Salzgitter AG Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Sorry. Can you hear me now?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Perfect. Hey, good morning. Thanks for taking my question. I've got a couple and maybe starting off with processing, which seems to be the area which probably the most significantly behind the expectations overall, probably also relative to where we were maybe a year ago. So I'm wondering, is there anything which makes you confident to be improving your performance back to levels where you can at least stop the cash drain on an entity level next year or beyond that. That is my first question.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay, great. Thanks for the color. And then my next question is a follow up. On your restructuring plans. And I guess you mentioned that you'll be tackling mostly trading and MPT at this point. I'm wondering, is there also any -- are there any plans for the other businesses, business areas as well? And I know you, you said you cannot give much guidance on the full spectrum in terms of like cash out and maybe a number of employees, but you obviously have this, I think additional EUR120 million which you are basically flagging for the for the fourth quarter. And here I'm wondering is this also containing a right on component or is this a pure provision and hence already good reference for what could be a potential cash out. That is my second question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. But when you basically say restriction cost is basically a provision, right? It's not an additional right on.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Thank you. Okay. Understood.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. Understood. And then just coming over to decarbonization, Gunnar, you obviously mentioned that I think there has been obviously progress in terms of the hydrogen grid and network. I think at least that's going ahead. You mentioned also the business model, and maybe could you go a little bit into detail in terms of what the business model really looks like, how pricing mechanisms are supposed to be working any color on that front, that would be great.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Yeah. And basically, how are you procuring hydrogen? Are you locking in hydrogen at fixed prices? Is it even possible? How does the business model for you work? Like when you're procuring hydro hydrogen for your steel business?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Understood. Okay. And then lastly on your financial situation, and I think that was touched upon already in the last call as well, but your net debt to EBITDA is obviously approaching 3 times. And I guess possibly more even next time next year, just depending obviously on your -- on the evolution of your financial profile. I think you confirmed on the last call that there is obviously no hard covenant. But is there a red line which you set for yourself on your debt levels? And are you currently actively considering any further possible asset sales?

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay, great. Thank you. I'll go back into the queue for the moment. Thank you.

Question: Christian Obst - Baader Bank AG - Analyst : Of course, kind of difficult situation. But nevertheless, this plan going into the 30s for a full more or less decarbonization plan. So what will be the timeframe for further decision when it goes into '25? Are you totally focusing on the '25 reorganization of the Group to secure cash or are you also able and willing to do to make further decisions when it comes to like Part 2 and Part 3. This is the first question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Christian Obst - Baader Bank AG - Analyst : Okay. Thank you. You're writing that you're currently running with three blast bonuses in your operations. This is despite the fact that prices are ongoing under pressure. Do you think about reducing the overall capacity by taking all of the blast furnace and maybe supporting prices in certain areas?

Question: Christian Obst - Baader Bank AG - Analyst : Okay. Thank you. Then, your total workforce increased by approximately 500 people when it comes to on a year, on year basis. There is this only related to the SALCOS Phase 1 or what is the reason behind? And when you are selling MST, how many people will go out of the operations?

Question: Christian Obst - Baader Bank AG - Analyst : Okay. Thanks. And the last one is again on technology. So you -- if I read it right, it is an ongoing strong order book, strong order intake, there's no margin pressure almost. Where do you see the main risk maybe going into '25 despite the fact that you said that the result will be more or less on the '24 numbers maybe.

Question: Christian Obst - Baader Bank AG - Analyst : And maybe another one if I may on the EU framework. So it seems a little bit like that the EU commission and all the people around that are not really in a place to decide anything so far. So do you expect some kind of delays for any kind of decision concerning the steel industry? What is your current your view on what is happening on the EU side?

Question: Christian Obst - Baader Bank AG - Analyst : So maybe a little bit more support going forward.

Question: Christian Obst - Baader Bank AG - Analyst : And do you see also the German steel industry speaking a little bit more with one voice or are they getting more fragmented because of the pressure from the current economic environment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Christian Obst - Baader Bank AG - Analyst : Okay. Thank you very much and all the best for your future, of course. Thank you.

Question: Andrew Jones - UBS Group AG - Analyst : Hello. Can you hear me okay?

Question: Andrew Jones - UBS Group AG - Analyst : Good. Yeah, we struggle with Webex. Cool. So, just a question on the strategy around SCOS, I mean, one thing I've noticed in recent times is we've seen peers of yours like ArcelorMittal still hasn't actually really deployed that much money on DRI in Europe yet, especially in Germany. We've seen like some of the peripheral countries around Europe introducing plans for DRI production. We studied in Libya in Algeria, places like this. And at the same time, obviously, the German economy has been super weak, and you know, we still don't have, you know, particularly great clarity around, you know, future infrastructure to support things like SALCOS. Yes, the hydrogen network enhancements, positive, I guess Martin, but I guess you said you still don't have clarity of a price. So my question is like, are you still convinced that this is the right long term answer for, you know, for the company? Because could we not see a scenario where you spend all this money, the balance sheet deteriorates further. And what happens in the longer run is the support mechanisms are not supportive enough and actually some of your near you know what some of the countries around Europe start undercutting on HBI or even on actual steel volumes. Once you've got this up and running and do you worry about the actual competitiveness of this thing in the longer term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Andrew Jones - UBS Group AG - Analyst : Okay. It does. And just a second one on the hydro network on the revenue side or your the any potential contract that could come there. I mean, obviously we don't have a final tender or anything like that. But can you give us an idea for what the opportunity is there in terms of potential volumes or, you know, or, or revenue or EBITDA or something that we could expect to be delivered over the next whatever it is like four years, you know, from that project. I mean, I'm wondering basically how material that is to the processing business.

Question: Andrew Jones - UBS Group AG - Analyst : Okay. And just on the profitability side, I mean, obviously that business swings around significantly depending on the utilization, given the high fixed cost burden of some of those mills. I mean, could you give us any indication about what margins could look like on that sort of you know, higher value sort of volume?

Question: Andrew Jones - UBS Group AG - Analyst : Yeah. Understood. Thank you.

Question: Tristan Gresser - Exane BNP Paribas - Analyst : Hi, this is Tristan Gresser from B&P Paribas Exane. Can you hear me?

Question: Tristan Gresser - Exane BNP Paribas - Analyst : All right. Thank you for taking my questions. The first one is on the automotive sector. Can you discuss a little bit the the latest trend there? I think you mentioned in your release that you're seeing some stabilization for your procedure to business. But does that also apply for auto sheets or is that still deteriorating. And also, can you remind us how much you're exposed to annual contracts with automotive and how much of those annual contracts are tied to generate negotiations. And if you can talk a little bit on those contract negotiations, if they've already started, what, can you tell us in terms of volumes maybe on price? I think if we look at the spot market at the moment, you could infer that you could see a triple digit decline and in contracts for next year. But is that something that is out of the question for you? So any color there would be appreciated. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Tristan Gresser - Exane BNP Paribas - Analyst : All right. That's really helpful. And could you confirm us or give us a rough percentage of how much of your annual contracts to OEMs represent for your steel production business, that 30% 40%?

Question: Tristan Gresser - Exane BNP Paribas - Analyst : All right. That's very clear. And my second question and I think we discussed it last time as well, but you put that in your remarks. Today, the Trump risk when we look at your business and the volumes you export to the US, could you remind us at the moment how much volume is that? I think it's really line pipes. But is there also an implication for [KHS] So how should we think if, let's say, well, Trump arrives and put back Section 232 tariffs, what could be the impact on your business?

Question: Tristan Gresser - Exane BNP Paribas - Analyst : Okay. That's clear. Could you give us an example of the indirect impact from customer? Is there one particular end market you have in mind?

Question: Tristan Gresser - Exane BNP Paribas - Analyst : Very clear. That's really helpful. And my last question is just on Q4 free cash flow guidance. I think in the past, you, you provided some net debt guidance. I think you just did with about a billion but just wanted to discuss a little bit the moving pieces into Q4. So the sale of MST, will we get a cash inflow of EUR125 million if I'm correct? You mentioned little cash impact from restructuring. How much of a working capital should we expect in Q4? And could you give us a sense also on the gross CapEx and the net CapEx for Q4? That that would be helpful.

Question: Tristan Gresser - Exane BNP Paribas - Analyst : Okay. And that's a gross or that's net of the government grants you should also receive in Q4?

Question: Tristan Gresser - Exane BNP Paribas - Analyst : Okay. Perfect. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Yeah. Hey, thanks for taking my follow up here. So I just wanted to get back on the situation around your major shareholder and we appreciate that you're reasonably restricted in terms of what you can say. But just in terms of the internal assessment process should affirm offer materialize. How far are you particularly bound to the price to book ratio of any potential bid? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 11, 2024 / NTS, SZGG.DE - Q3 2024 Salzgitter AG Earnings Call And would you allowed even to recommend any bid which falls significantly short of a certain price to book ratio if that situation was to rise obviously, with your price to book pretty close to like 0.2, 0.3 times. We are in a very, I think special situation where at least the implied balance sheet value is of significantly above where your current market cap is. So that is my first question.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. No problem. And maybe just slightly higher level than I guess given that you are in the middle of a very CapEx intense energy transition phase, obviously, your current capital structure also implies a free float which is already less than 40%. How do you generally feel about the merits of being listed versus a privately owned company at this point here, do you have any preference as a management team? Maybe you can just share at least your view on that topic.

Question: Bastian Synagowitz - Deutsche Bank AG - Analyst : Okay. Understood. Thank you.