Salzgitter AG (SZG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome. Thanks for joining our analyst conference for the fiscal year 2025. I'm here with our CEO, Gunnar Groebler; our CFO, Birgit Potrafki, who will run you through the presentation. And afterwards, and as always, you've got the opportunity to ask questions. And with that, I'd like to hand over to you, Gunnar.

Thank you very much, Markus. Good morning from my side. Welcome to the analyst conference for the full year 2025. Certainly, we also will touch upon '26 and how we look upon that. We have underlined the headline with back and black because that is what basically describes 2025. We have had a difficult market environment, continuously difficult market environment, perhaps even slightly worse than 2024. However, we have focused on our internal resilience. We have done our homework, and this is what we're going to show to you now through this conference how we have been able to improve our internal performance and resilience to get to this statement back in black. First of all, I would like to start with a number that went down, which is good. And that's our LTIF, the long-term injury frequency. We have broken the trend of '23-'24 where we had a slight uptick. We're below 7 again and certainly not at the end of our journey here, a clear strategy, as you can see on the bottom of the page that we follow, starting from leadership and accountability of each and everybody in the company all the way to suppliers and contractors, how we include them into our health and safety work and take a very holistic approach. So first signal and first message on that element of health and safety. We're also back online and in the trend that we need. For sure, much more that is needed and much more to come. But again, trend is broken back on track. We are looking at a time of a lot of uncertainty and where I think everybody is very concerned about what's going to happen within the next 24 hours. We have done a first assessment on what the impact is. And on the negative side, of course, the uncertainty that you have in the total economy is not good for investments, is not helping a fundamental uptick that we have seen in the markets for steel. So the longer this conflict takes, the more pressure we're certainly going to see on the global economy, including Europe, even though Europe might not be so much impacted as other regions like Asia, still, we're going to observe that also in Europe. Cost increase is already something that we see. Everybody sees once you get to the gas station. Of course, we see it as well. Freight rates for bulk cargo has gone up, so -- which is important for our iron ore and coal transports, even though more than 50% of our iron ore comes from Europe, still, there's a cost effect that we see. Same thing on the outbound logistics, trucks going to our customers. Certainly, something we're going to have to discuss, and we started that dialogue to have to discuss with our customers because it's pretty clear that the steel industry cannot carry those costs all alone. We will have to find common ground and common solutions here. The longer it takes, we're going to see certainly also more macro trends and macro influence on inflation, but also on the monetary policy globally. So that certainly will also affect us. On the positive side, though, we have a euro single market that is functioning. We have an underlying stable demand coming out of Europe. And given that Europe is our core home turf in terms of customers, that's certainly something that will help us through the next period. And on top of that, as I said, other regions are hit potentially harder than Europe is when it comes to energy, demand and energy cost. Those importers into Europe certainly will also have a different cost base, so higher prices for imports and higher level of uncertainty also given the distortions we see on logistical chains all over right now. Last but not least, you have the picture of the Persian Gulf there. Most of the DRI projects that are ongoing right now are located in the Persian Gulf. So they are long term also hit by any sort of distortion that we're going to see on the Strait of Hormuz. So with our DRI on site here in Salzgitter, we have de-risked in that aspect, our future steel production. And de-risking is perhaps also the wording that we're going to use when we're talking about strategy. We have been following through with our strategy also in 2025 and further de-risk the company, both internally, but also, as said, through the shift from CO2-intensive energy carriers to low CO2 steel production also de-risked from that geostrategic angle. So on the performance side, and Birgit will go through the details later in your presentation, Birgit, we have been able to do restructurings where necessary, mentioning trading here where we went through a deep restructuring in the European trading business, cutting product lines, cutting sort of customer groups, cutting jobs, ultimately also people, but bringing trading back to black already in 2025. So a successful restructuring that we have done there. Same goes for steel processing and Mannesmann Precision Tubes. We did close our site in Helmond. We halved our size in a site in Mexico. So also here going through restructuring to adjust to market conditions as we see them also going forward. P28 performance -- our performance program has exceeded our ambition and Birgit will talk you through that in detail. And we have also managed to continue our portfolio management efforts. We have sold our shoe machinery factory, DESMA in 2025, and we are continuing to review the portfolio, but not only in divestments, but also in acquisitions. Latest example here is the acquisition of Thyrolf & Uhle prepared in 2025 and then executed early '26, which enables us to get a stronger foothold on the defense side. I will walk you through that in a sec. Transformation, of course, is a lot around SALCOS Phase 1. Just to be very clear, there's no intention whatsoever to postpone SALCOS Phase 1. We're going to go live with that summer next year. So that is well underway. We are well advanced when it comes to construction. We are now sort of bringing more and more equipment into all the buildings that have been built. And we are also in a transition phase from a pure construction site into also the market phase where next to the construction, we also intensified the dialogue with the customers, and they intensified the dialogue with us to then get to sign contracts on green steel. You might recall that we had first projects already in 2025 using our site in Peine for the slabs. So we have proven that Salzgitter can deliver green steel and can deliver green steel products. And now we're in the discussions to sort of further -- take it one step further with ramping up SALCOS then on site here. What helped clearly is that we got the less certification. The low-emission steel standard is established as a European standard by now, and we have gotten certificates not only for Salzgitter and Peine, but also for downstream activities like Ilsenburg and Mulheim. So that's also well underway. And last but not least, it's not only our transition and our transformation, it's also supporting transformation outside, supporting transformation, especially on the energy side. We're delivering pipes for the hydrogen backbone, both in Germany, but also in Europe. So also here, we are supporting that transformation in other parts of the European industry as well. Customer focus has been core element of the strategy and remains core element of the strategy. Let me start with defense. We have, as said, acquired Thyrolf & Uhle together with our company, Universal Eisen and Stahl. They joined forces now to be able not only to deliver plate steel to our customers, but also already components so that for system aggregator, we can actually be and we are very well -- a very good sort of supplier. And this move has been highly appreciated by our customers that we are really sort of further integrating capacity on the construction side as well as delivering pure plate as we do from Ilsenburg. Infrastructure. You all know the infrastructure package that the German government has put forward. We expect that now to hit the road second half of '26, but then full value in '27. And energy projects I mentioned already with the hydrogen backbone and other projects around the globe that we can serve with pipelines and other material. Last but not least, let me have a short look also on our technology business. KHS has again performed very, very well, and especially with the product Plasmax. We are well underway with a large contract that company signed last year and also implementing that in other parts of the world. So KHS has a strong foothold and really a good performance in '25 and good order intake that carries us through 2026. So pursuing our vision, it's a clear strategy, and we are sticking to the strategy, and it shows that even in turbulent times like we have it now, this strategy is resilient and helps us to really navigate through and prioritize where the focus should be. And I think we have delivered on that in '25 and continue in '26. Looking at SALCOS. As said, we are preparing for commissioning. It is working as planned. You see the picture of the direct reduction facility at the final height of 140 meters. You can see it from outside the site far away. It's a new skyline that we have created here in Salzgitter. Electric arc furnace construction is well underway, so is the electrolyzer. I think we're going to move in the stacks now in Q2. So also here well on time and in full swing. So that leaves us confident to really have a commissioning over summer 2027, first half of '27. And then be able to deliver green steel to the market and be the first transformed integrated steel mill in Europe that will actually go that step at that scale. What helps is the modularity that we have with SALCOS, so we can adapt to the current situation, both from a customer side, from the financing perspective, but also from the regulatory perspective and the market. And we have taken a decision in '25 to postpone SALCOS Phase 2 to '28-'29. And we will then look into that constantly when is the right moment in time, when do we feel sufficiently comfortable and confident that the next electric arc furnace in Salzgitter will hit the market at a good time. Without a doubt, we will build the second electric arc furnace on site. So we will go all the way when it comes to the transformation. Just the point in time is something that where we have flexibility through the modular approach, and we will use that, of course. Then also coming back to SALCOS Phase 1, important to note, we have been successful in 2025 to negotiate both with our colleagues in Berlin, but also with the Federal State of Lower Saxony and the colleagues in Brussels to get the last tranche of the funding, another EUR 322 million that have been approved so that we're now looking at a total funding of EUR 1.3 billion for SALCOS, so coming from EUR 1 billion to EUR 1.3 billion to EUR 2 billion, which certainly supports the overall project. Also, as some of you have already mentioned to us, the cost increase that we have seen on SALCOS from roughly EUR 2.5 billion. That's how we said it to now EUR 2.7 billion. We are closing the end of construction. Hence, we are getting a bit more sharp, but that is certainly what we see. And hence, the additional funding exceeds the additional cost. So it's a positive impact on the project as such. We get a lot of questions on HKM as the second steel mill that we operate for slabs. We have taken a decision to take responsibility for HKM and have made an offer to thyssenkrupp Steel and Vallourec to buy their shares and then take full ownership of HKM and transform HKM into a one electric arc furnace steel mill as of 2029, 2030. Why do we do that? Because there's an industrial logic for us. There's an industrial logic from an integrated value chain, including HKM, which already today delivers material into Salzgitter. There's a clear security aspect when it comes to feedstock for defense products. And there are, of course, synergies between the 2 units, not only in decarbonization, but also beyond. But certainly in decarbonization, we're talking 2 new electric arc furnaces, we certainly can learn from each other there and create synergies. And last but not least, and we shouldn't forget that, HKM will be the only steel mill in Europe that is able to provide slabs to the European market, especially once the Russian slabs are pushed out through the sanctions, which will happen in '28. There's certainly a market demand for slabs. And here, HKM as the sole steel mill in Europe that can deliver that is well positioned. Financing of that transformation will happen through the internal resources through the transaction proceeds that we're going to get and through public subsidies. HKM has been able to secure EUR 200 million in public grant. So that's already signed and sealed, and that would certainly then also support the financial attractiveness of that deal. And we estimate that this deal will be closed by summer this year. So also here, speed is of essence, and we are in full swing together with the current co-shareholders to get that deal done. I talked about defense. We made a great step forward in 2025 to get all the permits from especially the German military services, but as well as from some of the suppliers to the military. Good feedback when it comes to the secure material. Good feedback both from the defense industry, but also from the German military on the quality, on the protection features that we have with that steel. So that's good. We are looking at applications beyond military also in the civil defense like the Technisches Hilfswerk, German civil defense unit as well as Red Cross, UN, et cetera. So we are broadening our perspective here, but clearly, with a strong focus on getting ourselves more known and the product more known in the defense sector. That's what happened in '25. As said, we extend the value chain, and we use '26 now to really get into that market, get first deliveries out, prove our quality and then ramp up from there for the years '27, '28 and years to come. So also here, a good step forward to create that market for us and create the product and the visibility of Salzgitter in that market environment. Looking at the overall market environment, while, geopolitical that is sort of very acute right now with all the happenings in Iran, certainly something that we need to -- all of us need to follow and monitor closely. However, growth rates that we see underlying, especially in Europe, remain stable. So we will have a look at how long that war will take. That will certainly have an impact. But overall, we see a certain growth rate globally, but then also on the European side. Germany recovers -- sorry, at least parts of the industrial sector and the construction sector, we see a pickup on the construction side, which helps our unit in Peine, but also in the plate business, especially vis-a-vis yellow goods. So with now winter being finally over, we certainly see a pickup there, mild recovery through the year. And then through the fiscal stimulus package, certainly something that we're going to see with more enthusiasm through '27-'28, but first elements of the second half of this year already, as we have said before. Yes, European steel, I talked about. Let me perhaps look at regulatory framework in Europe. Carbon board adjustment mechanism has been implemented as of first of first. I think it was a success in '25 to get that through and get that implemented. We know it's not perfect. We absolutely know it's not perfect, and EU Commission also knows it's not perfect. So the amendments are out to improve the regulation, and we expect this to be implemented this year so that we get a carbon board adjustment mechanism that is even more robust and more perfect than what we see right now. On the trade defense instrument, EU Commission has made a strong proposal in autumn last year, has been embraced by the parliament, the European Parliament and by most member states. The trialogue is ongoing, and we expect no further delay of that trade defense instrument to come into force 1st of July this year. And we already see this also on market -- steel price market, and I will get to that in a second. Looking at CO2, of course, the whole debate around the ETS system has put the upward trend to a halt and CO2 has dropped. Still, we are above levels of 2025 if you look at it. However, I would say, a normal reaction in all the public debate around ETS. What I think is important is that none of those who are discussing the ETS reform right now questions the ETS system as such. I think it's fair to say that you need to adapt the system to the current environment that we have. And that's exactly the purpose of that long planned reform in summer '26. But none of the decision-makers nor those that are lobbying right now is question the ETS system as such, which I think is very important because it is a market-based system for CO2 and certainly something that works. It has at least proven that it works over the last 25 years. Looking at other prices, be it raw materials and energy. Looking at energy, of course, you see the uptick given the Iran war. How do we look upon it when we're talking natural gas, more than 50% of our capacity has been hedged for '26. So we're, in that respect, not fully exposed to the gas price development. But we are, of course, closely monitoring and looking into how we can internally react to that. Electricity, same pattern. However, here, we are even more hedged. You remember that we have a strategy in which we go for CO2-free electricity PPAs. And those PPAs, of course, are a good hedge now for us with that electricity price development. Looking at the raw materials, iron ore spike is due to bunker oil price increase, hence, logistic costs that we see through the closure of the Strait of Hormuz. Coking coal, the decline comes from weather effects that we had, especially in Australia with strong rain pushed up prices. Those rains are gone now, hence, prices came down. Certainly, we're also going to see some effects on bunker oil here on the coal side as well, perhaps not that much then with iron ore, but certainly, we're going to see certain effects there as well. Now with those, look at the steel prices. Steel price has picked up. Now I'm looking at the left side, blue line, hot-rolled coil. Since summer last year, we have seen a constant pickup in prices. We're north of EUR 700 now, which is -- which we haven't seen since '24 -- early '24, which is really good. Other prices like plate and sections are following that trend, not as explicit but are following sections. I expect more price development now that construction kicks in, in Q2, Q3, regular seasonal pattern that we should see there as well. On the international side, the spread is widening. U.S. sees the price increase due to the tax regime that we have there. China, low internal demand, hence, lower prices and Europe is well positioned here in the middle. How does that translate into key figures? Birgit, you will dive into the financial figures quite intensively as it is your role. So let me perhaps focus on some of the numbers that are less financial. Crude steel production went down year-on-year '24 to '25, which is predominantly due to us taking blast furnace C in Salzgitter out of operation. And then, of course, a couple of adjustments due to lower markets. Hence, also sales went down. Birgit will guide you through that. With lower production, you also, of course, have lower Scope 1 CO2 emissions also went down. And the decline in workforce is predominantly due to deconsolidation of Mannesmann Stainless tube in 2025, some countering effects, especially on the steel production side to ramp up the team that will handle the parallel operation of blast furnace and electric arc furnace. That's what you see in the core workforce numbers. Short shot on the business units. Let me start on the right-hand side, technology. Again, a very strong year, record year for KHS, third record year in a row. So KHS is really, really performing well. And even though sales have been slightly below '24, but still a very strong development, very happy with the development of KHS and of course, also with the development of Aurubis, which you don't see on that slide, but still worth to mention because those 2 certainly have carried us through the year 2025. Trading, positive, as said, restructuring has turned out very positively, positive numbers there. Steel processing, steel production, both negative. However, especially on the steel processing side, you see good development. On the results side, given the restructuring that we have seen there, given a strong focus on performance. So that's what you see here in the numbers. Steel production, yes, basically on the same level as 2024. But given the reduced sales, I think it also shows that restructuring or the performance measures have gotten some result effect here as well. Let me close with the dividend proposal. We are proposing and have discussed that with the Supervisory Board a constant dividend vis-a-vis '24, EUR 0.2 per share. This underlines the investment activity that we still have with SALCOS. So cautious on the dividend. It underlines also the headwinds that we had in the market in '25 and that we continue to have also in '26. So prudent also on our end here. But it also underlines the stability that we owe our shareholders in terms of dividends. So we believe this is a fair representation of their contribution to Salzgitter. Hence, this is what we're going to propose to the shareholders then in the summer. With that, I'd like to hand over to you, Birgit, and let you guide through the financials. Thank you.

Thank you, Gunnar. Yes, thank you, Gunnar. A warm welcome also from me to you out there. Happy to have you today. And before I go to the detailed figures, please allow me to reflect on 2025 and also to give you a slight outlook on what is to be expected for 2026 at a glance here. So 2025, Gunnar has mentioned it, was still a challenging year for us, especially in the steel segments where the wind of the economy -- of the not recovering economy was still blowing very strong into our faces, especially in the trade segment, but also in steel producing and processing. We were burdened by prices and in trading also by volumes. You have said it, Aurubis and technology have performed nicely and flattened nicely the challenges we have faced in steel. So for us, last year was a year of organizing financial stability. And how have we done this? Number one, we have concentrated on our performance program, and we have managed to exceed our self-set targets of almost EUR 100 million by 33%. And thanks, Gunnar, you have mentioned it. You left it to announce the exact figure by me. And I'm quite happy and proud of that because this is something that a lot of people in our company organize by constantly and every day working on the measures that are behind this program. We also, Gunnar has mentioned this, have focused on continuing our restructuring activities with focus in the trading segment, steel trading segment. And here, despite the strong headwind we have faced, we have managed to be positive. Gunnar has just shown the figures here. And we issued an exchangeable bond in order to safeguard our financial basis. And also, we focused on cash measures. Also when spending money for our investments, there was a very strict discipline. And all of this paid in into our net financial position, which stayed below minus EUR 1 billion. And with this, a lot stronger than what we had forecasted over the course of last year. So we have focused on cost. We have focused on financial stabilization and on restructuring. And all of this plays a nice stable financial basis, and I will show you this in the figures as well. And what is going to happen now in 2026? Headwinds are going to continue. We see some slight improvement. Gunnar has mentioned the prices. Gunnar has mentioned the EU measures. However, the German economy is not yet flourishing. And actually, we do not expect a sudden pickup here. And we also will see that we had some nice positive onetime effects in the trading unit last year, which we will not see again this year. This will also have an impact. We will still be positive, however, not as positive as driven by the onetime effects. We do anticipate, as Gunnar has laid out in detail that the measures as well from the EU as well as from the German government will be effective. However, we expect to see some effects this year and to see the full potential of the effects rather starting from 2027 onwards. So we see a positive momentum building in '26 to be continued in 2027. We are back to black already with our adjusted EBT with a slight positive number of plus 2, and we will be back to a stronger black even in this year as we have guided. So -- and of course, in addition, we will also continue to focus on our own homework, which is the cost improvement measures, which is restructuring and which is also shaping our portfolio in order to be fit for the future. Looking now at the numbers, we see here that our sales, left upper side, came out at almost EUR 9 billion, which is EUR 1 billion below the year before. And when I come to the income statement, I will give you some more details where the minus EUR 1 billion went more or less. We see -- if we look at our adjusted EBT and EBITDA figures, we see that, of course, that the EBITDA was slightly reduced compared to 1 year before, and this is also due to the reduction in the sales revenues. And we see the adjusted EBT of breakeven of a slightly positive plus EUR 2 million here. And the EBITDA VX and the EBT VX stands for valuation and stands for exchangeable bond shows the figures without the valuation effects coming from our exchangeable bond because this impact would not show the real performance of our company. That is why we decided up from 2026 to report adjusted figures here. And right to these figures, you see the EBITDA and the EBT including the valuation effect of the exchangeable bond, which was minus EUR 30 million by the end of last year. Very strong last year, upper right figure, our business cash flow or gross operating cash flow. You see here slightly above EUR 0.5 billion. That is one of the most important figures to us in these challenging times, and you see that we could even manage to improve it by almost EUR 100 million compared to the year before. And our net financial position came out at minus EUR 954 million, so below minus EUR 1 billion. Of course, it's negative. However, if you may recap, when we discussed this figure over the course of the last year, we were starting with expecting EUR 1.7 billion, then cut down to EUR 1.5 billion. And in the fourth quarter, we discussed EUR 1.1 billion, and we even managed to be below the minus EUR 1 billion. And some smaller contribution were also coming from the working capital side here. Looking at our income statement, you see here on the left side, our sales revenues of around EUR 9 billion. And before I come to the deviation to previous year, allow me to quickly guide you through the major elements of our profit and loss here of our income statement. And you see that we have 3 main drivers that are deciding about our results. First, our material costs, which were around EUR 5.8 billion last year, followed by personnel expenses of EUR 1.9 billion and then by other operating expenses of minus EUR 1.5 billion. And here, you also see the effect of the valuation of the exchangeable bond of minus EUR 30 million that is included here. Our contributions from our equity companies is stable, slightly above EUR 180 million. You see a negative impact from financing results and all this leading to an adjusted EBT of plus EUR 2 million, including the valuation of the bond of minus EUR 28 million. Then we have taxes of EUR 42 million and a result after tax of minus EUR 70 million. And if you look now at the boxes on the bottom of the slide, you see the deviations compared to last year. And here, I would like to mention the most significant ones. First, sales, down by EUR 1 billion. What were the major impacts? Major impact first was the deconsolidation of the Mannesmann Stainless Group, which was not in our figures '25, but still in '24. We have seen quite some turnover reduction in the steel segments, in all steel segments, especially in trade and mainly driven by price impacts, as Gunnar has shown the price developments and in the trade segment as well by volume impacts. And if we look at our material expenses, we see that our material expenses were a lot better than 1 year before and could even overcompensate the reduction in sales. And Gunnar has shown the development of the material prices starting beginning of '24 and coming down over the course of the year and even in '25. So this had really some very supportive impact here. Personnel expenses also slightly reduced due to also MST deconsolidation and as well as restructuring activities from the Trade segment. Depreciation was burdened in 2024 by impairments in the MPT Group and HKM and some minor other impacts, which accounted for the most part of the difference compared to the year before of the EUR 300 million that you see here. You see in other operating expenses, a delta of minus EUR 119 million. Here, we have 2 impacts. We have the effect of the exchangeable bond worth EUR 30 million, and we have foreign exchange impacts here as well. And you see the counter position in other operating income where we have benefits from foreign exchange effects. And you see from our financing activities, we even performed better, EUR 31 million than 1 year before. And all of this comes together in an improvement of EUR 298 million, so almost EUR 300 million compared to 1 year before if we look at the adjusted EBT. If we have a look at our balance sheet, we see a lot of stability in our balance sheet. The total assets are stable, slightly above EUR 10.4 billion in both years, '25 and '24. We see a slight increase in our noncurrent assets due to mainly our spendings in SALCOS. We see a decrease in inventories due to prices and also due to working capital management, and we see a stability in the other 2 positions here. If we look at the equity and liability side, we also see stability. We see an equity ratio which is constantly slightly above 42%. We see reduced pensions due to a higher interest rate, and we see some movements in our liabilities. Current liabilities have been decreased because we shifted some of our current liabilities to the noncurrent liabilities. And you also see an increase in the noncurrent liabilities due to our exchangeable bond worth EUR 500 million, which is reflected here. Coming to our cash flow statement. On the left side, you see our operating cash flow contributions from each quarter 2024 and next to that, 2025, and you recognize the EUR 505 million in 2025 that I had mentioned before. And we can see mainly 2 things. First, in 2025, in the first 3 quarters, we performed a lot better than the year before. And you see that in the fourth quarter of 2024, there is quite a huge contribution that was coming from the working capital, mainly revaluation of inventories and accounts payable that we had in line with our SALCOS spendings. And if you look to the right side on our cash flow statement, you again can see a lot of stability. We started the year with EUR 1 billion of cash and cash equivalents, and we ended the year with slightly above EUR 1 billion. And our cash flow for investments that we needed, almost EUR 700 million was financed on one side by our operating cash flow and on the other side, out of our cash flow from financing activities. Coming to investments. You have now just seen slightly above EUR 700 million. If we look only at the CapEx block out of this, you see here for 2025, EUR 528 million. And I can tell you that 2025 was actually a peak spending year concerning SALCOS. And it was also at peak year concerning inflow of fundings. That is why the net number is not as strong as the year before. But in 2025, we received fundings for the year '25 and also some fundings that were related to the investments in 2024. I have mentioned a disciplined spending in our entities, and you can also see this here in our CapEx spendings, which are not SALCOS. And you see the EUR 299 million here are quite significantly below the 2 years before. So what are we going to expect in 2026 now? You see a number slightly below minus EUR 900 million, approaching a similar level compared to 2024. However, Gunnar has mentioned the nice additional funding we are going to receive with EUR 322 million. And the cash inflow portion of that, we are expecting EUR 250 million this year. And this will bring down the figure of 2026 to slightly above EUR 600 million, and then the difference to '25 is around EUR 100 million. Now I come to a topic that's really close to my heart, I have to say, because so many people are working on this and are so diligently doing this, and it's so fair that they also can harvest this nice success. You see the target on the right side, EUR 97 million, and you see next to that what we actually achieved, EUR 129 million. And within this figure, EUR 110 million have a sustainable effect will constantly bring down the cost basis. And this is an overachievement of 32%, what a figure. If you look at the year before on the left side of the graph, you see that we managed in '24 to organize EUR 65 million of contribution. And you see that '25 number is double of the number of '24. So we doubled the cost contributions from 1 year to the other. And you see that the biggest portions are organized in the segments where we were negative last year, so in steel producing and steel processing. You may wonder why trade is such an overseeable number, and this is due to the fact that restructuring activities are not part of our performance program. So these contributions from restructuring activities are coming on top of the amounts that you can see here. If we look at the contribution of the performance program by year, on the left side, you can see in the middle, again, the EUR 129 million. And on the left side of that, you see what we have organized the 2 years before. And let me remind you that we had an original program, which was targeting EUR 250 million, and we doubled that to EUR 500 million. And the EUR 250 million of the original program has already been organized by the end of last year. And this makes us confident that we can also manage to organize the remaining portion. And the target for this year is EUR 122 million. And you see on the right side, not only have we doubled our ambition, we have further increased it up to EUR 575 million because we need it in some entities. And the best part is that not we as a Board did that, that the entities themselves did that. And you see here how the distribution is. The major contribution comes from steel processing with 60% and 20% from no, from steel producing -- excuse me, 60% from steel producing, 20% from steel processing. Just I have listed some examples here because there's always the question raised, what exactly are you doing? How are you organizing? Let me just pick 2 examples here. Purchasing in our Peine entity, we have reorganized the material mix that we put in our electric arc furnace. And we have replaced part of the scrap components by other iron ore bearing materials with a positive impact on material cost and logistics. Logistics have so many impacts, if you care about that. We have broad transports from trucks on rail. We have shortened transports. We have combined transports. And this has positive impacts on not only cost, but also on the time transports take and, of course, also on CO2. Outlook for 2026, Gunnar has mentioned so much. I'm just going to run over the headlines here. The steel market is expected to recover slightly compared to the year before. We see positive production trend also for the German mechanical engineering sector and of course, impulses from regulatory and government demand. And all this led us to our guidance that we have issued already quite some time ago. Sales of EUR 9.5 billion, adjusted EBITDA VX between EUR 500 million and EUR 600 million, a pretax result VX between EUR 75 million and EUR 175 million. So really be back to black compared to 2 years ago and even stronger than last year and the return on capital employed marginally above the year before. Outlook for the business units. Gunnar has shown that all business units and segments have suffered in sales in 2025, and we are expecting increased sales in all segments this year. We expect technology, Gunnar has talked about that to remain strong, to contribute further. We also expect Aurubis to remain strong to contribute further. And in addition, we expect, especially in steel producing and steel processing to have also significant higher EBT compared to 2025. We even expect in the steel production area to be also back to black. So now let's come to the conclusion before we come to your questions. I will share the conclusions with Gunnar. I will start and then hand over to him. Let me quickly summarize. We managed to stabilize our earnings as forecasted. And P28 in our performance program, we exceeded our target by 33% and doubled our contribution compared to the year before. We focused to restructure and advanced here. We managed to diversity our liquidity and lay a stable foundation here. And we are cautiously optimistic for 2026 and see a stronger upward trend from 2027. And with this, back to you, Gunnar.

Thank you very much, Birgit. And let me then conclude. So what you've seen is a lot of focus on stability and creating stability and creating resilience in our company on our way of that transformation. And it is just following through with our strategy. It's following through with improving the company's resilience going forward. The funding, the SALCOS funding, additional funding is certainly of great help for us. And you mentioned sort of how this will affect our net financial position. I talked you through HKM. I think we have a good case going forward. There's a lot of work to be done, no ifs and buts about that. But we have a clear plan. We have a clear commitment also from the management team of HKM, and we are very confident that we, a, will be able to take over HKM this year and then also run through the decarbonization program, the transformational program for HKM, reducing capacity, reducing workforce, making this a slim and agile steel mill going forward. Technology, we talked about, is strong, remains strong, has a good perspective also from a market view going forward. And yes, we're going to need continuous support from the regulatory environments, carbon board adjustment mechanism. Safeguards are addressed. The ETS now is under review, as we talked you through. And we will certainly also constantly remind the German government that energy prices in Germany are structurally higher and too high. So that's certainly something that we are also going to continue to work on in '26 and beyond. With that, I think we have, as said, a resilient company going forward that is able to support German's economy, German's industry, also securing a resilient year '26 for those with us as a systematically and systemically important foundation for Europe's industry, and we're happy to be part of that, happy to contribute to that and happy to support. And now we now are thank you very much for your attention and ask for your questions. Thank you.

Right. There are already some hands raised. So let's start with Andrew Jones, please.

I just had a few questions. Firstly, just on Ilsenburg with the contribution you expect from the defense steel. I mean, how -- what are we talking about in terms of tonnes? Can you compare the average margin on some of these defense applications compared to standard steel grades? That's the first one. And then secondly, could you try and quantify potentially what the impact of higher energy costs and freight costs could be on your business? I mean if we just take where spot is today, can you give us as a ballpark for the annualized impact you expect on your financials?

Yes, happy to. Thanks, Andrew. So when it comes to defense, contribution is certainly not that much on the volume side, right? I made that comparison in some other occasions that the volume coming through defense will certainly not compensate for the volume loss that we have seen on the automotive sector since 2018. So volume-wise, this is a different ball game. It will remain a niche market when it comes to volumes. However, of course, price levels, margins, et cetera, are much more attractive in this area. And this is also why we have focused on defense and have broadened our spectrum there and are in that market and will also remain in that market. So that's -- I think that if I got you right, the first question, right?

We will keep any numbers around it?

So what we have said is that we're going to see sales-wise, roughly single-digit percentage in sales coming from the defense market within the next 2, 3 years. So we are still in a ramp-up phase. We're still sort of in getting all the permits, both from the military, but also from some of the suppliers to the military. So '26 is a transitional year, but then I think we can get to a mid- to high single-digit number when it comes to overall sales. So your second question, impact on energy prices with the current situation we're having in Iran. As I told you, sort of the hedging level that we have on the gas side is north of 50%. So that also already reduces it. Our assessment so far with current knowledge is that the impact will be between EUR 10 million and EUR 15 million on an EBT level. So relatively modest because also on the oil side, there is not that much impact on us. As said, electricity is what we are focusing mainly on. And here, we are well hedged. So it's a limited impact as we see it today.

And does that include freight?

Sorry, you couldn't...

I mentioned freight as well.

Yes, of course. As I think both of us said, there is an impact on freight rates. That is something we're seeing already and something we're discussing with the customers already. So we have initiated discussions with the customers because as I said, it's pretty unlikely that we can carry those cost increases all ourselves. There will be -- they will have to find agreements, but that's too early to say. That's really -- that hasn't really sort of come to any conclusion yet, but there will be a burden sharing across the value chain, I believe.

The next question comes from Zurich from Bastian.

Can you hear me?

Yes.

I've got a couple. Maybe starting off with your outlook for the trading unit. We expect a drop in an environment despite prices having gone up significantly already. And at least from looking at your outlook statement for steel production and processing, you don't seem to be disagreeing with that. I guess this would be really the first time that trading losses correlation to the steel cycle. And even if we consider this EUR 8 million provision release, which we had last year, I guess the bar for an improvement should sit pretty low. Now have you started the year with a lower-than-usual inventory position? Or is it just you being conservative? Maybe you can just help us why your guidance in trading does not really sound a bit more optimistic? That's my first one.

Yes. Look, when it comes to the outlook for trading, yes, we have been more on the cautious side also because we see clearly that on the international trading -- in the international trading sort of volumes have dropped significantly. There's a lot of uncertainty in the market right now. Hence, there's low volumes on the international trading. So we have been very cautious on that. And we shouldn't forget that we are not fully through with the restructuring of trading. So there is still some work to be done, and that's then also reflected in here. When it comes to inventory, I think we have been -- but correct me if I'm wrong, relatively on at par level when it comes to '26.

Yes. What we expect in the industry is that before the safeguard measures will be -- how to say, will be put into place, the stronger safeguard measures, we expect that some will be building stock up in order to avoid to be affected right away from 1st of July. And this is also seen by our trading segment, and this is also what makes them cautious, yes.

Yes. We've seen a similar effect on CBAM as well, right, in Q4. I think we discussed it at some point that sort of there the market is reacting to those regulatory measures. And that's what we take into account.

Okay. Okay. Fair enough. Then my second question is maybe already on the first quarter, which is pretty much done. So could you please give us a little bit of early color on how the quarter has gone so far, how your order book shapes up for the second quarter and also whether you've seen any changes in client behavior just in the last 2 weeks in particular?

No, we haven't seen any changes in client behavior yet. So, so far, things have developed as planned. And I think it's fair to say that the first quarter has been as expected, so better than what we have seen last year. Of course, we had a pretty strong winter, we shouldn't forget that, which had effects on our delivery to customers and had effect on logistics, but it seems like we are able to catch up then in March on that end. So sales-wise, slightly below. But overall, I think also the additional cost measures, P28 is continuing, et cetera, are also delivering on that target. I don't know, do you want to add?

No, that's fine. That's fine. That's fine. But yes, the year start was as we had expected it and is carrying our guidance, especially for the EBT guidance.

Okay. Great. And then lastly, on the ETS reform. What is your expectation on how the system may be amended? Could we see a slower phaseout in free allocations? And what do you see as the most likely outcome?

Yes. Well, I think what has been discussed now also from [indiscernible] line is to look at the market reserve and postpone sort of the market reserve there and through that, give a bit of release on pressure on CO2 prices on top of that, but that's basically sort of an ad hoc measure, right? It's not the reform of the ETS. I think it's going to be important to understand because you have a couple of building bricks of this ETS system, what you want to work with. One discussion is, of course, the slower phaseout of the free allocation. One is to review benchmark, the benchmark process. So that's in the air right now, too early to -- at least for me, too early to have a firm view on that. What is important, though, is that whoever we talk to, whoever we listen to, it's pretty clear that everybody has understood that whatever we do on the ETS should not harm those that have already done their investments. So this first-mover disadvantage is something that people are very well aware of and that should be -- in all cases, should be avoided in any type of reform.

Next question is from Cole.

I'd just like to follow up a little bit on your supply chain. And we've seen across various industries challenges getting certain raw materials. And I'm just wondering if is there anything that we should be thinking about? You've been quite clear on electricity and gas hedges, but are there any products or items available in your supply chain that give you pause for concern? And on your sales side, I know you mentioned there's been no change to client behaviors yet, but do you expect to see an increase in procurement from your customers just as they build up safety stocks in a longer supply chain?

Well, first of all, we have done a quick risk assessment on the supply chain. Is there anything that is at risk here? We haven't identified something that is absolutely at risk. We talked about energy, raw material. Rest coal is unaffected right now by the war in Iran next to bulk oil, as said, but unaffected otherwise. And on the iron ore side, as I mentioned, we're -- roughly 50% of our iron ore comes from EU. Hence, also here the risk is absolutely low. Next to that, we haven't -- again, haven't seen any major threats when it comes to logistics. That actually also goes for SALCOS. It's not that we see any material that gets stuck somewhere and would stop our construction process. So when it comes to sales, yes, as said, the expectation is there or the -- so far, we haven't seen any changes in the behavior of our customers. Of course, we are in discussions with those, what does a prolonged war in Iran means to them and how do they react? What I can envisage is that some of the customers that are also focusing on imports from outside Europe for their material, for their steel might actually turn to more a European value chain in order to reduce uncertainty and also given that other producer outside Europe are much more dependent on oil and gas coming from the Persian Gulf, hence, are hit more than we are with the cost increase, which then also will increase their cost of production and make the import less attractive than it has been perhaps in the past years. So we might see a shift call when it comes to behavior and pattern for sales from our customers or from -- yes, the buying pattern from our customers. But again, it's too early to say right now. We don't see those changes yet.

That's helpful. And then maybe just following up on HKM. I'd just like to hear your thoughts on the slab market and how you think it's going to develop over the next few years because slab is not subject to the 50% import tariffs. We're seeing some more slab getting imported now. I'm just wondering to see how you see the slab market developing over the next few years.

Yes. I think in terms of cost and cost development, I think the same goes for slab when I just mentioned to any kind of steel product. First thing. Secondly, the slabs from Russia are under a -- I'm missing the word, the European sort of regime.

Sanction.

Sanction regime. Thank you. So they will be pushed out by latest September '28. And we're talking 3.5 million tonnes of slabs coming out of Russia still into Europe today. So those 3.5 million will vanish. In total, -- we're looking at a slab market of roughly 10 million tonnes that is a free market for slab in Europe. And with HKM delivering roughly -- and of this, the 3.5 million will move out. So -- and HKM will have an excess capacity for the market of roughly 1 million tonnes. So we are very confident that in such a market, a market share of 10% for an HKM, which has proven in the past that they can deliver in quality and time to that market because we always have sold slabs into the market from the 3 shareholders that is not overly ambitious and should very well work. And we shouldn't forget we're talking then about one of the most modern, most efficient electric arc furnace in Europe. Hence, also from a cost position, we should be able to compete. We are very confident with that.

Then we have Boris, please.

I have three questions. So the first maybe on HKM. Can you share those key elements that have been agreed upon with thyssenkrupp, Vallourec? And what kind of support you would expect from those guys to go further in that -- in buying the assets? The second question would be on the TRQs. Do you still expect the TRQs to be voted with a minimal dilution and by the end of this quarter. So that leaves a few days to go. And the last one, I would be interested to know the split of your production costs between the different kinds of energy being electricity, natural gas and coking coal. Because it seems like at the moment, you are quite relying on blast furnaces or potentially less exposed than other players using electric arc furnaces like Turkey at the moment.

Yes. Let me try to answer those questions. So on the HKM side, we are in negotiations right now. So I'm very confident that we're going to sign this and close this by middle of this year and as of then, get full ownership of HKM. When it comes to the support, Boris, apologies, but we're in those negotiations, so too early to tell. But if you take -- I think it was publicly stated, we were in discussions on a sale to CE Capital, HKM to sell to CE Capital. I think 2 years ago, if you do some research on those numbers, you might be very close to -- or relatively close to reality. Let's see. But again, we're in the middle of the process. Additional funding will be the EUR 200 million that HKM got on public funding, right? So we shouldn't forget that. They asked for public funding under the BIK regime and got that approved in December last year. So that will certainly be available for the transformation as well. When it comes to the split of energy costs, I don't have those numbers top of my head. But what you said is absolutely right. We are -- especially with Salzgitter, with our site in Salzgitter operating on blast furnaces right now, so we are producing most of our energy ourselves with the blast furnace gas coming out of coal. So that is how we look upon our energy situation in Salzgitter. Peine is certainly -- given it's an electric arc furnace is a different thing. I think I mentioned when we talked about the electricity that we are very well hedged on the electricity side for 2026. So we don't see any major deviation or any major impact on Peine through the electricity cost given the hedges that we have, the green PPAs that we signed over the last 3 years are a great deal of help here when it comes to Peine. And then you had a third question that I missed out.

Development of the tariff quotas.

So what was your question on the tariff quotas, please, again?

Do you still expect the parliament and the council in Europe to adopt the proposal of the European Commission by the end of this quarter? And do you expect that to be the dilution of the final document to be minimal?

Well, first of all, yes, we believe that we're going to get a decision that leads to an implementation by 1st of July with the trade defense instrument. And there is a discussion of this carryover effect. I think that's what you're mentioning, what you're talking about, right? And then we have a clear position as Salzgitter, but also as a steel industry, both through the virtual [ signing of Stahl ] in Germany, but also Eurofair in Brussels and try to massage that in that this carryover effect will not affect us on the business side if it cannot be included because that certainly is a certain risk. I don't see this as a major risk, but it's certainly unpleasant to have. So we're going to work against that.

Okay. Then Maxime, it's up to you.

So first question is on natural gas because at this stage, your needs are quite manageable in the current setup. But with SALCOS ramping up from 2027, I mean this will get multiplied by -- I don't have the figure on the top of my mind, but by very high amount. So how do you prepare for that given that gas prices might remain elevated until -- or are you starting there to hedge already? Or is there a risk that the SALCOS setup will be less competitive than the traditional blast furnace production due to high gas prices?

Yes. Well, first of all, if gas prices remain high, will not only hit us, it will hit everybody, right? So in that sense, we'll just increase price levels overall. And in that context, then I think we -- SALCOS will remain competitive. On top of that, we are -- of course, we then will strengthen our efforts or review our efforts in terms of hydrogen and whether hydrogen can compensate for natural gas quicker than anticipated. So we have options here to play, Maxime. So first of all, increased price level overall. And then we have flexibility with SALCOS when it comes to natural gas and to hydrogen. So we certainly can deal with that development. But you're right, we certainly have to look at the developments now and how that will impact our overall cost situation going forward, and that is then well beyond the energy part only.

Okay. Second question is on a follow-up on HKM. So could you perhaps detail the impact it will have on your crude steelmaking capacity because you already account for some of HKM's capacity for about 30% of it. You have plans to downsize it. So what will be the net impact in terms of capacity on that filter? And how long do you think you need to bring the operation back to profits?

Yes. So what we have is at HKM today is a 5 million tonne operation, right?

As far as I understand, it's now loss-making.

Sorry, I broke up. Hope you can hear me clear, Maxime? Can you hear me?

Maxime now you're moving -- can you...

Okay. Good. Good. So looking at HKM, we're looking at 5 million tonnes capacity right now. In the end stage, after transformation, we will downsize it to 2 million, max 2.5 million tonnes. So 1 electric arc furnace that we're going to operate on site in HKM. So that's capacity-wise, how we look upon it. So we're taking out capacity in the European -- overall European market. HKM is not loss-making. It is a cost center as it is operated right now. We will certainly turn that into a profit center. And the business plan shows that we will be able to bring HKM back into -- or bring -- make it a positive contribution to the overall group already by 2027. So that's -- and the interim period is due to capacity adjustments, et cetera, but it will be well funded through the proceeds that we get through the acquisition, the funding that HKM has gotten themselves and our contribution as well.

Maxime, is that right for you. Maxime, is that right for you? Did everything come through?

Okay. And just the last question is on perhaps the net debt guidance for this year because previously, I think you had spoken of...

Yes, we can hear you.

You can't hear me? Is on the net debt guidance. Net debt for this year.

I will take that. Yes. Of course, thanks for that question, and I, of course, expected it.

You had spoken for this...

There's a delay in here.

Yes, there's some technical challenges. Can you hear us now back? Can you hear us?

Yes.

Okay. Sorry, you seem to be interrupted. But anyway, the most important part is that you can hear us. I think we got your question. It's about the guidance on the net financial position, where we came out slightly below minus EUR 1 billion last year and what's going to happen this year. So we expect to be something between minus EUR 1.1 billion and not exceeding EUR 1.5 billion. Yes, rather on the lower side, definitely not exceeding EUR 1.5 billion.

Okay. Great. Next question is a kind of black box because someone haven't stated his or her name, but let's see who it is. And if we take the question, please.

Yes. Can you hear me?

Yes.

It's Tristan Gresser from BNP Paribas. Apologies for that. So my first question is on the steel production business. I think in the annual report, in the steel outlook, you mentioned that strip demand will not quite cover capacity utilization. I was wondering if you could explain a bit what this means. I think in previous reports, you always were quantifying that business as able to cover capacity utilization. And it sounds a bit more cautious, but with the CBAM, the quotas tailwinds, it would be helpful if you could help us understand the volume trajectory there and also to confirm a bit the time line you have in mind for the restart of the smaller blast furnace.

Yes. I think you are -- you're spot on with the blast furnace. As you might know, we have taken that out of operation in 2025 to do a relining. We have then consciously decided not to take it into operation for 2025. It's still not in operation. And that helps us also then to get to that match that you mentioned between the demand and our production. And you shouldn't forget that for -- for our site in Salzgitter, they're not only producing for the flat business, but also for the plate business for Ilsenburg. So we're able -- there is flexibility in the system. We're able to adjust according to demand, and we have that flexibility through the blast furnace C. Is that -- if I got your question right? Otherwise, please come back.

Yes. No, it's fair. So you do plan to restart the blast furnace C at some point this year. But regardless of the demand environment, there seems to be strong, let's say, tailwinds just from the policy perspective. If demand remains steady, you should still be able to grow your volume and gain market shares versus imports. Is that still -- I thought it was a fair assessment a couple of months back, but I'm just trying to understand if it's still a fair assessment that regardless of the demand environment, we should expect some stronger volumes for the steel production business this year.

Yes. I think that was our view a couple of months back, and then we still remain stable on that view. Otherwise, sort of the -- yes, no, I think we remain stable on that view that we should be able to recover some of the demand that might occur through lower imports into Europe.

Let me add some information, which may be interesting for you because after the electric arc furnace, there is our hot rolled mill, right? And we have not brought this capacity down. And we fed it with slabs coming from our own production from our own arc furnaces. And we fed it in addition with slabs that we had on stock from HKM from the year before. So not -- please don't be mistaken that we have taken out a blast furnace C does not mean we have cut down downstream on the value chain capacities, yes.

Okay. That makes sense. And then a second question is on steel processing. I think you flagged good utilization in H1. Energy demand in the U.S. is good. I've seen you had some recent hydrogen orders coming through. So I think the direction of travel is clear. You were getting close to positive EBITDA in Q4. So with those tailwinds, could you be positive EBT at some point during the year, if not the full year? I'm trying to understand why it might be still bit some cautiousness for that business.

Well, the cautiousness comes from our market assessment that we have not seen this huge pickup in -- on the energy side, as you mentioned. Yes, you're right, we have been able to earn some contracts on the hydrogen backbone. However, expectation in the previous years have been much higher. So this has been slow. U.S. is not a strong market for us. We are delivering pipes into the U.S., yes. But given the tax regime that is there, of course, U.S. is also pretty cautious with buying from Europe because that is substantial additional cost. However, we see that some of the steel mills, especially on the midsized pipes in the U.S. are well booked. So U.S. customers are turning also to us. But so far, I would say it is not that clearly visible. Hence, we are a bit cautious on that end.

All right. And maybe a last question on the ETS reform. Do you want more free allocation? What would be a positive outcome for you? I think the steel industry is relatively split on that matter. And you have some carbon allocation, but you're also quite advanced in your decarb program. So what do you want from the ETS reform? And also, we've seen over recent weeks and over the past months, European steel equities, including Salzgitter fall when the CO2 price is falling. That seems counterintuitive, but I wonder if that does make sense to you and if you could discuss that a little bit.

No, I don't -- I share your view with the counterintuitivity of the CO2 price. As we still run on blast furnaces, we shouldn't forget that. We're talking about SALCOS, but we're still running on blast furnace. And even with SALCOS Phase 1 coming into operation next year, we still have blast furnaces in operation. So that's a bit counterintuitive. However, when it comes to the ETS, for me, it is of utmost importance that we don't skip the system as such. It is very clear to me and to a lot of people I talk to that the system as a competitive CO2 reduction system, is functioning and is functioning and should remain in that general setup. Of course, you can discuss the phaseout of free allowances. Of course, you can discuss sort of the benchmark of certain assets, be it blast furnaces, DRI, et cetera. Happy to do so as long as everybody understands that those companies that have taken investment decisions have taken those investment decisions on a certain regulatory framework that was given to us, and there was a lot of stability around over the last 25 years. So if you change on the ETS system, you cannot harm those first movers. I think that, to me, is the most important one when looking at the reform of the ETS. Are there any further questions?

I think it's Tristan's hand. So there should be no more questions left so far. So thank you for your participation for the last 1.5 hours and see you next time. Thank you.

Thank you very much. Have a great weekend. Take care.

Thank you.