Salzgitter AG (SZG) Earnings Call Transcript & Summary

[Presentation] A warm welcome to all of you to our Strategy Day and the presentation of our Salzgitter 2030 corporate strategy. My name is Gunnar Groebler, and I'm the Chief Executive Officer of Salzgitter AG. Together with my colleagues, Burkhard Becker and Michael Kieckbusch and other speakers, I would like to present Salzgitter AG's new strategic direction to you today. The world is changing. Climate protection has become a challenge to be addressed by the whole of society. Domestic and international policies have clearly mapped out the route. Industry is on board and not just since COP26 in Glasgow. We, at Salzgitter AG, are rising to meet the challenge of reducing CO2. We see it as an opportunity, so we put at the center of what we do. This requires courage, courage to change and in doing so, to future-proof ourselves as a senior technology group. Courage to change to sustainable production processes, sustainable solutions and products together with our customers. Today, we'd like to show you how Salzgitter AG has prepared itself for the future and how we embrace, implement the societal mandate for more sustainability. And how we will set about securing our own independence and our industrial strength for the future. There are 3 aspects that define Salzgitter AG: People, steel and technology. On our journey to becoming Europe's strongest steel and technology group, we'll be taking you into our world, the world of our group at different -- and different people and partners who are linked to us will have the opportunity of speaking to us today. It is important that we travel on this journey together. Ourselves, as the management team, together with our many colleagues, our Supervisory Board, our investors and our partners. Part of this is naturally our codetermination colleagues, through which we work together as we always have done on the basis of partnership to the benefit of the company and the employees. Our aim is to accept change proactively and to actively shape the way we change. Over the past 150 years, we have evolved into a leading steel and technology producer. We're now guiding and steering this spirit with even greater energy to focus on the imminent change. Our aim is to remain a leader in our businesses tomorrow and well into the future. We will only achieve success together. And as much partnering for transformation is not only the mission of our new 2030 strategy, but also illustrates the interaction between companies, departments and employees, our technologies and structures, the interplay between politics and the group as well as the synergy between steel and technology. The combination of steel and technology remains the cornerstone of our future. Steel is quite possibly the most sustainable and universal material in large-scale applications. From the tower of a wind turbine out at sea, right through to the living room radiator, from the pylon that transports our green electricity to the oven in the kitchen, from the car to the steel girder for the new logistics building, steel is strongly embedded in our society, versatile in its usage and is to be found in all areas and walks of life. What makes them particularly valuable is the fact that it is infinitely recyclable. Consequentially, steel is the most likely the best ambassador for a circular economy, but more on this later. Our technologies support our customers with sustainable solutions in the domain of energy efficiency, the usefulness of recycled feedstock and the upcycling of used machinery. Added to this, we want a new and very important focus, people. But more on this later from you, Michael. But first, I have a question for you, Burkhard. Where have we come from? What has made us successful so far?

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We see 3 trends in particular that will have a particularly large impact. The first is neo- ecology. Neo-ecology designates the mega process of change impacting society. Environmental awareness sustainability have long since advanced from being merely a lifestyle or trend. A look at the development on the global scale shows us that awareness is changing. The entire societal systems are undergoing a sea change, and consequently so is our economy, not only in terms of conserving sources and efficiency, but also with a view to product design, processing and downstream use, industrial innovations, employment and growth, climate and energy and sociopolitical agenda. The well-considered handling of our sources is becoming increasingly important. The maxim is, more intelligently and wherever possible, also, less.

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The third megatrend is called New Work. The way we work is set to change. New Work is already challenging our fundamental understanding of this. The global pandemic has accelerated digitalization. And our mindset today calls for new ways of structuring work. Added to career, in the conventional definition comes the question of meaning. Clear cuts, work-life boundaries are blurring our everyday life. Employees are increasingly coming to view themselves as problem solvers of societal tasks. Companies are changing their raison d’être, are becoming more agile and adjusting.

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We are voluntarily reporting about our sustainability commitment for more than 8 years. We want to convince our customers that they choose for durable, reliable and resource-saving filling and packaging systems to accomplish their own sustainability goals. In these days, the most stated goal is climate neutrality. And in this regard, they also expect clear targets from us, which is also our will. That's why we will proclaim specific binding targets to become carbon neutral soon. We will finish our first corporate current footprint according to the greenhouse gas protocol. The first results show us that we already head into the right direction towards renewable energy and the support of circular value streams, both decisive pillars to cut emissions. We have switched to certified green electricity at our German plants and to now focus on our international sites. We make sure that our actions and our products also triad to reduce, reuse and recycle. Our latest generation of water fillers for beer in glass, for example, is up to 60% less CO2 than in direct market comparison. Or our machines to produce plastic bottles is up to 40% less energy and compressed air through intelligent heating and cooling concepts. In the packaging field, our innovative nature multipack solution with special dots of glue stick the beverage containers together to form packs with handles completely works without any kind of additional wrapping. It is one of the most sustainable types of packaging to date, with 4.5 grams CO2 equivalent per pack. In the area of process technology, filling, cleaning or thermal container treatment, we offer a multiplicity of solutions to reuse water, heat or other resources within the production process for the purpose of circularity. We support our customers regarding sustainable container design, especially for plastic beverage bottles. Thereby, we put the use of recyclate or alternative raw material in the center of our consultancy. With Plasmax, we offer the only recyclable barrier in the market for plastic beverage or food containers, protecting sensitive contents. The barrier is based on wafer thin chemically pure glass, which can be entirely removed during the bottle-to-bottle recycling process. The result, in high-demand food graded recyclate. A lot more solutions are already available as well for new machines as for those in operation, and we continuously adapt our development to the market requirements. Our customers stay flexible by using our products over decades efficiently and reliably. What comes next? We will shortly start with the life cycle assessment of our packaging solutions. In subsequence, we will also have a closer look at the current footprint of our relevant machines and service products.

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The goal of climate neutrality presents society at large with a major challenge. We have defined our response for the Salzgitter Group and for our customers with the SALCOS program. SALCOS is our program for transforming the Salzgitter steel mill towards a low CO2 steel production. For our company, this transformation means no less than securing the future of our steel activities. SALCOS has already transmuted into the core and pillars of the Salzgitter Group. Today, we are working very committed to bringing SALCOS to the point of investment decision, far before the year is over. With SALCOS and the transformation of the existing integrated steel mill, we are acting as an important and essential role model in the steel industry. We are securing our pioneering position through uncompromising orientation and an adjustment to the changing growth. With a future the growth markets and the segments of the overall market, the positive trend of green steel is considerably high. Green steel is soon to become the core of our business model at Salzgitter. Our existing as well as our new customers in the area of automotive, wind industry, infrastructure and household appliances are setting increasingly ambitious decarbonization goals. They do this while integrating the supply chains, meaning consequently the use of low CO2 materials and products made of steel. Our primary target is the full transition of our steel mill through the carbon direct avoidance. We are convinced and determined to assign top priority to the avoidance of CO2, which will serve to define our future sustainable business. Mona, what have we achieved so far?

Since 2015, we have been working with our partners on the question of how we can use hydrogen to reduce CO2 emissions in our production process. SALCOS was born. This program comprises of hydrogen production based on renewable energy and switching steel production away from blast furnaces and converters to hydrogen-based direct reduction plans, with downstream electric furnaces. In our subprojects, wind, hydrogen and GrInHy 2.0, we took care of ensuring the supply of green energy. For this purpose, we build 2 small electrolyzers for hydrogen production, which are powered by green electricity generated by newly built wind turbines. In addition, the construction of the micro direct reduction and µDRAL is progressing and it will start its operation in the second quarter of this year. We can use this demonstration plan to test raw materials and energy sources in the direct production process. µDRAL allows us to gather valuable experience for the next steps in the ambitious implementation of SALCOS. We will be awarding contracts for the construction of large-scale industrial facilities before the end of this year. Until we have the security of supply of hydrogen, we can operate these facilities based on natural gas as a transition solution. The power required is to be sourced exclusively from renewables. Here, too, we are exchanging ideas with many partners in order to be able to supply our integrated steel works with green electricity and in particular, green hydrogen in a timely manner via new infrastructure.

Starting from 2025, up to 30% of the production volume will be produced as low CO2 steel, pursuing the new SALCOS. Our customers will, from then on, receive their Salzgitter products such as sheet materials for cars. White goods or components manufactured to the high-quality standards, they are useful. We pursue the goal of implementing the final phase by 2033. Switching to blast furnaces step-by-step fully to direct reduction plans enables hydrogen to replace the carbon required to date. This is the course that Salzgitter will take to reduce CO2 emissions by more than 95%. We will decommission our blast furnaces and converters step-by-step and position in the Salzgitter Group by its transformation on the future proof foundation and sustainable technologies. In doing so, we will also take the needs of the people at locations of our transformation into account, act responsibly and aim to find balanced solutions together. One thing we know for sure, all technologies change and realignment will need partners and support. Our corporate strategy is, therefore, to approach this transformation as an alliance with you, as our partners, our customers and our employees step-by-step.

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Along with traditional trade customers, such as the construction and infrastructure industry as well as shipbuilding and mechanical engineering, our heavy plate business has established itself in the recent years as a reliable supplier to the wind turbine industry, thus making an important contribution to the LNG vendor. We achieved a major milestone last year through commissioning our new key treatment line at our Ilsenburg site. This investment forms the basis for the quality growth in our heavy plate segment. We are setting new benchmarks in heat treated heavy plates. Products from the new plant are outstanding in terms of processing and our customers are thrilled. Product excellence, combined with excellent service levels, flanked by reliable and transfer processes. This is our aspiration. Wind energy, both onshore and offshore, is a growth market. We want to occupy the strong partner position in the circular economy, with green steel for the wind energy supply chain. Our Peine location operates a mini mill that smelts around 1 million tons of crude steel a year, from steel scrap and a climate-compatible energy-efficient process. The 2 electric arc furnaces operated here, rank among the world's most modern and powerful facility. Consequently, our Peine plant therefore features as a car component of recycling and with its products, demonstrates the recyclability of steel in the circular economy with no loss of quality. Our plant set up in Peine enables us to pave the way to swift ramp-up of the SALCOS megaproject in Salzgitter, where we are already producing low CO2 slab for strip products today. From the raw material mix through the accompanying processes and on the customer feedback, we provide a laboratory on the industrial scale. This is one of the Salzgitter AG's unique selling propositions. Today, we already feature as a key player in scrap recycling. We have firmly established process change in the business as and transport and treat around 2 million tons of scrap a year. We have introduced close loops for the return of scrap metal, and will be reinforcing them in the future. Here, we rely on a strong foundation and will continue to expand position. As pioneers on the journey toward a circular economy, courage and explore new ways is necessary, along with a great deal of resilience, the ability to adapt to dynamic, volatile and uncertain conditions in the environment. Consistent volatility and profitability management are in equal measure task incumbents and all the group's companies. This is how we position ourselves robustly to meet transformation in the years ahead.

The trading business unit sells more than 4 million tons of steel products a year. It functions as an important and valued partner of its customers, from medium-sized companies through to large groups and this on a global scale. We will also be transforming our product range from gray to green steel, natural rigorous aligns to the needs of our customers. In the circular economy, we support close material life cycles in the partner network from the stage of providing these materials through to their return. Our strong network of full range trading warehouses with finishing capacities, services markets in all major European regions. We want to expand and strengthen our market position in the various regions, particularly in Eastern Europe. Back in 2016, we had already launched e-world, our digital sales platform. Our plan is to expand our digital services and press ahead with the entire digitalization of business processes. Our goal from e-commerce right through e-business. From digitally supported processing, through to optimized delivery and to analytics-based order processing. This is how we will set about embracing the digital age, creating sustainable customer orientation solutions.

The technology business unit of Salzgitter AG comprises 3 manufacturers of special machinery, each of which is one of the leading manufacturer in its respective market. The KHS Group headquartered in Dortmund, North Rhine-Westphalia, is one of the 3 leading companies for the production of beverage filling and packaging equipment, with a total of 10 production sites. Of these, 5 are located in Germany and 1 plant each is in the U.S.A., Mexico, Brazil, India and China. Klöckner Desma Elastomertechnik GmbH has its headquarter in Fridingen, Baden-Württemberg. It is one of the leading manufacturers of injection molding machines in the rubber and silicon industries. Desma has also sites abroad in Slovakia, India, China and the U.S.A. Desma Schuhmaschinen GmbH, which is headquartered in Achim, Lower Saxony, is the world market leader for systems, machines and automation solutions for the industrial shoe production. All 3 companies have in common that in recent years, various profitability and growth measures have been successfully implemented, which are now having an effect. Our driving force here is growing successfully. How do we intend to shape the technology business unit in the coming years? A general condition for the mechanical engineering sector in Europe unlikely to remain very favorable in the coming years. Certainly, we are currently very much preoccupied with the global construction of the supply chain and we continue to struggle with the consequences and side effects of the corona crisis. Nevertheless, we are confident that by consistently implementing our profitability programs, we will be able to take advantage of the opportunity ahead of us and make a valuable contribution to our customers in our generally growing markets. KHS has established itself as a reliable partner in the market and aims to expand its global presence in the process. Looking back on 2020, and the full force of the corona crisis hit us in the end of the first quarter, we can see today that KHS was able to be very successful in the major markets despite this, thanks to its global decentralized local presence. Being as close as possible to our customers is essential for us, especially to guarantee a service business and our customers, which is very relevant for us. At KHS, we are developing further market share in our standard business, where we are consistently doing our technology homework for glass lines, canning lines, PET lines. In addition, we are developing profitable, innovative new products which, in particular, also make a contribution to reducing the overall volume of beverage packaging and working more ecologically overall. Solutions that make shrink firms completely unnecessary, machines that combine containers by paper revenue or even coating technologies that enable less material to be used our -- among our successful milestones in this respect. Equally important are our processes, products and services for resource, power-conserving and CO2 reduced close production. We are able to support our customers throughout the entire life cycle of their plants, while adding value adding solutions and upgrades. In some cases, we also refurbished used machines and prepare them for renewed production. In this way, the technology business unit can also make a significant contribution to the circular economy. Digital solution for processes, production and services are becoming increasingly important and round our activities. Here, we are developing intelligent systems, both our internal and external solutions. And these are then used by our customers worldwide. All in all, we are very pleased and proud to be part of the Salzgitter community and look forward with extraordinary confidence to the years ahead.

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Salzgitter AG is in the process of change. Our self-image and our strategy will be visible, both internally and externally in our new overarching communication. This change will not just be theoretical experiencing. It will be visual. After 24 years, we will, therefore, be adjusting our figurative market. With this change that is visible for everyone to see, we will be in a position to engage all companies and all employees to accompany us on the journey towards transformation. We will harness the strength of our existing figurative market. This will be recharged with visual energy and will embody our new goals, values and core content in future. Circularity, pioneering, partnering. The ends of the circle will move closer together in the figurative mark in order to visually transport the core topic of circularity in the form of a circle. The orange centerpiece of our figurative market stands for people. As pioneers, they enable the success of the vision. The direction of the arrow symbolizes market leadership for circular economy solutions. This clearly points in an upward direction. The 2 wings stand for steel and technology, the cornerstones underpinning the group. This also visualizes the manifold partnerships that figure as part of our mission. These partnerships encompass the central factor, people. Our claim is also being renewed in terms of the core components: Salzgitter AG, people, steel and technology. First and foremost, people as pioneers secure the future of our group with steel and technology. An interplay of word and image that puts people center stage and shows us the clear vision and mission of Salzgitter AG. This transformation not only has its origins in the visual, but also in each and every one of us. What lies ahead is exciting. On the way to renewal, we will be leveraging the full potential to support our companies in their daily work and also, within the meaning of sustainability to transform our communication channels. We are looking forward to an innovative brand world that will accompany us for a long time.

This is our strategy for the future of Salzgitter AG. We have shown to you how we intend to establish ourselves as a leading company in the circular economy world, how our pioneering for circular solution vision will act as our compass for the coming decade and how our partnering for transformation mission defines our collaborative approach for the implementation. We live our vision and mission across the entire company in all hierarchical levels. Our business units are now proceeding in a clear direction. Circular economy, profitability, leadership and growth, three vitally important points that will guide us and lead us in our action and our decisions for the future. With a focus on people, steel and technology, we'll be taking Salzgitter AG into this new decade and securing the future of our group. In doing so, we look back with respect for what has been achieved so far and a strong team in a multifaceted versatile group. We harness these strengths and continue to build on them. In the societal determination to decarbonize, we perceive an opportunity for the transformation. We have the strength and the courage to master this transformation successfully and independently and to decisively expand our position in a circular economy. Against this backdrop, we will be developing our portfolio aligned to our strategy and focusing on securing profitable growth, whether organic or inorganic. Our thanks goes to all our employees and partners as well as our stakeholders. They are our engine and strengthen us on our chosen course ahead. Many thanks to all our speakers who contributed to this strategy today. And thank you for your attention today and your support. It was a pleasure to have the opportunity to speak into you in a digital format, but nonetheless no less personal. I would like to welcome you very warmly to the new Salzgitter AG.

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