreciate that, that they create tighter and tighter situations for us. This is helpful once in a while, but they are really vague. It comes to measures and the support of measures to fulfill these targets without deindustrialization of our entire industry or demobilizing it. Berlin is further advanced in that, but I stay optimistic. And I expect that Brussels will catch up, but Berlin cannot do it alone always.

[Interpreted] Next question comes from Christian Obst from the Baader Bank.

[Interpreted] I have a question about the development of trade. Steel price is increasing tremendously. On the raw material side, you have a problem. What are you expecting for this first half of the year? And then in the same context, cash flow. What will be the working capital requirement be with the much higher volume? How do you plan it? And if I read it properly in the management report, you assume that debt will grow substantially as is the higher volume. Can you tell us more about it, what the plans are? Personnel costs, despite structural reductions, will you come to the EUR 1.8 billion, more or less? Is that the run rate that you can accept? And the last point is the investment cash flow. What is the plan for the cash out for the still existing or operating or current investment? What's the cash requirement here for the next 2 years?

[Interpreted] Well, let me start with question #1. We all know that in times like these, in which the steel price has a progressive development, is increasing, especially trading will start immediately. And that won't be different for us. What we love to see at the moment definitely creates a lot of joy and happiness for us. Apart from that, personnel expenses, you see, on the one hand, we will have moderate wage and salary increases in the next few years. On the other hand, the number of employees, with respect to the group of consolidated companies, will decline slightly. There is growth in overseas company, mainly, and a bit from our FitStructure program, 2.0. There is more to be done here in the next time, so your basic assessment is not totally wrong. For the other subjects, my colleague, Burkhard Becker, will continue.

[Interpreted] Yes. Mr. Obst, from the investment, or rather from the 2 large investments, we expect cash out of EUR 130 million, a high 2-digit million amount will occur in the year 2021. Cash flow, cash flow development, and this also means indebtedness, well, yes, working capital will be used. And the investments that were mentioned will drive the cash outside. On the other hand, we have the positive development of the result. So I assume, instead of EUR 430 million, we go in direction of EUR 550 million to EUR 600 million till the end of the year '21, beginning of '22.

[Interpreted] I've got another question, maybe it's in a personal question to Professor Fuhrmann. There will be a handover to a new CEO, which is an interesting time, isn't it? Now my question, what about this handing-over process? It's not so trivial if someone from the outside joins the Salzgitter AG. Would that person come by before July already, and then you would work together for 1 to 2 months? Or how do you do it? Or will there be a hard cut?

[Interpreted] Well, of course, my colleagues on the board and I, then, of course, in the course of time, it will include other persons in the group. They have a regular contact with Mr. Groebler. On the 17th of May, he will start his work. And then I stay for another 6 weeks at the same time. And we have organized it in such a way that Mr. Groebler gets the best possible introduction to the job. And when the new executive board on the 1st of July starts -- June starts operating. We do that without fuss, without too much noise, as we always do it, but highly professional. I believe that we will be successful in that.

[Interpreted] The next question is Rochus Brauneiser from Kepler.

[Interpreted] I've got a few questions, maybe I can -- or we can deal with them individually. The first one refers to the market outlook for strip steel. Professor Fuhrmann, can you tell us a bit about the length of your order book in strip steel? In the past few months, as we have heard, it has extended. And I would like to get your opinion on how you judge the import risks. There's a price differential between Europe and Asia, which has really grown. What are the levels you see at the moment? Are they problematic for you or not problematic? If it's not so problematic, what would be the reasons for that?

[Interpreted] As a matter of fact, in strip steel, we have a very good order book until the second quarter, a very good one. And with respect to imports, this is not only dependent on the European and German market, but also -- and this is the question you raised, it's also dependent on the possibility to take our imports and have earning possibilities and capabilities in other markets. There has been a positive development for many, for you, personally, as well. It was a surprise. But in the same way, that can end very quickly. At the moment, however, there are trends like that -- there aren't trends like that. There aren't phenomena like that. Yes, indeed, now as before, we have a strong presence of imports in the European market. And as a matter of effect, the 2 of us know that really well. Most imports don't pay any tariffs as the safeguards only as of an average 2015, '17 become effective for certain origins. There are tariffs to be paid, but not for on the most imports. Of course, that might calm us down and make us happy because then the decision of importers and consumers are fulfilling market economic rules. However, there is a certain potential for other developments in other directions. I should say, however, at the moment, I don't see it.

[Interpreted] Okay. Based on the data that we know, doesn't -- I don't see any indications of that. But there is a rule of thumb where you said that if the price difference between Europe and Asia is $100, then it was more attractive to have imports. And now at a time where the lead times for deliveries from Asia are in correspondence with the delays that you had before...

[Interpreted] I would like to interrupt you. Yes, you are correct. And I always defended this rule of thumb. And most of times, it was right. But there are some other factors coming into play, and that's the lack of shipment tonnages. I have to make sure that the higher-grade strip steel are not transported in bulk carriers. You have to be more careful for the transportation of it, sometimes you need containers for them. And you know that containers and container ships are very short at the moment. So there are additional factors we have to consider. Then in addition to that, in China, we have a very strong air pollution, and the result was that steel production at certain places had to be reduced.

[Interpreted] Okay. That brings me to my next question. There is one factor, which definitely was good for the price increase in Europe, favored it. And that was that the steel production in Europe, on a monthly basis, went behind the order intake, rather. There has been an intensive discussion about reductions in production and the supply of raw materials. What have you observed in the European market presently? Is raw material, commodity supply, availability of containers, or are there other factors that probably delay capacity utilization or capacity increase as planned?

[Interpreted] At the moment, the raw material supply is stable in general. In Australia, there are some weather incidents or there were some weather incidents that led to interruptions, but they were not significant. And the -- coming back, the increase of capacities, again, happened as far as possible and as planned. It won't be more than that.

[Interpreted] Okay. Understood. So the follow-up question to what Mr. Synagowitz asked before, and that was the border adjustment mechanism. How would you evaluate the recent decision of the European Union parliament that, in principle terms, they were in favor of this cross-border adjustment, without, at the same time, allowing free-of-cost CO2 allowances? Do you think that's due to the atmosphere in the European parliament? Or does it point the direction already that they will do it that way once this mechanism is introduced?

[Interpreted] Yes. As a matter of fact, as you have just formulated it, I think that's the atmosphere in the European parliament. You see, there were threats from the United States, and then a 95% finished pipeline is not finished and completed. Although, in the next 2 decades, if we want to achieve the minus 55% CO2 emissions, we can only do that, and I mean, particularly Germany, when we increase natural gas consumption tremendously. And then I can assume what will happen if China, probably also the United States and others, say this broader tax mechanism has to be formulated. First and foremost, it's not so easy. It's not trivial. It's not in line with WTO. And if it's introduced by the EU, nevertheless, then we will take retorting measures. I mean it's a totally different dimension than the 95% finished Nord Stream pipeline. And even here, they are checking away already. I don't want to exceed the scope of our analyst conference. But just one little fact, Mr. Brauneiser. Let's assume a steel manufacturer abroad, I not only want to talk about China always, there's 10 million tons capacity. They install 1 direct reduction plant for a combined gas-hydrogen operation. And in that way, they can reduce 100 million tons. They can produce green steel. And they say, the steel that I export to the European Union is green steel because it was produced precisely on that basis. What can you say against that? You can't say that you produced 9 million other steel, other steel type. Now this steel state in our country always exported to the Philippines or Taiwan. So we have to send European Union inspectors to China to check whether it was precisely the same steel or different steel that was exported to the European Union. And that's it. That's all I wanted to say about this point. What I want to say is it's not all that easy.

[Interpreted] Makes sense. Briefly, last question about Peiner, the green steel issue. As slabs are produced in Peiner, is that a similar concept to what you did 5 to 7 years ago when the second electric arc furnace started operations? There was a similar plan at that time. Are the costs different today? Or why is it more promising today because of the general green steel acceptance? Or are there other economic factors that changed the situation?

[Interpreted] Now the situation has indeed changed. And the original intention of the Peiner installation from around about 10 years ago was to allow for a certain flexibility between integrated steel production and steel production from scrap, and that not just for the production of carriers and beams, but also strip steel products. For a number of them, it then turned out that, at the end of the day, it wasn't quite that attractive after all. And we, therefore, then at Peiner, we made the entire structure a lot leaner. And the workforce of originally about 1,400 was reduced to 750. The plant, as such, was obviously still standing there. And with some refitting activities with a degree of making it fit again, say, we've now managed to come up with an entirely different entrepreneurial approach and get the whole thing going again.

[Interpreted] Now questions from the English conference. The first question from the English conference comes from Carsten Riek, Crédit Suisse.

A few questions from my side. I would also take them one by one. First one, in the EBT bridge, you showed the positive impact of EUR 223 million in immediate measures to fight the impact on -- from COVID. How much of those will be sustainable going forward? And how much will reverse? Can you give us a rough indication?

Yes, we could do so. Nothing, because, otherwise, it wouldn't be immediate measures because of COVID. If we believe, and I think we showed, that COVID is not an issue we have to deal with forever, yes? Finally, nothing of the immediate measures will be sustainable, with the exception, say, of some travel expenses because we have had a certain experience that you don't need urgently to travel to any location to communicate with each other. But that is, of course, say an overseeable volume, maybe EUR 10 million or so. Yes.

Okay. Perfect. Understood. The second question I have is on the improving market conditions. Did those conditions enabled you to ramp up your smaller blast furnace in Salzgitter again?

Not for the short-term because we have decided to make use of the full capacity of our HKM share, primarily to fit the needs of the strip steel production in Salzgitter and the heavy plate production in Ilsenburg, in addition to the -- for the time being, reduced needs of the heavy plate mill in Mülheim, having in mind that the current order situation at EUROPIPE is rather low. So if the material flow towards -- especially towards EUROPIPE becomes stronger, we will think or rethink to put the third smaller blast furnace in Salzgitter back into operation.

Okay. Perfect. Then I have one, which also is around Peiner and the aim of actually -- improve your carbon footprint. You talked about DRI could be used in the electric arc furnace in Peiner. Do we talk about the operating one, or the one which you idled a few years back? How is this concept actually going to work?

Yes. Both. Both.

Do we see that in operating one or the other one?

Yes. Yes. The possibility exists for both electric arc furnaces. In fact, we didn't idle 1 of the 2. We operate them alternating. So we reduce our off time because of the need to reline the electric arc furnace from time to time to 0 because we operate either the 1 furnace or the other furnace. And when we operate the electric arc furnace 2, we reline electric arc furnace 1 and vice versa. To be very precise, the carbon footprint reduction on the basis of the electric arc furnace in Peiner is currently the case. It is not dependent from DRI as a feedstock. We reach that even today, with scrap as a feedstock. So it is not scheduled or planned, but it is current reality.

Perfect. And the last one I have is on the dividend. You mentioned you could actually pay a dividend or reintroduce the dividend again for, potentially, I mean, paying in 2022, but for 2021. Could that also be the case even though the dividend might not be covered by free cash flow? Or is that the measure which you will take into account when determining the potential dividend?

Yes. From a legal point of view, the dividend is not based on operational cash flow, but if you have made a profit or not. So if you made a profit, and you have a slightly negative cash flow, net cash flow, because of having invested more than you have depreciated, for example, or you have a limited swing back in working capital, that is, by far, no reason not to pay a dividend. So otherwise, any company, which is in growth, can never pay a dividend.

I understand this. I was just looking at the net debt at the same time, which we have seen climbing to a level which is still manageable, but of course, you need to keep an eye on.

That is absolutely manageable. Please look once again that we have hidden reserves, cash-wise, in our -- outside our balance sheet of more or less EUR 1 billion. So we can pay a dividend of EUR 10 million or EUR 20 million easily.

And the next question comes from Tristan Gresser, Exane BNP Paribas.

Yes. If I may, just have a follow-up. I appreciate the translation, but I'm not sure I understand correctly your comments on working capital requirement for this year and CapEx. If you could just clarify that, please?

Yes. My answer to the similar question of Mr. Obst was as follows: the expenditure, the cash out for the both big investments in Ilsenburg and here in Salzgitter in '21 is high double-digit million euro amount in some, over the years, around EUR 130 million cash out for those both big projects. Expectation of net debt, starting from -- starting point, minus EUR 430 million, as we reported here in this meeting expectation, including from results from working capital needs and from these capital expenditures expectation around EUR 550 million to EUR 600 million year-end '21.

Okay. Just to clarify, I think in the annual report, you referred to budgeted capital investment cash effective of EUR 400 million. Is that the figure we should look at in terms of CapEx cash output for the next year?

Yes, the EUR 400 million is the, so to say, normal projects in various companies. And this includes the requirement for the both big projects, yes.

All right. Just another question, please, on...

Sorry, you have to be aware that we have a depreciation of EUR 300 million, yes. So explaining the net cash, you have to take into account this EUR 300 million against the EUR 400 million.

Okay. That's clear. Given we're pretty much at the end of the quarter, can you provide maybe some color on what you expect in terms of performance in Q1, notably on shipments for strip steel, given you declared force majeure, I believe, in February? But also in your release, I think, you flagged inventory gains in trading in the first month of the year. And also, I believe you commented on nonrecurrent effects in technology. If you could maybe provide some color on those items, that would be appreciated.

Yes. The real volumes, because the weather has improved because of force majeure, we will not ship into the -- in the first quarter, I believe will be negligible in comparison to the total volume. It was mere -- more, say, a precautionary measure, not to get trouble with our customers, then inability to ship material over a longer period. Secondly, there will be no gains from valuation or so in the first quarter. Nevertheless, we expect a rather good result. In the first quarter, it goes without saying that it also depends from the Aurubis result. But as far as our 100% subsidiary companies are concerned, yes, we can be rather optimistic.

That's helpful. And just on the nonrecurrent affecting technology for this year, can you just clarify what that is?

Can you repeat your question, please?

I think for the Technology business, in your guidance, I think you referred to next year's results, but you also mentioned that there will be some nonrecurrent effects. What exactly are we talking about in terms of size, if this is significant or not?

Yes. In the Technology result, there will be a positive one-off. But in this year, but a part of that, also, the current result would show a clear improvement of all companies: KHS, KDE and KGS. So all in all, we expect for the Technology division result, which is compared to the previous years, I would say, rather outstanding.

At the moment, there are no further questions in the English conference. [Interpreted] For the German listeners, no further questions. [Operator Instructions] Okay. There is one. Sorry, there is one question of Mr. Obst of the Baader Bank. Mr. Obst?

[Interpreted] Sorry that I come in again very shortly. Could you tell me again what the share of the United States in sales, United States plus Mexico? And whether there was full utilization of capacity in these plants? And what you expect also with respect to the measures because of the new presidency, and the subsidies that are paid probably?

[Interpreted] Yes, this is a very demanding question for one who loves figures. Mr. Becker and myself will not give up. We just look into our documents. You can only do that with executive board members who are busily working still. Otherwise, you need a background commission of 20 people that look it up immediately. Let me talk, at the same time, United States sales. For KHS, mainly, that's a low 3-digit amount, EUR 200 million. EUR 200 million. And partly, it is based on production in the United States and Mexico, as such, the rest is import. And then we also produce stainless steel tubes in the United States, a little bit, not much. In addition, we have steel trade in the United States. There is no import any longer, but it's based on the original sources there, the UES, for example, and there has to be some propriety rework, maybe EUR 150 million. Mexico, we also make a bit of sales. I dare say something, but I can't guarantee whether it's fully exact. So roughly, for Mexico and United States, roughly 5% to 6% of our consolidated sales, but don't take that fully for granted. Though KHS won't be massively affected by the new activities in the United States and benefit from that, but the other ones, the pipe plants and trade, in particular, they will benefit. It may happen, MLP, yes, that may happen and might be good. There's also some sales with strip steel specialties. And with respect to the trend, the general trend, it's positive, but this will not increase our consolidated results by EUR 100 million.

[Interpreted] And there is one other question by Bastian Synagowitz, Deutsche Bank.

[Interpreted] I have one short question. Professor Fuhrmann in the United -- in the European Union, there is a project for green steel. In terms of timing and budget, it looks very ambitious. Precisely because you said that framework conditions have not been finally decided yet, have you looked at it? Can you give us your point of view of this project and inform us whether this would be something where you could imagine to participate? I assume your answer will be no, but maybe you can briefly comment on this?

[Interpreted] Thank you very much for that question. As a matter of fact, we have dealt with that project as well, but the new situation is quite sparse. Let me tell you the following: a plant, as we have it in Salzgitter, if you want to buy a new one, you have to invest EUR 15 million. If we retrofit metallurgical systems to 2015, it will cost EUR 3 billion. If a new integrated steel mill is to be built wherever in Europe, if this is your plan, and I want to be very cheap, then it's not EUR 15 billion, but rather EUR 10 billion and EUR 3 billion for the metallurgical processes. The EUR 7 billion, well, have to service the capital requirements because I don't get any subsidies for that. It's not decarbonization. It's just creating capacities that the European Union market doesn't wait for. 7 x 15% capital service, that's EUR 1 billion per year. Production, EUR 5 million tons, to do it roughly, that's EUR 200 per ton, if I'm not mistaken. Do you honestly think that this makes sense, that this is efficient and economical? I rather think it's a joke and not really something that can be implemented and brought to life, even at sites that are good for that. I don't want to deny that, but investing such a thing that's extremely expensive as a greenfield project, maybe in a growing developing country, you can do that. But there have been 3 bankruptcies before the fourth owner becomes happy. But honestly, in the European Union, where you don't really wait for additional capacities, I can't imagine it. But just as an appetizer, maybe that's a great thing.

[Interpreted] And there is one more question from the English conference. And the next question comes from Andrew Jones, UBS.

Just a quick question on the CapEx, following up from that. You're assuming that you expected EUR 350 million of CapEx in 2021 on the last call, now it's gone up to EUR 400 million. I was wondering what's changed? And then could you give us some idea over the next few years how CapEx is likely to trend, especially if you have to invest that EUR 1 billion in the first stage of SALCOS?

Yes. We expect that it gets back to between EUR 250 million and EUR 300 million per year.

Despite the potential green investments?

No. Only normal ordinary investments for all the various companies without decarbonization investments, of course, yes.

Understood. And just on a separate topic, for your 2 big investments that you're bringing through at the moment. Could you talk us through the economics of how profitability is going to increase in the next couple of years as a result of those, in terms of potentially the pricing uplift on the high-quality HDG that you're looking at producing or potentially the heat-treated plates? What sort of delta are you expecting on pricing? And how much could these projects add to costs?

The first question was concerning the profitability of a blast furnace relining? No.

No, no, no. The profitability of the 2 big investments you're making, the HDG one, and the Ilsenburg.

Yes. Okay. Understood, sorry. For the both project, we expect a payoff periods of between 5 and 7 years.

Could you give us any details about the pricing uplift, potentially, from selling those premium products compared to the standard products that you would be producing otherwise?

The delta is especially significant in -- concerning the heavy plate. And this is a delta with a 3-digit euro per ton amount. Concerning the strip steel enrichment of the product portfolio, it is also significant. But you have to keep in mind that we also currently produce these kinds of products in contrast to the heavy plate situation, but not with this volume. So this is not as significant as the sales price push we see in the heavy plate segment.

Okay. So I mean how do you see the product mix evolving with the extra 500,000 tons of HDG capacity in strip steel then?

Yes. The product mix, we'll see less hot-rolled strip. We currently have a -- still a significant portion of hot-rolled strip. Pickled and nonpickled in our portfolio, this will decrease. And we will substitute electrolytic galvanized material as well as a hot strip by this additional hot-dip galvanized material.

Okay. I mean could you give us an idea of approximately what sort of proportions? I mean if you're adding 500,000 tons of HDG, how much of those can...

No. No, I think we can assume rather 50-50.

[Interpreted] There are no further questions in either of the phone lines.

[Interpreted] And thank you very much. It was a lively discussion and also questions answered to a great degree of detail. Should there be any follow-up questions after this conference, please contact the Investor Relations team. You know our contacts. Other than that, stay safe and see and hear you next time.

[Interpreted] Goodbye, and hopefully see you again sometime soon. All the best and [Foreign Language]. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]