Salzgitter AG (SZG) Earnings Call Transcript & Summary

Ladies and gentlemen, thanks for joining our analyst conference for the first half 2023. With me in Salzgitter, our CEO, Gunnar Groebler; and our CFO, Burkhard Becker. As always, we will start with the presentation and afterwards, the Q&A session. And without further ado, I'd like to hand over to you, Gunnar.

Thank you, Markus. Warm welcome from my side to this analyst conference. We'd like to share sort of our view on the first half of this year. Let me please start prior to digging into numbers, start with our occupational safety, just to give an update on that. You know that this is very important to us. And unfortunately, we have to report slightly higher numbers in terms of LTIF compared to first half 2022. There are multiple reasons for this. It's not that we see a sort of a -- some kind of trend in here but still higher numbers. That also means that we, again, strengthen our focus on safety measures, again, strengthen our focus on working on safety culture. As you can see here, we have performed practical days for safety, both in Salzgitter Flachstahl as well as in Peiner Träger, 2 of the large units where we have also a lot of blue-collar workers. And we have also started to increase our focus on contractor management given that we have seen some injuries on the contractor side, so increasing our focus here. It is a continuous work that we are on. This continuous journey to reduce the injuries and the injury frequency, and I think numbers show here that this focus is absolutely right and the right thing to do also going forward. Now a short look at the overall numbers, key data for the first half of 2023 compared to the first half of 2022. Of course, numbers look different given that the first half of 2022 has been the strong half of a record year. Hence, it is not surprising at all that numbers in the first half 2023 look more normal as we are used to in Salzgitter than the first half 2022 has been, which has, as said, been an exceptional year. Bottom line is we're looking at an EBT of EUR 243 million, which I believe is underlying a good first half, especially on Q1. Of course, we have seen also a start in Q2, economy slowing down and hence, also a weaker Q2 but with a strong Q1. I think we have a result on the first half year, which is very well in line with our expectation and also very well in line with market development as such. I'd like to have a bit of a more deep dive into the different units starting with -- sorry, perhaps start -- yes, start with steel production. One of the highlights in second quarter was the funding notice that we have received from our Minister of Economy, Habeck, and we also have received first funds out of those EUR 1 billion. They have been paid out in July, beginning of August. So we're now in the process of applying for actual money, and we also sort of ran through that process, which is a quarterly process, first time ever received first funds already. On the more operational side, the direct reduction plant is ordered by now. We have ordered this from a consortium comprising of Tenova, Danieli and DSD Steel Group. And we're now in the process of ramping up on site also for the DRI plant. As you're well aware of, we have ramped up for the electric arc furnace, which will be delivered by Primetals -- excuse me, by Primetals. So those 2 large components have been ordered, and the electrolyzer will now follow in August, absolutely in time to be delivered in 2026. When it comes to what's happening on site, we have piling on site right now for a foundation for the electric arc furnace. More than 700 piles will be brought down on site. We're well underway here and using, of course, the good weather over summer to make good progress here. Last but not least, also a short update on the power purchase agreements. Also here, we have been able to close further power purchase agreements, and I can report by now that, on the long end, we have now secured more than 25% of the electricity through power purchase agreements. On the short end, so in the upcoming 2 years, it's even up to north of 35%. So we are well underway here as well and making progress and also using market opportunities in the electricity market. On the partnering side, this graph you have seen before, we have added now a partnership, strategic alliances and partnerships more on the energy side, ENGIE, Iberdrola, where we have been able to sign PPAs but also sort of continue to work on the different partnerships with our partners be it on closed loop agreements and sort of intensifying the discussion around scrap as well as green steel deliveries into, for example, the electricity sector, predominantly wind but also infrastructure. So we are well underway here and also progressing when it comes to deepening the partnerships with the existing partners. Something we're proud of is that we have been awarded a Bronze by EcoVadis. First time that we, as Salzgitter AG, as Salzgitter Group have participated in that evaluation, and we came out with a Bronze certification. So we are outperforming the respective industry averages. I think for a first participation, this is a good starting point, and of course, it triggers our ambition even further to redo that certification at a later point in time and increase our scoring here from Bronze to the next levels. I think worth to mention here is that KHS Group, which has been part of the EcoVadis rating already before, achieved Gold status this time in a separate assessment. They are part of the Salzgitter Group assessment. But in the -- they also do an assessment for themselves and achieved a very good result here with Gold status, which we are actually proud of and the KHS team should also be proud of. On top of that, we have been awarded by Bosch with the Global Supplier Award as 1 company of their over 35,000 suppliers, especially when it comes to excellent performance as a supplier, which, of course, is very important to us that we perform and outperform the market when it comes to interaction with the suppliers and delivery and quality vis-a-vis suppliers. So proud of that as well. Surely, we can continuously improve our performance vis-a-vis other suppliers and such an award certainly is motivation -- extra motivation to the team to further increase our quality also on that end. As mentioned, the energy business is a growing business in Europe, and we see great opportunity here to expand our business into the wind power sector in -- specifically. There is a clear target setting by EU when it comes to climate neutrality. This triggers growth especially in offshore wind but also in onshore wind. And that triggers then the need for [ inflection inflate ]. And as you can see here on the bottom, 2.5 tonnes of steel at least for offshore wind turbine have been to a monopiled supply yesterday where they're talking about 2.5 tonnes of steel per monopile, so adding then the tower and the cell to that, significantly up to the 2.5 tonnes that we have on the chart here. So there is clearly a growing business and a growing market for plate through the growth on the renewable sector. And certainly, we are very well positioned here with Ilsenburg and Mulheim to deliver into that market. You might have followed our communication that we have been -- actually, we are the only one that is prequalified, our Ilsenburg plant is prequalified as a low carbon steel unit for Siemens Gamesa, and we're in discussions now to deploy that steel coming from Ilsenburg now in a first North Sea project where Siemens Gamesa will deliver the turbines. So I think good opportunities here, and with the very good position that we have on the plate side, we will be able to also grasp part of that market. Looking to the economic development of our business units, starting with steel production with a positive result for the first half year. Of course, again, if you compare that to the record year 2022, looks more modest. However, I think if you look at that half year on a bit longer time horizon, I think a very reputable development for the first half year, EBT of EUR 84 million. Of course, we are seeing slowing down of momentum, economical momentum, business momentum, and we also see -- and Burkhard will talk about that later, a decline in spot markets and market prices for steel. However, as said, we were able to participate in the market and get to that reputable results. Of course, we have seen some elements that help the business, especially on the energy cost side. Energy costs have come down significantly, both on the annual contracts but also on the spot side. That has helped, of course, the cost side of our business. However, we also have seen that demand in some market segments have been weak, especially sections -- so for Peiner that has been a difficult second quarter, and also the outlook there for the second half is not too positive. Worth to mention that as of today, we are -- we're moving into the relining of our blast furnace in Salzgitter. This will be the last relining of a blast furnace performed by Salzgitter AG. I think that's also a milestone that we can show here in our transformation first, the last time that we're going to reline a blast furnace and ensure by that, that we have a stable operation of the existing equipment over the last 10 years -- or the next 10 years of that transformation to ensure good results that then will support the investments that we're going to do in that transformation. On the relining -- too fast. Here were are. On the relining, just a bit of a deep dive. As set, it starts literally today, and then we will have a project of roughly 100 days to do a lot of different activities around the blast furnace. I won't go through all of them, but I think, through that relining and through the work that we're doing here, we secure safe and efficient operation of blast furnace A over the next 10 years as set. The slab supply is secured. As we have talked about it earlier, we have piled slabs on site in Salzgitter. We have restarted blast furnace C in order also to deliver volumes into that. So -- and of course, we're using HKM as a source of slabs so that we will be able to roll and to deliver to our customers also through those 100 years where blast furnace A is not producing. Looking at steel processing. I think, here, we have a very good development on the results side, EUR 139 million on EBT, driven by large diameter tubes, especially oil pipe, Mannesmann Grossrohr have had good order intake last year, and we have been able to deliver those pipes in the first half of this year. There is a certain slowdown in acquiring projects. However, there are a lot of projects in the market, so we see good opportunities also in that segment to further grow and to further participate in those projects. Precision tubes, very low dynamics in the market, especially on the industry and energy sector. Automotive has been okay-ish. However, given that industry and energy sector has been low, precision tubes, in general, has been -- has had a difficult first half year. Good development though on the medium diameter. MLP has seen good order intake and also good delivery in the first half. On the plate side, we are seeing flattening of demand in the second quarter. First quarter has been strong. However, prices are relatively stable. And given the market outlook that I just presented on the offshore wind side, I think we see here potential for further good business on the plate side. So all in all, I would say, good first half year for the steel processing unit with a very sort of good result also compared to the first half of 2022. Looking at trading. It's not a surprise that the trading business has been struggling over the first half year given that the prices for steel have come down significantly; and that, of course, hits the trading business. However, I think given -- despite sort of that steel demand is still on weak level, we see customers still waiting in their ordering despite prices coming down. We see that breakeven in trading is achieved on relatively low levels. And that is especially also given stable margins that we see on the international trading side. So here, we're doing, also compared to the last year, good business and that supports the unit as such. Now ending the deep dive with our technology unit. Here, we are very happy with the development. You'll recall that already full year 2022 has been a record year when it comes to order intake for KHS, and we see this order intake situation continuing. So we have a strong order intake on KHS also with a very satisfying development on the pricing and also given that we increased the fleet in the field growing demand [ fleet ] services, which are, of course, also sort of adding to the profitability of the company as such. So very good development on KHS. The 2 DESMA companies that had a bit of a difficult start into the year are catching up, and we anticipate a good recovery, and we see that also already in the order intake in their respective markets through the year. However, there's certainly also continuous focus needed on those 2 units. All in all, good development for technology, and I think that is also underlining what we have said in the past already. Technology will contribute in 2023 significantly to the overall results of Salzgitter Group. I believe an outlook of a contribution north of 20% for technology in total is not out of the game at all. So here, we see the contribution of technology to the overall results in times where the steel market is much more volatile and perhaps not as strong as we've seen it in the last 2 years. With that, I'd like to hand over to Burkhard Becker to move to the financials. Thank you.

Yes. Thank you, Gunnar. First, we have a look on the income statement. What we learned here is that the total output as the sum of the sales and the decrease of the finished goods and work in progress went down by EUR 950 million. That is mainly margin-driven, compensated only partly of reduction of the cost of materials by EUR 450 million. So the total of this decrease, total output and material expenses is what drives -- or is the EBT impact because EUR 500 million, we lose from this. And on the other side, we have some inflational impacts, for example, in the personnel expenses by EUR 37 million and also financing expenses that is driven by higher interest rates. So these operational impacts bring the earnings before taxes down by EUR 730 million to this mentioned EUR 243 million. Balance sheet asset side in the increase of the intangible asset, property, plant and equipment, we have SALCOS impact. I'll come back to this in a minute. The decrease in the investment equity method, that has to do with the sale of our participation of Borusan Mannesmann Boru. That participation was reclassified to assets available for sale. You see further down EUR 53 million. The sale is not yet executed because we wait of some approvals, especially of the Turkish capital markets authority. Good job. Inventory is down EUR 320 million, trade receivables because of a seasonal impact we have all based on the situation that turnover in the fourth quarter of the year and here, the year '22 is lower compared to average. And so we have the expected increase, but net inventories and trade receivables is a relief of nearly EUR 200 million. And in the other receivables, we have EUR 60 million of the requested subsidy. We got this money in July from federal government and the state of Lower Saxony. Consolidated balance sheet, equity and liabilities. In the equity, on the one side, the earnings we have distributed as dividend payments, EUR 54 million. So that is a story here. We have EUR 160 million lower in trade receivables that has to do with the business. So nothing any to mention here. All this together leads to the good situation that cash and cash equivalents at the end of the period here, the last line of this chart, has improved compared to first half year '22 by EUR 243 million and is driven off by the active working capital management. This is confirmed here in the long-term view of the working capital development since the end of the year 2020. We had driven by business and, of course, driven by prices and a steep increase with the peak in June '22 and nearly EUR 4 billion, and we came down now by EUR 400 million we expect that we see another EUR 300 million to EUR 400 million reduction to come until end of '23. Investments and depreciation in the first half year, investment were EUR 205 million. The cash out for SALCOS in the first half year has been EUR 85 million. As I said by commenting the balance sheet, the subsidy received as cash-in was in July. So that is not in the cash of the first half year. We have it now for the full year '23. We expect CapEx of EUR 700 million, so EUR 500 million to come. And part of this is for SALCOS net, meaning what we spend, what we get. Subsidies is expected EUR 200 million out of the EUR 500 million. Our earnings improvement program is going on well. We -- you know that this program is not a pure cost-cutting program. It is a performance and efficiency program also on sales side, on logistics, on pricing, and we are good here in the execution, EUR 47 million to expected in '23. We -- this program is not closed. We will go further, and we are aware of -- that before the background of business economy, we have addressed further actions, and we are confident that we can present the next time a volume of 200 to 250 on that. And of course, we address short-term impact. For the guidance, looking on the raw material prices side that we see that they after [ rally ] in '21 and '22, we -- in the first months of 2023, we had an increase and now coming back and stabilization of the raw material prices. We expect a sidewards movement of them, so flat for the coming months. And that is also our view on electricity and natural gas prices both came down quite significantly compared what we had, of course, in '22 and also what we saw in the first month of this year. So our expectation and assumption is here on this side, also a flat development. And yes, structurally seen the same picture here for spot prices, Northern Europe and hot-rolled coil prices international. We saw prices coming back after a little upside movement in the first quarter, and our expectation is that prices consolidate on this level. So before that background, we confirm our forecast sales, EUR 11.5 billion, EUR 12 billion; EBITDA, EUR 750 million, EUR 850 million; and EBT profit of EUR 300 million to EUR 400 million. Yes, it is a challenge, but we are confident that the strength of the company can deliver this. And yes, we are strong enough that we can execute as full consequence the decision investments, be it SALCOS, be it the relining of furnace A and all the other smaller and medium-sized investments. You see our financial position. You see our equity. So yes, we are confident to confirm this. Thank you very much.

Thanks so far. We are now jumping into Q&A. And I see Tristan raised his hand.

Can you hear me?

Yes.

The first one, maybe on the Q3 guidance, looking at your steel division, obviously, with the reline, you mentioned that you'll be able to offset some of the volume impact. But if you can just maybe walk us through the moving pieces in terms of volumes, spreads. I think you touched on a little bit on the cost development being flat quarter-on-quarter. But do you expect the division given -- usually, you have a big cost impact for the reline. Do you expect the division to be profitable on the EBT level into Q3? And I would have a second question but also on the market development in Europe. I think you just said that you expect steel prices to stabilize at current level. So is it fair to assume that in your guidance, you don't expect any type of price recovery and restocking taking place into September, October? That's my kind of first question on steel.

Yes. Thank you. [Foreign Language]

Yes. So relining of furnace A and impact for that, so under IFRS accounting, all the CapEx for that is capitalized on the balance sheet. So we have no cost impact of this and EBT impact by spending money for this, yes, what we have, and that will take place because we start now in August, September. Gunnar said 100 days we need for that. We have lower capacity utilization in the first stage of the production process, and we have a cost impact from that, but not for spending for the relining itself. I would say overall for Salzgitter Group, EBT in Q3, yes, around 0 technology contributing quite nicely. We expect also Aurubis positive impact. You have seen that the impact because of copper price, it's coming down. In Q2 was 0. So we expect that overall 0. And this means that's because of the economy but also because we have some plant maintenance in various companies, also in Peiner Träger, also in subsidiaries of precision tubes and stainless tubes, et cetera, et cetera. So I expect from that, yes, 0 or slightly negative. As a combination of business end of the various maintenance activities in that end, we have also an impact. Maybe you have read on this that we had to declare force majeure in Salzgitter Flachstahl end of June with impacting July. Now we have overcome that because we had heavy rain and we had flooded some activities here in Salzgitter and Salzgitter Flachstahl and Mannesmann Grossrohr also, and this had an impact also.

On the July numbers. Yes.

On the July. No, we are through.

We are through. We're in full production. So that is certainly an incident that will -- that hits the numbers in July. On the market development, if I may add to that, well, I think we are now looking at how the market will pick up after the holiday season. It's now ending in the next 2, 3 weeks. So we expect a certain pickup in the market, whether that will lead to a price recovery, a significant or visible price recovery or not to be seen given that the fundamental sort of outlook for the industry as such is relatively weak. So we don't expect this to be a significant pickup in market, pickup in prices. Some restocking, yes, I would expect that, but fundamentally a slow start into Q3, which underlines then sort of what Burkhard just said.

All right. That's very clear. And my second question is more on the decarbonization side and the public funding you received for SALCOS, which is really positive. Some of your peers have also kind of negotiated or obtained more specific form of OpEx subsidies, notably the potential price of hydrogen there. Is it also something you're discussing with the German government? And also regarding the CapEx subsidies you're receiving, there's some clawback, I believe, associated with that. Can you discuss under which conditions you would have to, let's say, give a portion back to the German state?

Yes, absolutely. If I start with the clawback mechanism, in any sort of system you have when it comes to public funding, there is this clawback mechanism. Basically, you present a certain business case and you define a gap -- funding gap, which is then the basis for the public funding. And that, we have done. Of course, we will then have to review that CapEx gap as it materializes. And then if the CapEx gap is smaller than anticipated, there will be a certain -- not 100% but a certain clawback kicking in. That is the case for Salzgitter but also for all other competitors receiving public money through such state aid. So that is -- that's the mechanism here. You will appreciate that I will not comment on any subsidy granted for our competitors because we don't know sort of their application. We don't know their business case that they have presented, hence, difficult for us to judge upon that. For our application, I can clearly say we have a focus on CapEx and we're very happy with the outcome of that award funding support. And yes, we're in discussions, and the so-called [Foreign Language] is one element to then also in the future further support on the OpEx side. So we're in discussions with the federal government, with the Ministry of Economy, also with parts of the Brussels administration on potential further support also on the OpEx side.

Next one is Alain Gabriel.

Can you hear me now?

Yes.

Two questions from my side. Firstly, just to clarify that on your comment on the 0 EBT for Q3, is that for the group? Or is that for steel production division? That's the first question.

No, that's for group.

That's for the group. Okay. And the second question is do you mind giving us some color on how you expect the net working capital to evolve into Q3 and Q4? And do you still stand by your net debt target of EUR 550 million to EUR 600 million, if I recall correctly, at your end?

Well, the expectation for net financial debt is around EUR 400 million, EUR 450 million from today to year-end. And yes, we see that we can reduce working capital around EUR 358 million from number of June to year-end December '23.

And just to add to that, one part of that is, of course, the payout of the support that we now got in Q3, which we have.

Yes, net for Salzgitter is EUR 200 million and this includes that we get a subsidy of EUR 240 million.

Yes, that is included.

Okay. Bastian?

Can you hear me well?

Yes, very good.

Perfect. My first question is on the steel production segment, please. If we look into that and into the detail and if we take out Peiner, understanding is that your margins here on a per tonne basis decrease by a bit more than EUR 20, I guess, in an environment where most of your peers have reported improving margins. So I'm wondering, what is driving this? And was there any impact from your raw material hedges or maybe anything else which may have supported the performance in the first quarter? Because, otherwise, it's still very hard to reconcile that worsening flat steel trend in the second quarter given, I guess, the environment of falling costs and also the at least slight uptrend in prices in the first quarter. That would be my first question.

So if I got you right, your question is on Peiner and the margin development there.

No, actually, on flat steel. I think Peiner is pretty clear, and I guess it was pretty well reflected well in Q1. I think you did EUR 34 million. From understanding, that has worsened to maybe slightly negative in the second quarter. I think that is pretty well flagged. Really, I'm after flat steel here.

Okay. Well, what we have -- to start there, first of all, you have seen price developments in Q2. Burkhard went through that. So that has, of course, a negative impact on the spot side. We also see that the longer-term contracts reflect part of the spot price development. Still, we're relatively happy with the contractual situation when it comes to longer-term contracts. However, I think there are 2 elements. One is volume and one is prices that sort of leads to the overall compared to last year deteriorating situation on the flat steel side, if that answers your question.

Yes, but I also wanted to check is there -- has there been maybe any positive benefit from hedges in the first quarter, which may have been running out.

Neither positive nor negative.

No, no, relatively flat on the hedges, yes.

Okay. And should we still then expect a major cost relief for you at some point in the second half of this year [indiscernible] from energy cost and the raw material basket?

A major cost relief, no, I don't think you should expect a major cost relief. On the energy side, well, the energy prices, as you see them, developing sidewards, so do the raw material prices. So I don't see a major cost relief on that cost basket, no.

Okay. Then my second question is on CO2 certificates and whether you can maybe just update us on the number of certificates, which you have banked or the value on the balance sheet and maybe also give us a bit of an indication whether the volume number behind the position, which you have banked is stable or whether you had actually started to use part of that, say, in the last year or so.

So the -- we have not started to use next to the operational business, of course, right? There, we have, of course, used the CO2 certificates where...

So we are talking fourth trading period that is '21 to 2030. And as it's had taken place in '21 and '22, the use of that, what we acquired and banked in 2015, let me say, but that is because the cost-free contribution through [indiscernible] is not sufficient to cover what we need for the production. So far, it has been planned, but it's ordinary business. We use some of this and I can tell you, it is around, depending on production, around 1.5 million to 2 million certificates per year.

But not above that. That was sort of my comment. We use it for the ordinary business as we have done in the past, and that's where we bought them in the first place but not beyond, right?

And can I ask, have you also kept buying in the market, i.e., you used some of that position, but you kept refilling in the market? Or have you been fully living off your -- off the certificates which you have bought and banked?

We are fully living from what we banked.

And we are very confident that this volume is carrying us well into 2030, yes.

Okay. Understood. So could you even give us the updated number? I think at some point in the past, you've been providing that. Is there any chance you could provide that number?

No, I don't think we have provided a number in the past, and we certainly will not provide it right now here.

Okay. No problem. Worth the try. Then my last question is on decarbonization. And I think you -- you've made further good progress actually on your transition partnerships. I think if we look at the time line, which you provided there, I think that looks actually quite impressive. How advanced are you with your thinking on the second phase of your decarbonization ambitions? Do you still think that a second DI plant in Salzgitter or elsewhere in Germany is the right strategy? Or are you possibly leaning towards an alternative concept with maybe a strategic supply partnership for Phase 2 or Phase 3 elsewhere?

Well, that's exactly the discussion we're having right now. We have put full focus on getting Phase 1 on the road, which I described earlier. We are very well underway here. Now that we are sort of more in the delivery of Phase 1, we intensify the thinking around the further decarbonization and whether the Phase 2 and Phase 3, as we designed them initially, are still sort of the ones we would go for given market developments. I think we have seen quite some development since we laid out that plan, both on DRI but also energy, hydrogen, et cetera. And that, of course, now has to go into our thinking how to further decarbonize. What is stable though, Bastian, is that we stick to the 2033 end date. So that is undisputable, but of course, we are now updating our thinking around how to get there in the light of market developments.

And is there a time frame by when you aim to decide for Phase 2?

Ask my Board when they are happy to decide. No, we're in that process, Bastian. We will certainly update you as soon as we have firm view on that, but that's too early right now.

We have Andrew Jones, please.

Can you hear me okay?

Yes.

Excellent. Cool. Just firstly, on the CapEx, just to clarify, I mean, I remember a figure around EUR 700 million for the CapEx for this year. You mentioned that you're getting EUR 240 million from the government for SALCOS, and you said EUR 200 million net on SALCOS this year. So I guess, EUR 440 gross for this year. Can you talk us through the other components there? I mean I think, in the past, you've talked about EUR 300 million base CapEx, EUR 100 million for relining. What's the sort of the moving parts? What's the sort of gross or net CapEx number for this year?

Yes. As I said, EUR 200 million net for SALCOS, remains EUR 500 million, EUR 100 million for relining, so EUR 400 million is the -- let me say, the ordinary business. Nothing really special in it. It includes participation of HKM because that is a group figure. So yes, it seems a little or is a little higher than the running rate of the past, but it has to do with the inflation we have. So in the remaining part, not really big spending and special items.

No, no, it is the ordinary investments into our assets in order to maintain the performance, et cetera. So nothing special there next to what Burkhard explained.

Okay. So you're saying EUR 600 million net basically. Is that the right number?

What we are saying, EUR 500 million without SALCOS and part of the EUR 500 million is EUR 100 million for CapEx relining furnace A. So then we have EUR 400 million and EUR 400 million is ordinary business, somewhat higher because of inflation.

Okay. Understood, so EUR 700 million and -- total. Okay. And just on the processing business, obviously, there's been a big step-up in profitability there, I guess, the heat treatment line and so forth are contributing to that. I'm trying to get an idea for what normalized profitability, is in that business after we've obviously been through a strong start to the year. Like what does the second half look like in your view for that business? And what do you see as a sort of normal level of EBITDA or EBT given the structural changes you've made to that business?

You're talking the processing business, right?

Yes, indeed.

With a focus on plate, if I get it right, or both?

Well, the whole thing. But I mean if you could you talk about the different moving parts, that would also be useful.

Yes. EBITDA first half year, as the schedule shows, is EUR 180 million. I would expect that with the coming down of the plate business, but with the order backlog we have in the pipe business, we will see another, let me say, EUR 120 million or so EBITDA. So we have EUR 300 million. What is expectation? For large diameter pipe business, yes, we expect -- we have projects, but they have to materialize as orders. And we are confident on this so that EUROPIPE Group and Mannesmann Grossrohr and line pipe can contribute, and we will see because of -- we have an action program in precision tubes and Mannesmann stainless that we can compensate to some extent the slowdown we see in the plate business. So I take this all together. I would expect that we see for '24 with some other components on contributing more in precision tubes and EBITDA also around EUR 300 million.

EUR 250 million to EUR 300 million. Yes, yes. That is certainly possible provided that markets and projects, especially on the large diameter side, also materialized. We have seen quite a few projects in the market, however, slow down in turning those into orders.

Just for clarity -- I mean for the -- with the heat treatment line, I mean, how much do you think that's sort of structurally added to EBITDA? And how much of this sort of uplift from what we used to see is just driven by better utilization?

[indiscernible]

Yes.

Okay. EBITDA, often for single equipment, it's difficult to say. But let me say in such way. The impact is not so much the volume. It's more the margin because we are handling their premium product. So it's a margin topic. And as an indication, I would say that the margins per tonne in this business is around 50% higher than on the average of the remaining business.

Yes, yes. And also through the heat treatment line, moving into qualities that we have not been able to provide in the past, right? So we are actually adding a high premium business to our portfolio here through that heat treatment line. But difficult to show an EBITDA number for a single unit.

Christian?

Yes. One housekeeping question concerning industrial participation and consolidation. Can you give us some kind of an idea of what kind of valuation of derivative position and net interest drove the negative result in the second quarter? And can we also expect something to happen going forward? Or is that some kind of a onetimer? The first question.

Valuation of derivatives, we have only for U.S. dollar in the P&L, and you are questioning for EBT because we have hedge accounting for hedging, and we have not so much in [ global or material ] because the hedge accounting is not impacting the EBT. It's first the not executed hedges we have. They go through and it is profit neutral through equity. So that is for U.S. dollar market valuation or U.S. dollar position is going through the P&L. And we had minor impacts, both in Q1 and in Q2 for that. Other impacts, derivatives, we have not. We have no derivatives on interest also that we do not have.

Okay. Maybe a little bit the other way around. The minus EUR 18.7 billion EBT in the second quarter for industrial participation and others, what are the main contributors to that negative result? Can you give us some kind of a breakdown?

Yes. What you have to see is the following. In the first quarter, and that is included in this total number, we had EUR 29 million for Aurubis. And in third -- second quarter, we have 0. And what are the drivers? The drivers is the interest expenses that is -- are the salary of the holding and all that. So that is what is included there, including the operational results of the various companies, positively [indiscernible], et cetera. So there is nothing special on that, but the development from Q1 to Q2 is driven by the 0 compared to EUR million 29 of the Aurubis.

Yes. It's missing the Aurubis piece in the second quarter. And that is driven by the copper price coming down.

Yes. And this means, in the end, we can calculate overhead costs, including interest and others, is a minus EUR 20 million on a quarterly basis. Is that the right assumption?

Yes, yes.

Ballpark number, correct, yes.

Okay. Then I have a question concerning you said that you are making some kind of an ongoing portfolio review of Salzgitter. Is there something more to come in the coming quarters? Or have you seen something where you say, okay, that might not match into our portfolio, and we have to adjust that going forward?

I guess, and as we also discussed prior to that, this is now an ongoing process, and we have shown in Q1 with Bauelemente, in Q2 with Mannesmann Borusan participation that we're active in that space. But please, we understand that we will not disclose any activities that are not ready to be disclosed here and now, but rest assured, the active portfolio management continues.

Okay. And I assume that I will get the same answer for the next question almost. So is there any new about -- or an update about the talks about HKM together with thyssenkrupp?

Perhaps one element to add to the portfolio management just so in my perspective. It is not only about divestments we're talking, right? We also, in the strategy, laid out that we want to strengthen some of the positions, and you've seen that we added, on the scrap side, a small unit. But I think it's going to be a balanced view of portfolio development, both on the acquisition and the divestment side. Just to be clear here to you all and transparent on that. On HKM, well, there is a certain development. We have, together with thyssenkrupp founded a planning entity that now supports HKM in developing a picture of a, let's say, greenified future of HKM. That has recently started, and we're now ramping up our activities on sort of building that business case, engineering, et cetera. And we expect first outcome of that by end of this year, not meaning that we take an investment decision or anything like that by end of this year but getting sort of a bit more clarity on how such a concept technically could look like, what a time line could look like and also first view on the financing or the financial figure, the business case of such a -- such an endeavor.

Of course, makes sense. Are you talking in parallel to the government for some kind of a support for that possible transformation of HKM?

Of course, HKM, first and foremost, is talking to government because this is their duty and to run through a similar process like thyssenkrupp, we and others have run through. So it's their -- it's on their side and we, as owners, support that, but it's an HKM activity first of all. And yes, they do.

And the last question is concerning refinancing of the entire group. So going forward, are you thinking about some additional funding going forward to tapping the bond market or some other activities? Or do you stay to the current structure of refinancing?

Yes, the part of the Schuldscheindarlehen gets mature in '24 in -- around EUR 200 million, and yes, we are checking various alternatives to refinance that. Sure, yes.

And what would you like most?

Well, it depends on the terms, and we are on the way. Too early because it is May '24, so we are observing the markets, interest development, the long end, et cetera. It's too early. I mean our positive cash situation is, if you'll see it, not net but gross, is around EUR 700 million to EUR 800 million. That is a strong position. Sure, we have to manage the cash out for CapEx, but we are not under pressure and in a hurry to solve that. That is an action we take in '24.

And of course, you are not changing your view on your 10% treasury shares, I would think.

Yes, right.

Next question is from Moses from JPMorgan.

Can you hear me?

Yes. Moses, we can hear you loud and clear.

Sorry, I think I might have missed this earlier. Yes. I think I might have missed this earlier as I lost connection. But could you please just clarify your outlook for Q3 EBT? I think I heard something closer to a breakeven result there and then also just the breakdown by division. And then also on the working capital, so obviously, you've retained guidance for EUR 400 million released by the end of the year. But given the operational impact in July, could we expect more of a build as well in Q3 and that full release comes out in Q4?

No, as I said earlier, I expect group-wise, group-wise EBT Q3 around breakeven, positively contributing Aurubis and technology and is triggered by both economy and both various standstills of plants because the plant maintenance, the production here, fabrication, processing, slightly negative. So that comes to breakeven. And working capital, yes, starting from June to December, additional relief, working capital, around EUR 350 million or so.

Does that answer your question?

Thank you.

Excellent. And we have Alon.

Just a longer-dated question on the Salzgitter AG 2030 strategy and specifically the interim EBITDA target of 8% to 10%. Could you remind us what the spread assumptions are on which that's based? And in the context of kind of the looming threats that you've outlined on EU safeguards expiring Section 232. How do you feel about that target? I appreciate a year, 2 years is a lifetime in the steel market, but any views on that would be appreciated.

Let me start with the safeguards and the political or regulatory environment here. I don't know whether I fully got your first question and what you really have to. But let's start with the first one -- with the second one. So I think what we experienced these days in discussions with the regulator, with the authorities in Brussels is a growing understanding for the need of safeguards, et cetera. So we have been able to prolong some of the safeguards already in the first half of this year. So in that sense, I think that has been, on the regulatory side, a good development in terms of prolongation safeguards. So going forward, with the review of the ETS system and the Fit for 55 package and in the introduction of the Carbon Border Adjustment Mechanism, I think what is important here to see is how that now develops. It -- we entered the trial phase now in October, so we're going to have first data points on how that Carbon Border Adjustment Mechanism actually works and whether it would be working in the way that has been anticipated by the regulator within the next, I don't know, 6 to 9 months, so at least the first view on that. And then certainly, we have to initiate a follow-up discussion with the Brussels authorities on the Carbon Border Adjustment Mechanism. What is important though is the ongoing discussion that EU has with the U.S. on the GSSA and the global sustainable steel agreement. I think there is a, I wouldn't say unique, but a very good opportunity right now to form an alliance with the U.S. on a framework that would enable us to reduce any kind of sanctions in between those 2 countries. I wouldn't say that will go away. I don't think that, that is a likely outcome of that negotiation but a further smoothening of transfer of material between Europe and the U.S. and that the GSSA might actually replace Section 232. The target set by the 2 parties is to come up with a proposal by October. My assumption is it won't be October, but there is a good likelihood that they jointly agree on a prolongation of their time line. So I think on that end, there are positive signals at least and a growing understanding on political level that any kind of agreement between Europe and the U.S. would have both regions in their respective steel markets. And then, Alon, if you could perhaps clarify what you're after with the first question, that would be helpful.

Yes, of course. So the first question simply relates to your 2025 EBITDA target of 8% to 10%, whether you're still confident in that number given the progress of the business as well as the -- your outlook for the external environment at that time.

Yes. As it looks now, we're still reasonably confident that, that target holds. We -- what I can assure you is that we do our utmost on what is on our plate to deliver on that target. And part of that also Burkhard described with the Performance 2026 program, which we are reviewing right now. You might recall, we said we're targeting EUR 150 million to EUR 200 million bottom line improvement. We now sort of have measures that guide us to north of EUR 190 million. So there might be additional potential that we might identify to increase that further and by that, also support that EBITDA target. So for now, no reason to change the target.

Okay. And just to clarify, and I'm not sure if you've provided this detail before, but that 8% to 10% target, is that based on a specific assumption around spreads, prices?

No, we don't -- we have not, in our scorecard, not underpinned that with a specific spread assumption, no.

Okay. Then, Maxime, please.

Yes, I think you can now hear me, right?

Yes.

So you have guided for close to 0 of EBT. That's already been said. So with around EUR 250 million of EBT by the end of Q3, is it fair to assume that you will be rather achieving the low end of your EUR 300 million, EUR 400 million guidance for the full year? Or is the high range of this guidance still somehow contemplable? So that would be my first question.

Well, thank you for that question. I think you're right. We're targeting the lower half of the guidance given the current development in the market.

Okay. That's clear. Yes. And you talked about the decarbonization plans for HKM earlier. So would you expect -- you talked only about thyssenkrupp. Would you expect Vallourec to also contribute its fair share to the program? And would you envisage [indiscernible] today to do a big equity injection? Or would the program be financed mostly with own resources or with public funds?

Well, Maxime, I don't expect Vallourec to contribute any money into a decarbonization of HKM as it stands today. I think they have been very clear and outspoken on that, also not only vis-a-vis us but also in public. So I don't expect them to play a significant or any role in the future of HKM. However, I think it's also fair to say that both thyssenkrupp and us, we are open to evaluate other third-party contribution and other third-party engagement into a future HKM.

Not only in equity investment or financial investor but also industrial investments.

Both, yes. Yes, financial investors as well as industrials. And let's see sort of -- as said, we're giving ourselves now 6 months' time to sort of drill down further, and then we might have a clear view on that.

Okay. And perhaps lastly, are you still comfortable running both your blast furnace A and C when -- once the relining of blast furnace A is over in 3 months given, yes, a fairly subdued steel market?

Well, we have operated blast furnace A and B over the last months and years given the market situation. And of course, we will review the situation as soon as blast furnace A is back online where the blast furnace -- volume from blast furnace C is needed and if there's a market for it. If not, well, then, of course, we'll review that situation and might get to a conclusion then to stop that as well.

Thank you very much. I cannot see any further questions. If there are any question afterwards, just give a call to Jan or to myself, and we'll answer it. So far, thank you for the discussions and see you next time. Bye.

Thank you very much. You all stay safe, and have a good weekend as soon as it comes. Thank you.