Okay. Hello everyone, this is Fabian Joseph from Investor Relations. On behalf of my entire team, I would like to welcome you to our Q3 2025 conference call. Joining me today are our CEO, Guido Kerkhoff, our CFO, Oliver Falk, and our CEO, Americas, John Ganem. They will guide you through the presentation, and afterwards we're happy to answer your questions. To ask a question, please press the live Q&A button, and we will then open your line. With that, I'd like to hand over to you, Guido.
Yes, thank you, and welcome to our Q3 2025 conference call. We're looking back at a quarter characterized by a persistently challenging market environment and decreasing steel prices in the US Despite these developments, we delivered another solid performance. This confirms our strategic path and our successful development. I will now begin with the financial highlights of the quarter. Shipments came in at 1,144,000 tons, showing a slight year-over-year improvement.
This development was mainly driven by the continued positive performance of our segment, Klöckner Americas, but still supported by shipments in our segment, Klöckner, Europe, which increased slightly. Which is pretty different to what the market outcome overall is in Europe, but we could increase slightly after a couple of quarters where we were shrinking. Sales came in at EUR 1.6 billion, which is a slight decrease year-over-year despite the positive shipment development.
This was due to a lower average price level compared to the same quarter last year. We achieved a considerable year-over-year increase in gross profit, whereas gross profit of last year's quarter was particularly affected by windfall losses due to the significant steel price correction in Q3 2024. Gross profit margin also improved considerably compared to the previous year's quarter. EBITDA, therefore, before material special effects, came in at EUR 43 million, a considerable increase year-over-year and results in line with our guidance.
Despite the ongoing challenging market environment in Europe, our segment, Klöckner, Europe, generated a positive EBITDA contribution for the first time since 2023. We'll take a closer look at the segment's performance afterwards. Due to a temporary net working capital increase, especially at our segment, Klöckner Americas, operating cash flow came in negative at EUR 118 million in the third quarter.
I would like to highlight that this negative OCF is driven neither by weak operating business nor by higher inventories. This development is rather driven by trade payables and trade receivables to some degree, which we expect to reverse in Q4. It was largely driven by orders on material end of Q2, where the payables and the cash outflow came in in Q3. Q2 was comparatively a bit overstated, and Q3 is weaker. You should look at the quarters rather together than just look on Q3. You'll see in our guidance for Q4 it will reverse and will be on a track like in our guidance so far.
Consequently, our net debt, financial net debt, increased compared to level in Q3, but will come down then in Q4 again. Let's have a look at our performance in Q3 2025 by segment. In our segment, Klöckner Americas, shipments increased slightly year-over-year in Q3. After reaching a record level in Q2, shipments decreased slightly quarter- over- quarter, which is largely attributable to seasonality. Nevertheless, the volume was the highest we've ever achieved in a third quarter and would be even stronger if we excluded shipments from our divested Brazilian entity in Q3 2024.
We're moving on a constant high level, demonstrating that our North American growth strategy really works. However, due to the lower average price level year-over-year, sales Q3 came in slightly below previous year's quarter. Prices have decreased significantly compared to the temporary peaks in Q2 and remain volatile. EBITDA before material special effects came in at EUR 44 million in Q3, which is a considerable increase compared to last year's quarter. In our segment, Klöckner, Europe shipments.
Came in slightly increased, sales slightly down compared to previous year's quarter. For the first time since 2023, our Klöckner, Europe segment achieved a positive EBITDA contribution despite the persistently weak demand and increased economic uncertainty. This clearly demonstrates that our consistent strategy implementation and optimization efforts are really paying off, strongly in the US, but even to see in Europe. We're on a better track, and can our self-help measures help us to get out of it? Now, let's have a look at our strategy implementation during the third quarter.
We further intensified our focus on higher value added, and service center business as becoming the leading metal processor and the leading service center company in North America and Europe by 2030 is our strategic goal. First, let's have a look at our segment, Klöckner , Americas. In the US, we announced divestments of eight distribution sites of Klöckner seven of which we intend to sell to Russell Metals and one to Service Steel Warehouse.
For the seven sites intended to be sold to Russel, we agreed on a purchase price of approximately $119 million based on a net working capital as of 30 June 2025, which would result in a book profit of over $20 million. The final purchase price remains subject to closing, net working capital, and other normal course adjustment, with mutually agreed not to disclose details of the sale to Service Steel Warehouse. The fact that we are able to sell business at a premium that our group level on the lower end of profitability demonstrates the underlying value of our assets.
In the fiscal years 2023 and 2024, the seven sites contributed an average annual EBITDA before material special effects of around EUR 9 million per year to our consolidated financial statements. As this number roughly matches the future EBITDA contribution planned internally for these sites, we believe this should represent a performance indicator for them as well. Divestment not only allows us to reduce our group debt level, but also creates the opportunity to reallocate capital towards our higher value added and service center business.
We expect to close the deals in December of this year. In our segment, Klöckner , Europe, we further expanded our defense and infrastructure footprint. We received an official certification for processing armor materials for the German Federal Armed Forces at our site in Kassel, Germany. By doing so, we complete our existing approval for Ambo Steel, successfully integrating the company after its acquisition earlier this year. With that, we're preparing for upcoming large-scale defense orders in Europe by leveraging our capabilities and also our financial strength, providing a clear advantage over smaller competitors.
Now, let's have a closer look at our improved earnings profile following the closure of eight US distribution sites. Following recent successes, the US divestments mark the next step in our transformation to the leading service center company and metals processor in North America and Europe, positioning us for higher profitability and sustainable growth. Over the past years, we have strengthened our higher value added and service center business to lower our exposure to steel price developments and thereby reduce the volatility of our results while increasing our underlying profitability.
We improved our earnings profile by increasing the share of our higher value added and service center business. The acquisition of specialized North American companies such as NMM, IMS, Sole Components, and Amerinuts enhances our capabilities in precision metal processing, component supply, and service center operations, making them strategically valuable additions. NMM complemented our already existing footprint within the automotive industry in North America and also gave us access to electrical steel.
With IMS, we significantly expanded our metal fabrication business in the US Sole Components is a US market leader in integrated structural solutions for solar installations. The acquisition positions Klöckner play a bigger role in North America's transition towards renewable energy. Further, we extended our service portfolio with Amerinuts and polishing and high-gloss finishing in order to support the development of more competitive global supply chains.
Also, we divested part of our European distribution business, which by the time of the divestment accounted for 10% of group sales, but 20% of RFIs. Our latest achievement on our way was the aforementioned divestment of the eight sites in the US, with which we focused on selling distribution sites with a low EBITDA contribution throughout the cycle. Our portfolio optimization is complemented by organic initiatives. With targeted investments, we have developed selected sites from a sole focus on distribution to high-quality processing and metalworking.
Our strategic shift towards higher value added and service center business is clearly reflected in the numbers. In 2019, 63% of our sales came from these businesses, and as of the first nine months of 2025, the share has increased to 81%, a significant increase of 18 percentage points.
If we exclude the sites in the US that we've agreed to sell, the sales share of higher value added and service center business would be at 87%, an increase of 24 percentage points compared to the starting base in 2019. These businesses offer higher profitability while significantly reducing our exposure to steel price developments together with the volatility of our results. With that, over to you, Oliver, for further financial insights.
Yes, thank you. As Guido said at the beginning, steel prices in the US were subject to a considerable decrease during the quarter, as illustrated in the upper part of the slide. At the beginning of the year, hot rolled coil prices in the US increased significantly following the introduction of new tariffs. After reaching a temporary peak in the second quarter, they started decreasing due to weak underlying demand.
In Europe, new tariffs are currently awaiting approval by the European Commission. The measures would halve the tariff-free import quotas and double tariff rates for quantity exceeding these quotas. Prices could therefore continue to increase. As part of our local for local business model, we do not import significant volumes from third countries. Therefore, we do not expect direct effects from those tariffs. Coming to our EBITDA before material special effects, we achieved a considerable increase year-over-year.
In total, we generated EUR 43 million in the third quarter. In the first nine months of 2025, EBITDA before material special effects came in at EUR 150 million, which also represents a considerable increase year-over-year. As Guido mentioned beforehand, our strategy continues to focus on higher value added and service center business. With increased profitability and reduced dependence on the volatile steel prices, as demonstrated by our latest divestment. Our net working capital came in elevated quarter- over quarter.
According to MSCI , positions linked to the planned sale of eight distribution sites in the US, amounting to EUR 68 million, are already excluded. The temporary high net working capital, especially in the segment, Klöckner Americas, is the main driver for our negative operating cash flow of EUR 118 million in the third quarter of 2025.
Nevertheless, we expect a significantly positive operating cash flow for the full year 2025, driven by a strong cash flow in quarter four of this year. As part of our operational excellence pillar within the Klöckner & Co L everaging Strengths STEBA 2030 strategy, we continue to leverage our extensive expertise in automation and digitalization. With our efforts, we have been able to increase the number of our digital quotes by 8.9% year-over-year in the first nine months of 2025.
Let's take a look at our shipment sales, gross profit, and gross profit margin for the third quarter of 2025. Shipments came in slightly above previous year's quarter, mainly driven by our segment, Klöckner Americas. Sales decreased slightly year-over-year due to the overall lower average price level and came in at EUR 1.6 billion in quarter three.
Gross profit came in at EUR 295 million in quarter three after EUR 262 million in quarter three 2024. A considerable increase year-over-year. Also, gross profit margin increased considerably year-over-year from 15.9%- 8.3. We will now turn to the EBITDA development in quarter three. The volume effect was positive, contributing EUR 5 million in the third quarter as shipments increased slightly year-over-year.
We also benefited from a positive price effect of EUR 36 million compared to the same quarter last year, which contributed significantly to the result as negative windfall effects of last year's quarter have not recurred. OpEx increased by EUR 16 million year-over-year, mainly driven by higher personnel and transportation costs. We experienced negative FX effects of EUR 3 million year-over-year, mainly driven by the weaker US dollar, which impacted the translation of earnings from our US operations. Consequently, EBITDA before material special effects came in at EUR 43 million.
Material special effects of minus EUR 7 million mainly relate to restructuring initiatives. Therefore, EBITDA after material special effects came in at EUR 36 million. We are now coming to cash flow and net development. In the third quarter of 2025, we had a net working capital increase of EUR 144 million year-over-year, mainly due to trade payables and trade receivables in our Americas segment. I would like to highlight again that this net working capital build-up is temporary and will reverse in quarter four.
Taking into consideration interest, tax payments, and other items totaling to EUR 10 million, our cash flow from operating activities came in negative at EUR 118 million in quarter three. Including net capex of EUR 23 million, free cash flow was negative at EUR 141 million. Let's have a look at our net financial debt. Positive effects were visible for leasing and FX translation.
Taking our negative free cash flow into account, our net debt consequently increased from EUR 870 million at the end of the second quarter to EUR 1 billion and 3 million in quarter three. Nevertheless, we continue to possess a diversified financing portfolio with a total volume of EUR 1.3 billion, excluding leases, with more than EUR 0.4 billion unused lines available. In July 2025, we renewed the European ABS program ahead of schedule, extending it until 2028 with improved terms and an adjusted volume reflecting the sale of parts of the European distribution business.
This improved our maturity profile further. Additionally, we expect a significantly positive operating cash flow for the full year 2025, which will be further supported by the proceeds from the sale of the eight US distribution sites, leading to a reduction in net debt. I now hand over to John to have a closer look at our end markets in North America.
Thank you, Oliver. Let me start with a general overview of the market situation in North America. The US economy is forecasted to have expanded again in the third quarter of 2025. The forward outlook remains somewhat uncertain and difficult to assess. Stubborn inflation, weak consumer confidence, and a slowing labor market all pose risks for short-term economic growth prospects. Despite a still expanding economy, the metals-intensive manufacturing sector continues to face significant pressure, with the ISM Index indicating contraction now for eight consecutive months.
As such, demand for metals in both the US and Mexico has been constrained over the first nine months of 2025, and this is likely to persist through the end of the year. This is evidenced by the latest industry benchmarking data that the third quarter service center industry shipments declined by 2.9% year-over-year and 4.3% quarter-over-quarter.
These negative trends are likely driven by aggressive destocking across most metal supply chains as OEMs and other major steel buyers work to rebalance supply chains better aligned with expected future demand. As a result, we now expect North American real metals demand, excluding the temporary impact from destocking, to be generally flat year-over-year. Now, looking at the expected development in specific market segments, construction activity is moderating, and both residential and non-residential building square footage are forecasted to be generally stable to slightly down in 2025.
However, non-building investment and infrastructure are forecast to grow strongly and will continue to provide an offset to the flat year-over-year trends in the building sectors. All segments are expected to return to a positive growth trajectory heading into 2026 supported by lower mortgage rates. Manufacturing activity continues to be under pressure, as previously mentioned.
We expect the challenging situation to persist in the short term. New orders for industrial and off-highway equipment are expected to be down up to 5% in 2025, depending on the specific segment. However, current forecasts from key large OEMs are actually improving modestly in the second half of 2025, as supply chains now appear well-balanced after a significant destocking cycle that began in the second half of 2024. Trade policy clarity and lower interest rates should help these key steel-consuming segments regain even more positive momentum in 2026.
Turning to transportation, this segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. As a result, North American production has been declining. It is now expected to be down by approximately 1% year-over-year in both the US and Mexico. Auto sales have been fairly resilient, so we expect positive growth in production to return once automakers can adjust tariff impact to supply chains and implement new production strategies in response to changing consumer demand and trade policy dynamics.
On the defense shipbuilding front, activity remains very positive, with Klöckner current defense program set to grow strongly with large contract commitments recently awarded. We also continue working closely with key mill partners to position ourselves strategically to support and benefit from what is expected to be a massive increase in defense shipbuilding investments over the next decade. Demand from appliance, HVAC, and electrical, which are key segments for KMC Americas, has come under some pressure in Q3 2025 due to destocking after holding somewhat steady through the first half of the year.
For the full year, these segments are now expected to be stable to down slightly. We'll note, however, that 2024 was a very strong year for these industry segments, meaning that despite the flat growth expectations for 2025, overall demand will remain at strong levels in absolute terms. Energy continues to be the most active steel-consuming segment, with positive growth expectations for extraction activity and a solid pipeline of both renewable power and power transmission projects.
While renewable growth may come under pressure in future years due to recent changes in government policy, it continues to be a significant growth driver in 2025. Additionally, power transmission-related growth is expected to remain extremely strong and should be up approximately 20% year-over-year. Modernizing and expanding the North American transmission infrastructure is critical to support the expected demand increase for electricity across North America, especially in support of data centers. I will end with a few final comments.
Despite short-term market demand headwinds, the Klöckner business generated record three-quarter shipments, as Guido previously mentioned, as we continue to grow and gain share in a market where service center shipments have been consistently declining. Excluding discontinued operations, our third-quarter year-over-year growth was greater than 6%. These strong growth trends are driven mainly by large energy projects and new automotive and industrial contractual programs, which required a pre-build of inventory in late second quarter.
This caused a temporary increase in third-quarter account payables and receivables that both Oliver and Guido mentioned earlier, and this negatively impacted operating cash flow temporarily. The new projects and programs are now ramping up to full production, and inventories have already been reduced by greater than 10%, and more significant reductions planned. This positive development will generate the strongly positive operating cash flow in both.
For Q4 and the full year, as previously mentioned. In conclusion, despite recent market challenges, we remain very optimistic about the long-term demand fundamentals in both the US and Mexico. Our positive and resilient year-to-date results are clear proof that our high-value-add investment strategy is working and has allowed KMC Americas to deliver a solid overall performance despite weaker-than-expected demand and continued price volatility.
We are confident our positive results will continue and even accelerate as we head into 2026, as already approved investments come online and begin contributing in a more meaningful way. I will now turn it back over to Guido for some final comments.
Thanks, John. Overall, here in Europe, short-term, we do not see a significant change in expected real steel demand in Europe. Therefore, we reiterate a stable to slightly negative development of around -1% in 2025, which is unchanged from our last conference call.
However, if we take a look, a slight look into 2026 and the sentiment and outlook there, based on the slight improvements we have seen on our self-help measures and growing, it seems that the underlying sentiment here in Europe, and especially in Germany, is slightly improving and does not continue to be as negative as we have seen. It might be that we have seen the bottom right now and can start to develop from the market and especially from our own position, as it seems. We are slightly growing again here on volumes.
Together with that, as we mentioned before, the European Commission proposed doubling import tariffs on steel and reducing the duty-free import quota. Approval from the European Parliament and EU member states is still pending. Let's continue, therefore, with an outlook on our core industries. The price hikes that are coming out of that and the stabilization of the tariffs should help the market to develop a bit better going forward as well. Now, coming to the sectors, starting with the construction industry, we continue to expect a broadly stable development into 2025, consistent with the outlook provided in our last call.
Effects of past monetary easing are beginning to feed through while weaker economic conditions continue to weigh on construction activity. However, structural growth drivers remain supportive of German infrastructure spending, providing midterm growth. Manufacturing, machinery, and mechanical engineering continue to expect a slightly negative sector outlook for 2025, which is consistent with the Q2 call, reflecting mild contraction as uncertainty and softer external demand weigh on activity.
Tariffs and ongoing competitive pressures from Asia are dampening production and investment, particularly in Germany's export-oriented machinery industry. Monetary easing provides some short-term support, but elevated uncertainty limits firms' willingness to invest. Germany's fiscal stimulus package and rearmament initiatives will support medium-term growth in defense-linked sectors. We continue to position ourselves to benefit. Transportation, let's first focus on the automotive sector, where we also see no major change since our last call.
We continue to expect slightly negative development in 2025. Uncertainty remains elevated and consumer confidence at low levels. The export ban on the next period, chips from China, poses a threat to supply chains, with the potential for short-term production cuts and rising input costs in the automotive sector, downside risks to our outlook. Now, coming to shipbuilding, while the outlook for the commercial shipbuilding segment improved slightly compared to last quarter, substantial upturn is not expected until late next year.
For the gray ship sector, we are well positioned to benefit from upcoming defense-related demand, but no notable uptick is expected before late 2026, when we anticipate German defense spending will begin to increase. Household and commercial appliances segment with marginal impact on our European businesses. No major changes since the last call and continue to expect a slightly negative development. The energy industry, this sector is expected to have constant development in 2025, with no major changes since our last update call.
However, long-term demand remains supported by the electrification of transport and heating. Let's now turn to the financial outlook for the full year 2025. We still expect EBITDA before materials special effects to come in between EUR 170 million and EUR 240 million, a considerable increase year-over-year.
The guidance is unchanged compared to our Q2 call. However, given the performance that we have now on the lower end of the guidance, we would expect for the full year in line with the quarter to be there. Further, we continue to expect operating cash flow to be significantly positive, driven by a strong operating cash flow in Q4. We're now happy to answer your questions.
If you would like to ask a question, please press the live Q&A button, and we will then open your line. Let's wait some minutes. I do not see a question right now. Once again, if you would like to ask a question, please press the live Q&A button, and we will then open your line. There are still no questions. The final reminder, if you would like to ask a question, please press the live Q&A button. There are still no questions, so I will then give Guido for final remarks.
Yeah, thank you all for listening. It obviously looks like we've answered everything in advance, but in case it is not, do not hesitate to call us or Fabian and the whole IR team. Thank you very much, and talk to you soon.