Good afternoon, ladies and gentlemen, and welcome to today's Q2 2022 conference of Klöckner & Co SE. For your information, this conference is being recorded. At this time, I would like to turn the call over to your host today, Mr. Felix Schmitz. Please go ahead, sir.
Yes, thanks and welcome everyone to our Q2 call. With me today are our CEO, Guido Kerkhoff, our CFO, Oliver Falk, our CEO, Europe, Bernhard Weiß, and our CEO, Americas, John Ganem. They will guide you through the presentation. Thereafter, we are looking forward to answer your questions. With that, I hand over to you, Guido.
Yes, thanks. Welcome also from my side to our Q2 call. Let's directly start with the highlights of this quarter, in which we again achieved a set of strong results. Shipments were down year-over-year, but only slightly quarter-over-quarter. This is due to the macroeconomic environment and also due to falling steel prices. But also because of our consequently followed margin-over-volume strategy at the beginning of the quarter. Sales are strongly up year-over-year as a result of the higher price levels compared to previous year. Gross profit came in at EUR 508 million, a great level, and only down year-over-year because of the unprecedented price dynamics in Q2 2021. The same applies for the EBITDA. We generated a strong operating income of EUR 222 million in Q2.
Together with a set of results published for Q1, this marks our strongest first half of the year since our IPO in 2006, even surpassing the first half of our record year, 2021. As a result of our smart net working capital management, we generated a strong operating cash flow, exactly as we anticipated and always guided. We continue our smart net working capital management with still lean inventories going forward, and we will see strong operating cash flows as a result of further net working capital release throughout the year. Accordingly, net debt came down quarter-over-quarter. Digital sales share remained flat at 45%, however, still on a very high level, and the Kloeckner Assistant performance was boosted. I'll come to that later in the call. Let's go to the next slide. We're making strong progress in processing with implementing of our Klöckner & Co.
2025 Leveraging Strengths strategy. One important lever of our strategy is leveraging assets and developing our partner network. What we announced today is exactly fitting into this lever. We were chosen by Nucor, one of our strategic partners in the US, to partner with them at their new and state-of-the-art facility they create in Brandenburg, Kentucky. This is a very special business opportunity also under the light of sustainable business models, and therefore we decided to go on campus and strengthen our partnership. It is especially interesting in connection with our overall sustainability strategy and our green steel target since this new state-of-the-art EAF will produce low carbon steel only, and of the core market is renewable energy infrastructure. John, why don't you present a bit, more insights to this opportunity?
Yeah, sure, Guido. You know Kloeckner Metals here in the U.S., we're one of the leading plate processors. In line with that leveraging strength strategy that Guido referenced, we have a clear plan to expand capacity and enhance our portfolio of these specific type of higher value added products and services. The scrap-based Nucor Brandenburg plate mill will be one of the most advanced in the world and will have the widest range of capability in the United States with the ability to produce plates up to 14 inches thick and out to 168 inches wide. The mill will have a capacity of approximately 1.2 million net tons per year. The Klöckner investment is aimed directly at expanding our offering of differentiated plate processing services.
For Kloeckner Metals, developing and managing both complex and sustainable supply chain solutions forms the backbone of our overarching higher value add strategy and is exactly what this investment will be focused on. We also feel the timing of the investment is optimal with regards to the expected massive U.S. investment into renewable energy and other infrastructure related projects. This really is a clear example of how we intend to partner with both suppliers and customers in pursuit of a truly sustainable tomorrow. We have enjoyed a long and strategic relationship with Nucor and look forward to strengthening this important and growing partnership even further with this on-campus investment. Thank you.
Yeah. Thanks, John. I think it was an awesome teamwork from all parties that were involved, and our greetings indeed go out to Nucor. We're really looking forward to this great new partnership in Brandenburg. Now let's directly jump to the next news in terms of our business opportunities. Three weeks ago, we launched Becker Stainless and published the acquisition of Hernandez Stainless and RSC Rostfrei. Let me shortly recap the rationale behind this transaction and why it creates value for our shareholders from day one. With this transaction, Becker is extending its strategic position as a multi-metal supplier. With this, Becker is the most modern service center in Europe, now enters the stainless steel market and thus continues to expand its product and service portfolio, which now consists of carbon, stainless, and aluminum.
70% of our customers that we do have order at Becker order more than one material already today. Now with widening this offering, we're indeed in a better position to supply them. It is unique in the European service center market, and we already know from our existing customers that demand for such a solution is very high. Since it is substantially improving the logistics for our customers. In line with our overall strategy, customers will get everything from one truck. This strategic repositioning is implemented via the acquisition of two stainless service centers, being Hernandez Stainless and RSC, both located in the German state of Baden-Württemberg. Together, they generate around EUR 160 million of sales and employ 70 people.
Apart from the decision to step into stainless, this transaction, through being limited in size, bears immediate synergies such as bundled procurement, leverage of Klöckner's and Becker's logistics capabilities, and optimizing capacity utilization through group demand. Capacity utilization will increase to 100% only through exploiting Klöckner Germany tonnages while decoiling at Becker. Moreover, we see the opportunity to consolidate on the level of commercial structures, but also on the level of operating structures. Through this, we will create value right from the spot. Thanks to François-David Martineau and his team, and good luck in the stainless market. Going forward, we will continue to follow our opportunistic M&A approach, and we'll do so in a highly selective manner.
The decision to launch Becker Stainless, along with the Nucor partnerships, are important milestones to be the leading digital one-stop-shop platform for steel, other material, equipment, and processing services in Europe and the Americas by 2025. Let's take a look at our further strategic initiatives. In terms of digitalization, and especially automation, we're able to post further progress the first half of 2022. Though the digital sales share is still flat, Klöckner's system performance was boosted in 2022. Close to EUR 800 million of sales were processed by our AI-backed tool in 2022, a plus of 72% year-over-year. With this tool, we're able to digitalize more than 500 customers month by month. As we laid out in previous calls, we perceive the sustainability transformation of the steel industry as a unique opportunity to grow.
Most and foremost, we want to enable our customers to build a carbon reduced value chain with us. For this purpose, we've structurally upskilled our sales organization already today. We are therefore able to offer our customers high quality sustainability advisory services in the fields of carbon steel, stainless steel, aluminum, logistics, and circularity. Not just operationally, but also strategically on management level. More than 700 highly engaged and particularly trained salespeople are surrounding dedicated green steel experts with best in class knowledge, offering sustainability advisory services from today onwards. Just to recap, that's 10% almost of our workforce that we have trained and skilled to be there for our customers and advise them through this difficult challenge. Our customers can therefore rely on the pioneering experience of the world's first green steel sales force.
This very unique approach to structurally prepare the market is the fundament to materialize opportunities of the decarbonization of multiple steel consuming industries. With that, I'd like to hand over to Oliver for the financials.
Yeah, thanks, Guido. Before we dive right in, I'd like to show you, against the background of falling prices in quarter two, how we manage the business cycles so far, the upward cycles and the more challenging downward cycles. Our management focus is the performance of the whole cycle, meaning we would like to achieve a strong performance through the cycle, which we clearly demonstrated throughout the last 30 months. The main enabler for the strong performance is our smart net working capital management. On one hand, we implemented counter-cyclical initiatives. For instance, in the second half of the year 2022, or at the end of the year 2021. Our decisions led to a much higher outcome of the upward cycle. We could translate the positive price dynamics of 2021 and early 2022 immediately into record operating results.
As you just heard there, our disciplined margin over volume strategy contributed to those results as well. Our smart net working capital management was also conducted in downward cycles, such as quarter four, 2021, and now again at the end of quarter two, 2022, with a strong focus on the mitigation of negative windfall effects. In all cases, we were able to mitigate big portions of the negative price effects and performed relatively strong. Overall, we manage our net working capital quarter after quarter and benefit on our ability to anticipate certain market developments. This on the basis that more than 60% of our stocks are already sold. For the remainder of the year, we expect very strong cash flows as a result of our net working capital management. Let's have a look on the sales side. Next slide.
Shipments were 5.3% below the previous year's level. However, shipments were only slightly down quarter-on-quarter. Sales improved strongly year-on-year from EUR 1.8 billion in quarter two, 2021 to EUR 2.6 billion in quarter two, 2022, due to the considerably higher price level in all operating segments. Gross profit was at EUR 508 million after the record gross profit of EUR 524 million in quarter two, 2021. Our gross profit margin went down year-on-year from 28.4% to 19.7%. However, it was flat quarter-on-quarter. We will now focus on the EBITDA for the group on the next slide. Our EBITDA before material special effects came in at EUR 222 million. A very strong result again.
Reported EBITDA close to the same level at EUR 223 million. Year-over-year, we saw a negative volume effect of EUR 28 million due to the challenging macro environment in combination with our consistent margin over volume strategy, which was still in place at the beginning of the quarter. The negative price effect of EUR 17 million year-over-year resulted from the overly positive price development in the previous year's quarter, being less pronounced this year. OpEx was driven by higher expenses for shipments, operating supplies, thereof, about EUR 3 million from inflation in energy costs. Moreover, we had EUR 12 million of positive FX effects due to the appreciation of the US dollar. We are coming now to the cash flow and the net debt.
We had a net working capital release of EUR 85 million, fully aligned with our net working capital management initiatives. Taking into consideration interest and tax payments of in total EUR 27 million as a result, and other taxes offset by pension, cash flow from operating activities came in at EUR 262 million in quarter two 2022. Including net CapEx of EUR 20 million, free cash flow now was EUR 242 million. Therefore, our net financial debt decreased from EUR 999 million at the end of quarter one 2022 to nine hundred and three million Euros, despite dividend payments of EUR 100 million. As already mentioned, we expect a very strong cash flow performance in the second half of the year. Let's jump to the next slide. Our balance sheet remains very strong.
Our equity is up, and the equity ratio remains solid at 45% as well as gearing with 44%, and the leverage at a level of 1.0x. Overall, this very strong balance sheet enables us to manage our inventories smartly, also going forward, and will support us to further grow the business according to our Strategy 2025. With this, I hand back to Guido.
Thanks, Oliver. Before we dive into the regions, let me guide you through an overview of the strong foundation we built at Klöckner since 2019. After prices hiked again in Q1, we witnessed a correction in the second quarter. However, as stated before, this was not a surprise for us, and as Oliver laid out, we're prepared for that. Currently, we see prices rather stabilizing. Price discipline has been proven in 2020 and 2021 and is intact also today. Very good signals. Still, against the background of the current macro environment with its multiple challenges, uncertainty remains elevated, and we act with very accurate caution and sensibility. Once again, our teams did a great job and managed again to participate strongly in this upward cycle. Due to their engagement and commitment, we're able to post the best first half result since our IPO in 2006.
As a record result of 2021, we will again achieve a great full year EBITDA, even if it isn't unexpected that the second half is more challenging than the first one. We not only managed the upward cycles over the last 30 months pretty well with industry-leading quarter-over-quarter performances. As Oliver showed, we also mitigated downward impact, for instance, in H2 2021. We've clearly proven that Klöckner is able to strongly perform through the cycles with higher lows, especially higher highs. Strong performance through the cycle is only possible due to very disciplined and smart net working capital management. As anticipated, this has already led to very strong cash flows in the second quarter, and due to our net working capital investments during the last quarters, we may expect also strong cash flows for the second half of this year.
Macroeconomic environment and falling prices certainly left its mark in steel consumption, and it remains to be seen how the end markets will finally develop. However, we remain constructive for the end markets, especially for auto in the second half. This is why we take a very differentiated approach when it comes to stock management. Now that the chip shortage is fading further, we see gradual improvement here. June production, for example, in Germany, was already up by 19% year-over-year. Against the background of the trading of the share in Q2, also in the industry trading and frequent questions, let me state one thing because there might have been a few topics missed to see. We're not a producer, and therefore, a potential gas shortage has very limited direct impact on the group.
Instead, we might see rising prices in such a scenario if production capacities will be short. Klöckner's consumption is not material whatsoever. Moreover, by half, and this is another thing I think that should be highlighted, we're a U.S. company, where the overall impact of this is, of course, completely different. With regards to inflationary developments, we're doing good in passing this through. In terms of wage inflation, we're on a level playing field with our competition. However, due to Certate, well and may be better prepared for this. Our general market perception for the midterm has not changed at all. Different market environment is emerging, characterized by demand for sustainable products, new energy supply mix, investment in defense, and especially infrastructure investments in the U.S. Do not forget, we're almost half U.S. company.
All these factors are particularly positive for steel and our sector, and are expected to lead to a healthy demand and higher price levels than before COVID-19. With that, I'd like to hand over to Bernhard for the current status in Europe.
Yeah, thanks, Guido. Before we jump into the business outlook, a few sentences on Kloeckner Metals Europe. We again achieved a very strong quarterly earnings of EUR 90 million in the second quarter. Our working capital management and the structural changes enable us to outperform already strong first half of 2021. Also strategically, we made great progress with technology investments in higher value add businesses at our sites in Velten, Kaufungen, and Bremen. These investments are not just fostering our strategy implementation, but also will differentiate us substantially from competition. In addition, we are more and more introducing automated machining processes, thus increasing value added with relatively low FTE levels and reducing pure distribution exposure. As Guido has pointed out, Becker Stainless has just been launched. This is more than just an acquisition of two smaller service centers.
Becker will therefore not only be the most modern service center in Europe, but also the one that masters high complexity of offers in carbon, aluminum, and stainless, making it a unique player in Europe. We are further strengthening our portfolio strategy and realizing cross-selling potential right from the start. I'm very much looking forward to see Becker entering that new market. Coming to the sectors. Overall, no major changes compared to Q1. Only gradual downgrades in certain industries after Q2 developments. In construction, as stated last time, that sector is least impacted by the Ukrainian crisis. Of course, increasing interest rates will affect the residential segment. However, infrastructure projects expected to overcompensate, especially due to energy distribution swap. Despite macro headwinds, very robust performance so far, and non-residential expected to be pretty resilient. For machinery and mechanical engineering, we see no change compared to the last call.
We see strong order books on our customer side and no negative trends. Customers have recovered from COVID crisis, and activities are now growing above the 2019 levels. Automotive, we are pretty optimistic after chip shortage is now fading out more and more. Guido said it, June, we had 19% increase of production, so the recovery has begun and is expected to return to normal levels in the coming months. Shipbuilding, no major change compared to last report. It is still under pressure. With that, I would hand over to John. Please take over.
Thank you, Bernhard. In the US, demand trends I think in the near term remain uncertain and somewhat difficult to predict. While we still see positive underlying fundamentals, it is clear real demand growth is entering a decelerating phase as the overall economy slows in the face of high inflation, rising interest rates, and weak consumer confidence. From a Klöckner perspective, over most of the first half of 2022, we have seen persistently negative market sentiment feeding into lower year-over-year apparent demand. This is also clearly reflected in the year-to-date MSCI shipment trends, which indicate negative year-over-year development across the entire service center segment. With negative pricing trends continuing for most products in the second quarter, our transactional customers remain highly cautious and in a destocking mode.
We have also seen some of our large OEM contract customers begin to make inventory adjustments in anticipation of weaker demand conditions in the second half of 2022. We do expect pricing for most products to stabilize by the end of the third quarter, which should help bring transactional customers back into the market as supply chain inventories will likely reach critically low levels in coming months. Turning to the specific segments, construction spending is up year-over-year, but there is no question that residential is clearly decelerating as consumer confidence falls and mortgage rates rise. We still see solid quoting activity levels on non-residential and expect this to continue, if not actually improve, as we begin to see some of the initial impacts from increasing infrastructure investment later in 2022.
Overall demographics remain quite positive for home building, so despite the current slowdown, it should remain on solid footing. Turning to manufacturing machinery, we are still generally positive, but growth rates in these segments are also decelerating. The ISM Manufacturing Index was stable in July and still indicates a modest expansionary environment. Second half forecasts from our contract customer base are stable, although we do expect to see some level of destocking occur over the second half of the year. Heavy equipment customers have strong backlogs and report no slowdown in demand on the horizon. Energy markets continue to improve gradually on higher oil prices. U.S. rig counts were at 767 last week and continued to expand on a weekly basis.
This remains a key segment with clear upside potential. Automotive sales remain depressed with preliminary July annualized units reported at 13 million, which is only slightly better than June. Historically low dealer inventories and restricted production continued to hamper sales. Year-to-date June North American auto production is actually up year-over-year by 8%, but remains some 15% below pre-pandemic levels. With strong pent-up demand, auto production should increase strongly once supply chain constraints are fully addressed. Shipbuilding activity remains stable and Kloeckner Metals has a strong multi-year pipeline of projects in place. In summary, based on these segment views, underlying demand conditions are still decent, but with a clear decelerating growth trend in some key segments. As previously mentioned, we do expect market prices to stabilize as scrap finds a cyclical bottom in coming months.
Additionally, falling second half import volumes and low supply chain inventories should help the market find a better supply-demand equilibrium. While currently weak market sentiment and destocking trends definitely create some second half headwinds for prices and apparent demand, we continue to believe in very strong long-term demand fundamentals and remain highly optimistic as we look forward into 2023 and beyond. That's it.
Thanks, John. With that, let's come to the outlook for Q3. As you all know, the outlook is currently, of course, still uncertain due to the rising inflation, supply chain issues and the war in Ukraine. Due to recent negative price dynamics, we expect sales to go down quarter-on-quarter. However, we expect shipments to slightly increase compared to Q2. EBITDA before material special effects is anticipated to come down as expected due to the price development we've seen and due to the overall macro environment. We expect it therefore to be in the range of EUR 50 -EUR 100 million in Q3. Against the background of heavy price headwinds in Q2, the challenging macro environment still muted demand. Most and foremost compared with our performances a few years ago, this guidance is showing clearly underlying improvements in a down cycle.
Again, we expect strong cash flow generation in Q3. For the full year 2022, we expect sales to grow considerably year on year, shipments to be stable. Moreover, we expect EBITDA before material special effect to come in above EUR 500 million, and the emphasis is on the above. The rest has to be seen throughout the year and how further developments will occur in all the different factors I've mentioned. For the full year, operating cash flow is expected to be very strong and clearly positive. With that, we're now happy to answer your questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Once again, please press star one and one on your telephone to ask a question. We'll take your first question. Please stand by. Your first question comes from the line of Alan Spence from Jefferies. Please go ahead. Your line is open.
Thanks, good afternoon, guys. I've got several questions. I'll take them one at a time. The first one's on this new on-campus facility, this Nucor. I appreciate you're not gonna want to give specific numbers here, but can you talk a little bit about the economic benefits to Klöckner from the proximity and partnership as opposed to your more standard procurement of steel volumes?
John, do you take that?
I can take that. Yeah. Listen, I think the geographic footprint is optimal for Klöckner. We really have a gap in the center of the country. With Kentucky, it really fills in a geographic need for us. Additionally, the focus on heavy plate. Clearly, heavy plate doesn't travel as well, and to process it's much better to do it locally, and that's where we see the very unique opportunity. This mill, again, having the widest capabilities in the U.S. by far with 14-inch plate capability. I think that's what we're really focused on and that's where we think the differentiation truly comes from.
Thank you. Turning to Green Steel, you signed some deals with companies to start procuring that in a few years. How are you seeing customer demand for those volumes, and is it broad-based across the end markets, or is it still certain end markets are really driving it now?
Well, Alan, what we saw in the beginning is that clearly the leading edge companies, so premium home appliances and especially the automotive sector were leading the pack, and they seem to be more advanced. As I outlined with the training the 700 people, we receive many questions across all sectors right now. We see that all sectors are indeed preparing and it's going down. It is very much in the construction sector now that questions are coming up, shipbuilding. It's across all, and it has broadened.
Great. My last one is just a bit of housekeeping. In terms of the guidance, can you just please say if and to what level you're assuming windfall losses in the Q3 guidance? Could you please just remind us on the full year CapEx guidance?
Well, I can't give you detailed numbers on the windfalls that we have. We have to see what's coming, but it's gonna be impacted by windfall losses. That's clear. Keep in mind that the EUR 50-EUR 100, if you multiply that by four and compare it to what we have achieved as results, if you go back to the past, I think it's a rather strong number, because it will include windfalls. The levels we need to see what will finally turn out, that's one of the reasons for the range. On the CapEx guidance, Oliver?
Yeah, the CapEx for the full year, we expect a net CapEx figure of EUR 100 million. We should not forget about, let's say, the income from the sale of real estate, which we have already realized. That's included in that figure.
Perfect. Thank you, everyone.
Thank you. We will go to our next question. Please stand by. Your next question comes from the line of Seth Rosenfeld from BNP Paribas. Please go ahead. Your line is open.
Hi, good afternoon. Thanks for taking our questions today. I think a follow-up on Alan's to start out, if I can push a little bit harder. I think we all need to better understand the impact of inventory holding windfall gains or losses, both in Q2 and in the forward guidance. Feedback from investors is obviously it's a continued uncertainty over the underlying earnings power of Klöckner. There's a FX benefit, but we've also had these really huge windfall gains over the last year and a half. Is there any sense of better understanding what the underlying level of profitability of Q3 guidance implies earnings down almost 80% Q-over-Q at the lower end? Where do you view kind of medium-term earnings power in a more stable price environment? Thank you.
Maybe let's start first with the quarter two on a more specific part of the answer. What is happening right now is that we see also in the first weeks of July, quite stable sales prices. The pressure on the gross margin is coming from the still increasing stock prices. You might remember that our the falling prices, which we see in the market, they have occurred around May. The incoming material is now in by the end of July, having lower prices, and that will have then an impact on the overall stock prices. The gross margin pressure is coming from the stock price change, and as I just tried to explain, is that our stock prices will drop then from August onwards. However, there's a strong pressure on in the third quarter, visible.
However, what we can add on to that one, we have seen a strong decline over a short time period. If now the stabilization continues and is valid, then we should have a short time where it will hit and affect us, and from then on, it will continue, and we will see the underlying performance. Again, EUR 50-EUR 100, including windfall losses, is compared to the historic performance, a good guidance. Don't underestimate that.
Thank you. Just to clarify, is the view that Q4 could then potentially see a better alignment of inventory costs and sales prices? Or would we be expecting in that +500 full-year guidance, potentially another quarter of inventory losses?
Yeah. It's not so much the inventory losses for quarter four. It's quarter four is really hard to predict what regarding the turnover. We see reduced windfall losses for the first quarter. That's clear. Volumes are really hard to predict, so therefore we were quite cautious on the first quarter. Let's say that's resulted in the guidance for the full year where we say, well, okay, at minimum then the EUR 500 million EBITDA.
Yeah. That was for the fourth quarter, to make that clear. Yeah.
Okay. Understood. The last one, please. With regard to working capital, obviously over the last year and a half, there's been a quite significant investment in working capital. Given your pricing outlook, what portion of that working capital build do you think could begin to unwind in the second half of the year? If you think the prices are actually stabilizing at what's still quite elevated levels, is it fair to think that only a modest portion of recent working capital investment could be unwound, or are you hopeful you could see more release in coming quarters?
No. There will be quite some relief. I mean, the prices have come down from May onwards quite significantly, and that will be reflected in the incoming material that will be there in the upcoming months. Therefore, no, you will see a release even if volumes were to stay the same. Yeah.
Are you able to quantify what portion of recent investment could come back then?
No, not at this point, no, we wouldn't. You can see the prices have come down significantly, Seth.
All right. Thank you very much.
Thank you. We will now take our next question. Please stand by. Your next question comes from the line of Rochus Brauneiser from Kepler. Please go ahead. Your line is open.
Yes. Hi, good afternoon. Thanks for taking the question. Yeah, I have a follow-up on previous question on the normalized earnings side. When I look at historical performance, like in the years after 2014, 2015, I think you had gross per ton in a range of EUR 200-EUR 215. Would that be the kind of right number directionally where we are going to end up in the coming quarters without any recurring windfall effects?
Oh, that's a bit difficult to predict. I mean, what we have clearly seen structurally, we move upwards, so therefore, and you've seen that in the investment that we're currently undertaking as well, that we move up the value chain a bit and, there the gross profit for ton is always higher. We want to continue on that route and to be a bit out of this just cyclical distribution business. We wanna move that. On the other hand, what you see, and we require higher gross profits by the end of the day because the cost below the gross profit, there you see the inflationary effect, and they will not disappear in the short term. You will see it on the wages, you will see it on transportation costs and energy costs.
This is level playing field, that's not just us. The way how we look at it is indeed from a completely integrated view. You can't just say we wanna go back to old gross profit levels. That will not be good enough to cover your cost and to end up in the same bottom line as we did in the past. The requirement, and it's not just us, it's for everyone in the sector, will be different. The whole setup and the paradigm that you used to have has shifted.
Right. Another question associated to that is when I look in the last 5-7 years, I think you have been selling at least 1 million, maybe 1.5 million more tons of steel. Now when we are entering into a period of low growth, no growth or negative growth, how you're planning to make up for that lack of volumes to maintain your margins? Would that mean that you have to dig out a new restructuring program? What were the moving parts or what is helping you to maintain superior performance compared to average in the last, you know, decade maybe?
I've got your question. Look, reviewing our portfolio is something we do on a constant basis, and how to upgrade and how to shift and how to be more profitable and have a better offering for the customer out there. That's the integral part of our strategy. As we laid out, we want to offer more to the customer, and we want to widen our network internally and with partners. That's, you know, you've seen the two investments we did. One partly inorganically, the other one, you know, organic, but on site with Nucor. How we want to grow around our capabilities and use our capacities more efficiently. If you take a look at the Becker Stainless, the one thing is to go out to the customer and have more Becker Stainless.
On the other end, to say, "Look, if we get all the coils now in and can do the recoiling for stainless, even for the German business, we have a lot of synergies, and we take out margins others would have taken before because we had to acquire already recoiled product for our distribution business." That's the way how we look and how can we optimize our sites that we have. We rather want to look into the margin we can make out of that, and how can we shift in this portfolio all of our sites up, that even if we are at lower volumes, we earn more money with it. Not, you know, just to push on volumes might be for some cases and some situations the right thing.
Overall, we're looking at how can we optimize our return we get out of that, and how can we structurally have a better, value creating offering for our customers out there. The lower our own added value is, the more we are bound to cyclicality and just the price cycle. The higher we are in the value chain and the more we move there, we should even at lower volumes then be better through the cycle with less volatility. That's how we're trying to drive and optimize our footprint overall.
All right. And then final question is on Oliver's comments on the working capital management. So you were saying that 60% of inventory was sold. Is that kind of a reoccurring level that you try to sell a large chunk of your inventory well in advance? What kind of time frames are we talking here? And is the price already set at the moment? It is still in your books, and obviously it's a longer forward in terms of your sale process, but maybe you can put a bit more color on that.
Well, that's especially on the contract business. The more and more we enter in the service center business, in the contract business, the more is upfront sold at prices. We always try to be back-to-back covered with the incoming prices connected to what we sell, either on 3, 6-month or full-year contract. That's where the 60% are largely referred to. That is well true in the U.S. as well as for especially Becker business, that we always try to have back-to-back in that aspect if we have longer-term businesses, which is largely for our industry. Now, if you leave out the last 1.5 years where spot was very helpful because you could generate short-term.
The longer term, you just exactly try to get there to have this stability and this underlying content volume or contract volume to drive it. Then you have a guaranteed margin. Bernhard, you might jump onto that one.
Yeah. If we look on the distribution business, we significantly increased our contract business. The price is set, of course, also the take of-
Guaranteed margin. Bernhard, you might jump onto that.
Yeah. If we look on the distribution business, we significantly increased our contract business. The price is set, of course. Also, the take of volume is set. However, not all the material is ordered, but it's also part of the normal commodity distribution in many cases. What we say and with also respect to the question before, what we are trying to achieve is to change our customer portfolio coming from pure transactional customers who buy spot every time to more partner customers which buy from us continuously based on, let's say, certain indices or certain prices throughout the year which we set. That will also take out a lot of cyclicality in our business.
All right. Thank you very much.
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. Star one one to ask a question. We will now take our next question. Please stand by. Your next question comes from the line of Carsten Riek from Credit Suisse. Please go ahead. Your line is open.
Thank you very much and hello, everybody. I have a few questions on the strategy. The first one is, again, on the new partnership with Nucor. John, I think you mentioned, there are 1.2 million net tons per year capacity involved. My question is, will all those volumes run through your process, or only a proportion of this? If so, what is your estimate? How much of the volume could go actually through your lines? Attached to that kind of strategic theme, I guess you still need to invest, to offer those services to Nucor. What magnitude do we talk? Would you expect that we could see that cash out already by year end? That's the first kind of block of questions.
Yeah. I mean, you know, our facility is not going to absorb all of the Nucor capacity, just a small fraction of it. You know, what we're focused on are the complex multi-step plate processing type of supply chains. You know, the overall potential volumes are predicated on the type of mix that you get. This is not going to be a massive overall volume type of business. This is going to be a margin type of business with a highly differentiated process and services tailored to more complex type of supply chain solutions. Overall through the entire network, we certainly see growth potential over and above what we're investing in Brandenburg.
This is a small part of the overall 1.2 million tons. Again, very value added in nature and focus. Does that answer the question?
Yeah. With regard to investments, even though it's only a small portion, I think you need to put those kind of processing lines in place.
Yeah. I mean, we're really focused on obviously multiple pieces of equipment. You know, I think we're, you know, you're talking multiple burning tables, beveling capability, machining, drilling, really a lot of different types of equipment involved. We're also, you know, looking at managing supply chains through a wider partner network where if we need certain capabilities that we're not gonna have internally, we'll offer those services on a managed service basis. You know, managing a network of network partners to bring a full, you know, fabricated type of solution to bear.
Do we talk about CapEx-wise, I don't know, EUR 5 million, EUR 10 million, EUR 15 million? Can you give a magnitude?
It's a low double.
Yeah.
Sorry. I couldn't hear it. Sorry, what was the answer?
It's a low double-digit number that we will invest.
Okay, cool.
It's a low double-digit. It's gonna start throughout this year, but the major part is next year.
Okay, perfect. Thank you. The second question I have is, re Hernandez and RSC, the stainless service center acquisition. Can you give us an idea of what's the underlying EBITDA margin in that business on a steady state? What is your assumptions here?
We could do so, but we'd like to keep it with us. Please understand it. We see a lot of synergies, and it's gonna be accretive to our margin overall.
Okay. That's fair. On the Klöckner Assistant, I'm just interested what is needed in order to boost those digital sales or digital share further because, Guido, you mentioned the 72% growth on the EUR 780 million sales. But if I.
Yeah.
If I look through and look at the steep price increase at the same period, it looks like the volume was maybe marginally better, but not hell of a lot.
It's further functionality like having email and quoting and this stuff included, and these technical features will come, and that will boost it up.
Okay. Cool. The last one which I have is on the FX effect, because of course, the US dollar appreciated quite significantly versus the euro. What was the positive contribution to EBITDA in the second quarter? Because your US business has performed quite strongly, and I guess some of this was probably FX related.
Yeah. That was less than EUR 10 million, about EUR 10 million.
Okay. Cool. That helps a lot. Thank you very much. That's all for me.
Thank you. There are currently no further questions. I will hand the call back to you.
Thank you very much for your questions. If there are any questions on top, don't hesitate to call Felix and his team. We're available for you.
Okay. Cool.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby.