Ladies and gentlemen, welcome to our analyst conference for the first six months, 2024. I'm here in Salzgitter with our CEO, Gunnar Groebler, our CFO, Birgit Potrafki. Same procedure as always. We start out with the presentation before jumping into the Q&A. And with that, I'd like to hand over to you, Gunnar.
Thank you very much, Markus. Very warm welcome and good morning from my end. Happy to have you all on the call. We'd like to guide you through progress of this year. Please let me start as usually with presentation doesn't move, but,
Ah, here we go. Here we are. Here we are.
Let me start with the occupational safety. Unfortunately, it doesn't move. We'll fix the presentation and talk you through occupational health and safety. We have had a long-term trend that is still intact, despite a slight increase in 2023. However, we have been able to stop that upwards momentum in 2024 already, looking at the flat development compared to 2023. What we have done is we started the inclusion of LTIFs and accidents of the temporary workers in the statistics, so we are getting a more robust and more sound and complete view. And working on a group-wide and integrated operational and occupational health and safety strategy for the entire group.
So far, each and every business has focused on their respective activities on their own, mostly, and now we're sort of integrating that in a group-wide strategy, and derive measures from there. One of the cornerstones here will be the integration and the great involvement of also the employees of our contractors, which is predominantly important given all the activities we have ongoing, especially in Salzgitter, around SALCOS. Okay, now we have the presentation working, hopefully, because I would like to move on to the market environment. Here we go. Well, as you all know, the global economy is recovering moderately, but still a challenging environment. We see a higher global growth dynamic, countered by structured challenges and countered also by the economic policy framework conditions.
Global trade, though, should increase despite the geopolitical tensions that we have seen, unfortunately, even increasing over the first half of this year. Cyclical recovery in the industrial sector is something we are sort of foreseeing, and also an expiry of the restrictive monetary policy in most countries, at least. Germany, though, has a growth issue on the short term and also structural issues on medium term. Private consumption is currently supporting growth, yes. However, consumers are holding back despite a decreasing inflation and a still comparatively robust labor market. So, growth is an issue for Germany, at least on the short term, I would say, for the remainder of this year, for sure.
Steel processing sectors continue to be confronted with weak growth prospects, so also something that we are foreseeing for the rest of this year. European steel markets are under pressure, and that is because most of our steel customers in 2024 are looking at high uncertainty, are looking at weak momentum, and even demand from the construction and machinery industry is not picking up or expected to pick up until 2025. Certainly a change in our view compared to last time we spoke, that this momentum is really not visible all over Europe. Steel demand will increase in 2025, but the long-term levels remain relatively flat.
Looking at raw material and energy prices, what you see here on the left-hand side, raw material prices have been fluctuating quite a bit over the last couple of months. We see them actually coming down a bit. Yes, they reflect the economic situation on the globe, and we don't see them dropping sharply or for the rest of the remainder of this year, rather staying within that corridor. Electricity and natural gas, something that is more and more relevant to us. Prices have returned to pre-Ukraine war levels after the spikes in 2022, especially.
But I think it's fair to say that compared to international energy prices, prices in Germany are still and will remain high and constitute a competitive disadvantage for the German and European steel industry. Something that we clearly have addressed vis-a-vis policymakers and will continue to address, because this is certainly something we will have to take care of, as Europe as a whole, but especially also in Germany, and political debate around that is ongoing, as you all know. What is not shown on this graph is the development of grid charges, which have roughly doubled, 2024 versus 2023. This is predominantly due to following effects.
We had a federal subsidy that was discontinued in 2024, leading to an increase for grid grid charges on our side, and also an increase of redispatch. So redispatch being shutting down of renewables on one end of the grid congestion and ramping up predominantly gas-fired power plants on the other side of the grid connection, grid congestion. Both has to be paid, and those payments are called redispatch costs, and they have also been increasing over time, which is again a strong indicator that grid extension must continue and must even be accelerated further. Looking at steel prices both on the spot prices, Northern Europe, and also the hot rolled coil prices internationally, you see that prices have come down again.
We're basically looking at prices like prior to the COVID and war impacts. The demand has negatively impact price levels, looking especially at Europe, and there, strip steel has been hit mostly. However, we also see that prices seem to find a bottom level at EUR 600, EUR 620, EUR 625 per ton of hot rolled coil. So, prices have not dropped below that for quite some time, even, so we assume at least that this is a floor price level that we have reached.
Surplus capacities on a global scale also result in higher imports in Europe, and this has put additional pressure on prices. U.S. prices have come down quite extensively. We have seen a sharp contraction since Q2 2024, and they are now approaching the European price levels, which especially for export purposes is certainly something to be looked at. Prices in China, hot rolled coil, have been relatively stable, but also show a certain weakening towards the end of this first half of this year. So with all the imports that I just talked about, I think looking forward. Yeah, it's important to also look at the antidumping proceedings on European level.
I think it is positively to be noted that there was an antidumping complaint filed end of June this year against HRC imports from India, Japan, Vietnam and Egypt. These proceedings have been opened. They started August 8, and preliminary measures will be introduced latest in April next year. Why is that important? Well, those four countries actually represents more than 50% of the total HRC imports in 2023. So it is relevant to us to have that complaint and also to have EU to look into those imports and into the pricing of those.
What is important to note here, and this is something we cannot really put into numbers, but in looking into the past, those antidumping proceedings have always sort of gotten some market effect of size of the amount in terms of EUR per ton. So we also assume that this antidumping proceedings will have an impact on price levels in Europe as well. As said, this is a relevant part of the imports in 2020. With that, let me get a quick view on the economic development. Key data you already have seen. Crude steel production is only marginally down compared to first half of last year.
So meaning that, the financial effects are predominantly due to lower prices, and basically, sort of then move their way down, all the way to, to the earnings, to the EBT earnings. After tax, Birgit will, specifically highlight a specific tax effect that actually leads to the numbers you're seeing there. Yeah, all in all, we are looking at a break-even, and that is a result, and we get back to that, in a second, of our diversification. As first and foremost, KHS, as a part of technology, was able to partially compensate, the weak performance of the steel-related business. Looking at the individual, divisions, steel production, earnings tumble in the first half of 2024. No surprise, you have seen the numbers.
And this is again, predominantly due to, steel prices being under pressure and remaining under pressure. Overall, low demand for all the segments that we are serving. Ahead, we're looking at a continued challenging price environment, with slightly falling, raw material costs or rather stable raw material costs, as we have, just shown on the graph. Hesitant demand, especially for strip steel, from the non-automotive sector. Automotive is still relatively okay. Let's see how the second half, actually, pans out here. On the section side, stable volumes, first half to second half. However, at the low price levels that also sort of make the section part suffer, volume's okay, price under pressure. For the full year, we expect, pre-tax results near break even for the steel production side.
Let me just quickly highlight SALCOS as part of steel production. We are very happy with the development on site. Project is on time and on budget. We have made great progress. You see the picture here. We have made great progress over the last couple of weeks and months, actually, daily progress on the construction. And we have first delivery of main components that have arrived on site. You can see that here, but in the picture on the back end, you actually can guess some of these parts that are stored there to be pre-mounted. So that is all good development. The media line has been completed last month, so also here, good development.
All in all, site is progressing as expected and also with a good track record on health and safety. What is important to mention here is we will not- we will absolutely not change the program for SALCOS phase I, so what you see here on the picture. However, I would like to highlight the flexibility that we have in the overall SALCOS program. You recall that we have staged SALCOS in three different phases, but I also mentioned already in our last call, that we have a lot of optionality here, how to stage the next steps of SALCOS. And we will certainly also reflect on the current economic- overall economic development and steel demand, and the development also for green steel for SALCOS phase II and III.
However, let me reiterate, phase I is well underway and will enable us to deliver green steel to our customers as of mid-2026, as promised, and also as already contracted in terms of volumes towards our customers. Looking at steel processing, we have to face a multitude of challenges in the first half of this year in this business segment. A really sort of significant decline in demand on the plate business, market prices back at 2021 levels, and increasing input material costs, as you have seen on the raw material side. Steel tube is postponement of projects that we see on line pipes and on the large diameter pipes.
So the expectation that we had for sort of Q2, Q3, that especially on the large diameter pipes, we see a pickup due to the hydrogen network being to be built out, et cetera, is postponed. Hydrogen network has now been, from the German government, sort of agreed upon and cleared. However, this has taken much longer than expected, hence we see this postponement here. It's not that projects are called off, it's just the timing effect that we see on the steel tube side. Core customer segments on precision tubes are also relatively low. So also on the MPT side, volumes have been low.
The result of stainless steel tubes, MST, these results, and this is important to know, include an impairment of roughly EUR 20 million. This is, as you all know, stainless is up for sale. So those impairments, I'll get back to that in a second. Overall outlook going forward, the economic weakness is also relevant for the steel processing part. As just said, we see the opportunities for plate production, pipe plate production, and large diameter pipes towards the end of this year. However, precision tubes remain challenging. We don't see sort of a market pickup here for the foreseeable future. And that all leads to a negative EBITDA, negative EBIT, for this section for the full year 2024.
Also, here's some operational activities ongoing, which I believe is very relevant, especially for the plate side. We are looking into expanding our market share on the protection steel. Secure is the brand to that. You all know that we acquired the competence and the brand from ThyssenKrupp when they exited their plate steel business. We have further developed that and are in processes with the relevant authorities, but also customers to get the steel through the relevant processes and be able to increase our volume on that side, which is also good in the utilization of the new heat treatment line. So an investment that will certainly pay off in this market segment.
So a good development on that end, and then to stainless tubes. We communicated very clearly that we're gonna sell stainless to Cogne. Process is well underway. We are waiting for final approvals of a couple of regulatory bodies. We expect this to happen in Q3, so we also expect to close the deal in Q3, leading to a cash inflow of EUR 125 million. And as part of that, as I said, we have this write down of EUR 20 million on the assets as part of the sale. Looking at trading, trading has been hit by a very weak demand, especially in the first half of this year. Prices are on low levels. International trading, though, has improved on the business development side.
So, things look slightly better here. And we are reporting an improved business development compared to the first half of 2023. For the rest of the year, persistently weak demand, this is what we see and what we plan with. We see less negative effect from inventories. In international trading, as I said, slight growth of shipments. So volume-wise, let's see what prices will bring here, but from a volume perspective, there's some momentum there. All in all, however, trading is not performing at the level that we expect them to perform.
Hence, we're developing a program of measures, specifically, related to the trading business, to adapt and to adapt the entire, especially stock holding business, to a to better sort of to better match the prevailing market conditions that we're seeing right now. So a clear program is developed right now and should be also then presented within the next couple of weeks to improve the performance of the stock holding trading overall. Last but not least, let's look at technology, and this is clearly a highlight in our business for the first half.
Even though sort of the order intake decreased due to generally weak demand, and we've seen that throughout the entire technology part of especially KHS, our high order backlog supports capacity utilization at KHS and also supports the good performance that we have seen in KHS throughout the first six months. Also going forward, we benefit from this good order backlog, particularly at KHS. DESMA companies anticipate an ongoing market recovery, and also them being able to participate in that market recovery in their respective businesses. But driven by KHS, driven by the very good development in KHS, we envisage earnings for technology above the already recorded record result of 2023.
So very good development here, and diversification, as I said in the beginning, is paying off for the entire company with a good result here. With that, let me close that section with the guidance. As we informed a few weeks ago, the indications that Germany's economy will pick up have not materialized as we expected that. So the German economy will not be able to keep pace with the upswing of other industrial nations.
Against that backdrop, we had to adjust our outlook for the full year 2024, and we anticipate now sales to be around EUR 10 billion, and EBITDA between EUR 400 million and EUR 500 million, a pre-tax result at break-even, and, as a consequence of that, of course, a ROCE that is tangibly lower year-on-year compared to 2023. Important to mention, please note that sort of potential one-off effects with an impact on earning, earnings incurred by structural events, though, to the end of the year have not been taken into consideration into that guidance. With that, I'd like to hand over to you, Birgit, to deep dive into the financials.
Yeah, sure. First of all, a warm welcome also from my side to all of you, and yeah, let's go and dive into the financials. Let's start with the income statement. The sales have been decreased by EUR 593 million, and Gunnar has just shown you the decreases in the segments. Overall, minus EUR 593 million, mainly to the sectors that are steel-related and the stockholding steel trade. Looking at the other operating income, we see a decrease due to lower income from exchange rate changes and valuation of financial derivatives and foreign currency positions, and these are offset by lower other operating expenses due to lower exchange rate losses. Our cost of materials fell due to decreased prices.
We have seen the development of the raw material prices in the beginning, and our personnel costs, they increased due to additional, of, due to additions of new staff, and also, due to wage and salary increase last year and this year. The earnings from companies accounted for using the equity method increased, in particular, due to higher contribution from our Aurubis investment. Despite, and this, despite the significant change in the EUROPIPE Group's earning contribution pointing in the opposite direction. Now, some explanations on the income tax that Gunnar has already announced, that this has to be explained. The group tax rate is running at 261.4%, and this is significantly higher than the average tax rate that we anticipated, which was 31.5%, which is due, in particular, to three following effects.
First of all, the non-capitalization of deferred taxes on the new domestic tax losses carry forward, arising in 2024. Second, tax expenses in the foreign group companies with a taxable consolidated result close to breakeven. And third, tax-free at equity result of Aurubis AG. So let's come to the balance sheet. And let's start with the non-current assets, and here we see intangible assets and property, plant, and equipment increased, and the largest items here is SALCOS. Investment accounted for using the equity method is higher, and this also essentially due to an equity valuation of Aurubis compared to last year or the end of last year.
Our current assets, here we have, especially current trade receivables that are increased, which is more or less a seasonal effect, with the majority part at our SZFG, and, we expect this, of course, to come down over the course of the year. I will talk about this a little later. Our inventories are almost unchanged or stable. We have a decrease in cash and cash equivalents due to the overall negative cash flow, and, yeah, and especially also coming from, operational cash flow as well as investment cash flow. Our equity is almost on previous year's level, and our equity ratio, with 46%, is solid and constant, with a slight increase in total assets.
Our non-current liabilities are also stable, and the pension provisions, which have fallen mainly due to the higher discount rate compared to the end of last year, are offset by higher financial liabilities. We have a slight increase in current liabilities, and mainly due to increase in current financial liabilities as well as other liabilities. So... now let's move on to the cash flow statement. We see a decrease in cash and cash equivalents due to the overall negative cash flow. The reason for the negative cash flow from operating activities was considerably lower and is related to the considerably lower result that Gunnar has shown. At the same time, the increase in working capital has, in addition, a negative impact on the operating cash flow.
The cash flow from investing activities amounted up to EUR 264 million, compared to previous year, EUR 241 million. Disbursements for capital expenditures on intangible assets and on property, plant, and equipment are significantly higher than the year before. Along with scheduled replacement investments, these, of course, also include investments in our SALCOS project, amounting to EUR 111 million. An amount of EUR 90 million in public funding has been received so far until June, and we expect a EUR 117 million funding until year-end. We paid a dividend of EUR 24 million to our shareholders, and our proceeds from borrowing and other financial liabilities amount up to EUR 336 million, and they are offset-...
by lower repayments of loans and other financial liabilities, which amount up to EUR 229 million, and interest payments, EUR 38 million, resulting in a cash inflow from financing activities of EUR 45 million, compared to previous year, where we had a cash outflow of EUR 64 million. Our working capital shows a seasonal increase compared to the year-end of last year. However, it shows a significant decrease compared to the first half year of 2023, and this is coming mainly from inventories. For the Q3, we are seeing the inventory level being more or less stable and then decreasing towards the end of the year below EUR 3 billion.
So looking at our investments and depreciation, we have spent in the first half EUR 315 million in CapEx, and we have had EUR 164 million of depreciation. Our plan for this year was to spend around EUR 500 million for CapEx, without SALCOS, and around another EUR 500 million for the SALCOS project. However, since the situation, especially looking at the operative cash flow, is facing quite some headwind, we set up a program in order to safeguard our cash position. And this is resulting also in reduction and postponement of investments worth EUR 140 million, and this is including also postponement of SALCOS payments. However, we are not postponing the SALCOS project.
So it's just about when does the cash leave the company in order to pay the bills? Here, we worked the whole thing and took out quite a significant amount. Altogether, we have also added cost reduction measures in budgets and also in personal cost as well as in maintenance, so that we come up to a low- to mid-three-digit million EUR amount in order to safeguard the net financial position that we have planned and in order not to decrease this net financial position further. Of course, next to all these cash safeguarding measures, we are continuing our Performance 2026 cost-saving program. This slide, you are very familiar with. You have seen this before.
We have calculated an increase to overall savings of around EUR 250 million, and we are taking this also next to the cash-effective measures, constantly, very seriously, in order to organize also these cost contributions. As I said, the cash safeguarding measures, we have switched on in order to work against the deterioration in the environmental situation and conditions. To summarize it, we need to stay on course, and we see that our diversification takes effect with our GB Technology, contributing with more than EUR 100 million EBT to our profit, in this year. And of course, we will continue SALCOS phase I, as Gunnar has mentioned, because we believe, and we are sure there's an attractive market for green steel.
And our measure program to secure earnings has been expanded by liquidity measures, as I have just laid out, and these specific optimization programs are initiated, of course, down in the business units. And last but not least, of course, we are developing also new customers and segments to also organize contributions on the top line. And Gunnar, I think you want to have some final words also on the external topics.
Yes, all of that is, of course, what we have in our own hands. On top of that, I think some at least positive signals to end this presentation. I mentioned the safeguards. This will provide a relief in the market. We are pretty sure about that. And also, we shouldn't forget that some of our businesses just face delays in order intakes, pipe plate and large diameter pipes, as one example. And as Birgit said, I think also for new customer segments, Secure is one example. We are seeing also an increasing interest in that market segment.
We should at least expect for 2025 a pickup in some of these markets that will support the financial development of the company. Let me close. You can read on the right-hand side. Yes, of course, we cannot change the direction of the wind in which the wind is blowing, and right now it feels a bit like headwinds. What we can do and what we do as a company and as management team, we are changing the way we set our sails in order to be able to continue to plow forward in those challenging times.
So we're confident that with the setup that we have, the measures that we're taking, we will guide this company through those rough waters and come out stronger than we actually went in. With that, I'd like to close and open for questions.
Yeah, I have one final positive message to say.
One final, yeah, absolutely.
Yeah.
Yes, please.
Which I didn't actually mention, but I think, it's very worth knowing that. And this is at the end of last week, we received, from all 10 banks who are active in the banking syndicate, the following positive news: they agreed to extend our syndicated loan worth EUR 1 billion until August 2029, and we believe this is a very strong sign.
Thank you very much.
Yeah, thank you.
Thank you.
Thank you for the presentation. With that, we go to the Q&A. Please make yourself clear by raising your hand. First, the attendee has already indicated it, and so we will activate one by one, and we start with Tristan. You have to unmute yourself.
Yes. Hi, can you hear me? Hello?
Yeah.
Hello. Okay, perfect. Thank you for taking my questions. The first one is on the steel business. You mentioned that you expect steel spread to come down into H2. And I think in the past, when the market was in poor shape, when the outlook was not great, you used to adjust capacity lower. And I wonder why not this time? I mean, you talk about some potential improvements. Could that be the reason that you see that, you know, green shoots down the line and you don't wanna shut down a blast furnace so near to it? So if you can discuss that a little bit and the timing of the potential recovery.
Yeah. Thank you, Tristan. Of course, we have looked into capacity adjustments, and we have made some analysis back and forth. And our conclusion is that we will not adjust the capacity in a sense of taking out one of the blast furnaces. Of course, blast furnaces are not running at full capacity right now. We have reduced capacity, but we're not considering taking one of the blast furnaces out of operation as it stands now. Just given that current way of operation is more cost effective than taking one of the blast furnaces out.
Does that mean that you could see... I mean, you flagged the safeguard measures, the new investigation that's gonna take time but can already have an impact on the market. So is it possible that you already see some restocking into late Q3, Q4, or is that that's not in your base case?
No, well, at least we don't see that in the current market condition, that there is a restocking effect in the late, late Q3, Q4. If so, I think given that this is a rather short-term effect, we wouldn't see it now anyways. So, that's not in our base case, no.
Now, let me add that, in our prognosis, in our guidance, for the total year, we have not included any recovery effects for the second half of the year, coming from the economy.
Okay. No, that's, that's very clear. And, and my second question is, I think you, you touched on that already in your presentation, but just wanted to confirm, and, on the free cash flow outlook for the second half of the year. So on the CapEx side, you, you were saying EUR 1 billion gross for the year, and now it's, you're cutting that by EUR 140 million. I believe on the subsidy side, you expect EUR 170 million for H2. You have the disposal cash coming in. And then on working capital, just to clarify as well, if you have an investment in Q3 and some release in Q4, do you see, expect, you know, on the second half basis to be on a neutral basis, or you're gonna be able to release some working capital?
Just trying to get, you know, the free cash flow look a bit refined there.
As I said before, we are now slightly above EUR 3 billion in the working capital, and of course, working capital measures are also in high focus next to reduction of investments and also personnel cost. We want to bring this down significantly below EUR 3 billion, yeah? We need these contributions from working capital until year end, also to improve our operating cash flow.
On the CapEx side, is that correct, the way I understood it? It was EUR 1 billion, and now it's minus EUR 140 million.
Yeah. It's reduced by EUR 140 million, mainly due to shifts in the outgoing cash over the year-end period, yeah? Also some smaller cuts, but the majority is a shift in cash out. We will now, in the planning phase, be busy to carefully look at what we are going to do with 2025.
Okay, perfect. I jump back to the queue. Thank you.
Yeah.
The next question is from Emmanuel Gabriel.
Yes, good morning, and thank you for taking my questions. I have a couple of them. So your major partner at HKM has been talking over the weekend about exiting this JV, if no viable restructuring plan is agreed. Where do you stand vis-a-vis their position, and how would the potential closure impact your business? If you can help us just frame a little bit the impact there. That's my first question. Thank you.
Yeah. Of course, we are, we are very well aware of, of... Just in case, a view on HKM, we're in, in constructive dialogues with them on a potential sale. Let's see, let's see how that, how that materializes. We are also, informed that if a sale is not possible, they, they think about a closure. But that needs to be further then refined, what that actually means in terms of timing, in terms of, but, but that is too early to say. However, I think it's, it's fair to say that, if ThyssenKrupp is looking at a closure, we will not, take over HKM and run it ourselves. So we, we most probably then go, along with them on a closure scenario.
Same, actually, on the sales scenario. So, the likelihood that we would stay in with the other two shareholders exiting the asset is relatively low.
What would be the impact of your business if, let's say, it closes? Would you have to source all the raw material from a more expensive supplier?
Well, we're in the phase of analysis. I think we're looking at material for MPT that can be sourced in other places, as well as for the plate business, can also be sourced internationally. And we have already proven in the past that we can source slabs internationally to supply MGB. And we expect that to be possible also going forward. Price-wise, let's see where the market then is.
Thank you. My question is on the SALCOS. I guess, even implementing stage one alone, under the current economic conditions, will take its toll on your balance sheet. Clearly, you are taking some more drastic measures to postpone some payments into next year. What are your very early thoughts on 2025, 2026 spending at the group level? And do you have a net debt limit, after which you will need to take more drastic measures, regarding spending? Thank you.
Concerning SALCOS. So concerning SALCOS, the years 2024, 2025, and 2026 are the major spending years for SALCOS phase I, concerning the CapEx. And you can say roughly, it's for each year, roughly, EUR 500 million spending.
Thank you. And what about the net debt limit, after which you will need to take some more drastic measures if the cash burn continues for the next two years? Is there any internal limit that you have set yourself or at least financial gearing limits?
We haven't set a hard limit internally. However, we are already, as Birgit pointed out, we're already sort of taking countermeasures right now. So we are not waiting to reach a certain limit. We're acting right now, and I think it's good that already as part of the strategy, two years ago, we sort of implemented this improvement program, Performance 2026, EUR 250 million. I think we're well underway. On top of that, the measures that Birgit pointed out on CapEx and also OpEx spending right now. And as said, we are looking into the individual business areas, whether there's more we can also do on the structural side.
But this is not because we're reaching a certain limit or so, but we see the necessity to further make that company sort of weatherproof, if market conditions continue the way they are.
Thank you very much. Thank you.
Before we continue, one organizational remark from my side. This is an analyst conference. We are fine for the press to listen, but we will not take any questions from the press. Next one is Bastian from Deutsche Bank, please.
Yeah. Hey, good morning, all. And also thanks for, for taking my questions. My first one is actually just coming back on the guidance. I think you seem to be pretty confident, obviously, in terms of hitting the guidance. And I think you also said that you're not really banking on any major market improvement in the second half. Yet, I guess, if we're looking at, particularly the market parameters, pretty much all of your peers are guiding for a worse performance in the next few quarters. I guess, there's also the maintenance season, which is typically coming up for you and some of your assets.
And then there is Aurubis, which basically had delivered, like, pretty much twice the performance on an accounting basis versus what the operational performance did, which obviously benefited, and that may not necessarily continue. So in your guidance framework, which makes you very confident to hit, hit this, and particularly also when it comes to processing, is there already any improvement from the project contributions which you will- which we will see and which we can expect basically to support you a little bit before the end of the year? That's my first question.
Okay, thank you for your question. So, starting again with our assumptions for the second half of the year, as you rightly said, we don't have any recovery put in the guidance for the overall year, and thus also in the second half of the year. And, sorry, again, what was your second question? It was about the recovery. No, no recovery planned in the second half of the year. And sorry?
Basically, whether, particularly in processing, whether you already see some benefits from some projects starting, which will support you a little bit in this, in the back end of this year.
To be honest, we are also very, very prudent here. We hope that we will get some contracts signed. However, the recovery, if so, is on a super low level. Maybe, Gunnar, you can add.
No, I think that's what it is. Bastian, what is also true for the steel processing part is that we are looking into some of the performance parameters and are working on those. And yes, there is at least an expectation that they will contribute, that these measures will contribute to stabilize the processing results for the second half. So we have already started to act there.
Yeah, and also to add, of course, Aurubis has been very strong in the first half of the year, and here we are also prudent with the contributions in the second half of the year. So we are not estimating to have the same level, but to be rather back on the planned level. And, of course, our technology segment is also performing very strong. And as I have laid out before, we are awaiting here profit before tax of more than EUR 100 million. And you have seen in the first half that we have already realized EUR 53 million. So here we are very confident that this will contribute also to the result of the second half of the year.
But there are no large CapEx project factored into our guidance for this year. No.
Okay, understood. Then, coming back on your performance program and what you're planning here, can you maybe give us a bit more color, exactly what you're doing there, maybe also, in terms of the size? I'm not sure you mentioned, some indications there earlier, and sorry if you did so, but also maybe how quickly you plan to execute this and whether there are any costs related to that.
So, you are talking about the additional cash safeguard program we have initiated next to the Performance 2026 program, and as I've said, it's a three-digit million EUR figure between low- and mid-three-digit, I would call it. What are we doing? As I said, we have cut investments, we have postponed investments, we have looked at the payment conditions to make sure that the burden this year is to the largest amount possible extended. We have asked ourselves what we really need to do. We have looked at our maintenance cost in order to to streamline our maintenance cost and also to be very prudent here. We have cut on all budgets as well, and do only things that are absolutely necessary to do.
In addition, of course, we also have drawn personnel cost measures, such as short-time work in some areas, or slowed down on getting new people on board, and all these things that you do. Also, external workers reduction, all the measures that you think of when you want to, when you want to limit the cash out.
Okay. Then, next question is on balance sheet and cash flow. Could you maybe just confirm last, one more time that, that the actual net cash out, basically, for CapEx this year is gonna be EUR 850, after the adjustments you have done? Is that net of, funding support also, in terms of the government help you'll get? Is EUR 850 the right number?
Yeah, EUR 850 is the right number. Yeah.
Okay. And if we extrapolate this now, in terms of what this means, I guess, for this year, you've been, like, vaguely guiding towards, I think, net debt around EUR 1 billion broadly. Now let's see. Hopefully, next year will be obviously better. There's certainly gonna be, I think, some tailwinds also from things you basically kick off here in terms of the restructuring. But still, there's gonna be obviously a very large CapEx number in your cash flow statement. And I guess, just with a reasonably conservative approach, would not be difficult to see you moving towards, like, EUR 1.5 billion of net debt, or even higher. And obviously, you're now, like, a EUR 1 billion market cap company at this point. And it definitely looks like we're moving into, like, a slightly more stretched situation here.
You do obviously have a lot of, I think, substance value on your balance sheet when we look at things like Aurubis. There's the very well-performing technologies business. You're obviously sitting on CO2 certificates, which pretty much, I think, none of your other peers in steel has, at least not in terms of the proportion of the size of the company. So I think there are still a couple of bullets you have available. How are you thinking about this? Are you getting to a point where you're like, where you're actively considering a need to monetize some of these assets? Or would you be just very willing to just keep running with maybe that elevated debt burden, which is evolving here?
Well, first, let me start, Bastian, by saying, and you know that we have changed our approach when it comes to the portfolio, so we are much more active on the portfolio management than we have been, or this company has been in the past, and we will continue to be active here, but in both sides, right? Divesting, but also acquiring, if it matches strategy. So, in that sense, we are, of course, looking at the portfolio from a strategic perspective, but also in combination with the financial needs this company has so far, no plans to execute a transaction based on the financial metrics.
Mm-hmm. Okay.
Yeah.
Okay, thanks.
Like, the line again, that we are still having the syndicate loan of EUR 1 billion, where we have drawn so far a slice of EUR 200 million, so we have still quite some flexibility also here.
Okay. And then lastly, just coming back on SALCOS and I guess the decarbonization strategy. And, I think when we look at what has happened over the last couple of quarters overall, it obviously seems like the whole infrastructure is moving ahead a little bit slower. Probably the whole energy infrastructure in particular, maybe is not quite developing as people have hoped. I think you're also indicating now that you may be shifting out the second part of SALCOS. When it comes to your expected OpEx structure for the first phase of SALCOS, are you really confident to be able to get into a cost structure which is really allowing you to, maybe not just recover the extra cost for these green steel products, but also to generate an extra margin out of it?
Are you still confident at this point that you'll be able to do so?
Yes, we are. Markets actually shows that that this is not out of the blue. So interaction with customers is still sort of very strong on the green side, including also extra margin discussions and also on the structural cost change. We are working on, and you know that, Bastian, to take out volatility on the cost side, especially on the electricity side. And as you most probably saw, we also went out to the market on a hydrogen on hydrogen PPAs or HPAs.
So, we're very well aware of the cost structure, the future cost structure, and are working already today, sort of to manage that in a good way.
Okay. Understood. Thank you.
All right. Next question is from Christian from Germany.
Yes, hello, and good morning. Three questions, if I may. First is on the electricity deal you had with RWE. Can you say something about the price structure of this deal going forward?
We're not disclosing those, those elements, Christian. But what do you exactly-
Okay.
What do you exactly...? You're talking price structure. What is it you're, you're looking at?
Can you give us what is the trigger for the prices going? I assume it will be flexible, of course, yeah? But what will be the... What will drive the prices for the electricity from the RWE deal?
Well, perhaps let me put it in a bit more general terms, Christian. When looking at PPAs, we normally look at a fixed price PPA for a certain period of time. In some occasions, you have a corridor in which the price can fluctuate according to the EEGs. And that's then part of the negotiation. But there's very seldom that you have a green PPA that is market price based. We have that for, I think, a smaller PV farm, where it is really about getting green electrons, but normally you have a fixed price or a certain corridor. Does that answer your question?
The volume is... Yes, in a certain way, at least. When it comes to the volume, is this linked to SALCOS phase I only?
Not necessarily, no. We, as we are also operating a electric arc furnace in Peine, we also look, of course, at further decarbonizing the product there, and that is also through green electricity. So it's not necessarily only linked to SALCOS. We're looking at it in a broader term.
When it comes to SALCOS, phase II, what is the current timetable for any kind of decision going forward? When can we expect that you make a decision where and when, and to what amount do you plan your CapEx for SALCOS phase II?
I don't expect the decision to be taken this year.
But we can expect something maybe in the second half of next year?
Well, I think that's what I meant when mentioning the flexibility. Given the modularity of SALCOS, we are very flexible in how we actually proceed, and we can react to market developments, both on the customer side, but also on the production side, input parameters, like iron ore, like electricity, et cetera, but also availability of technology, et cetera, et cetera. So we will take all this into account. I will not exclude that we may take a decision in the next year, but it's by no means necessary for our strategic development.
Okay. Thank you. And the last one is on the order intake when it comes to technology. The report, you mentioned that the order intake fell considerably short of the strong year earlier. So what would be the impact for the next year coming from this slowdown on order intake, and does it already has an impact on prices or margins?
We have not seen sort of a huge impact on margins. Margins have come down a little bit to sort of levels that we have seen before, but are relatively stable there. And as it looks right now, no impact for the year 2025.
You must not forget that you are coming-
But-
Coming from the report, considerably just means by more than 10%.
Okay. Thank you very much, and all the best.
Thank you. Likewise.
Let's switch to Tristan.
Yes, thank you for taking the follow-up. On SALCOS phase II and III, just to dig a little bit deeper. You mentioned your flexibility, but are really all options on the table? For instance, would you be comfortable looking at option outside Germany? Would you be comfortable not owning the iron making part or the DRI part and source it externally? Trying to understand what are your red lines or if all options are on the table.
Yeah, thanks for the question, Tristan, Tristan. For the HBI, so the hot briquetted iron, we very closely monitor how that market further develops. Right now, it's not a liquid market. Right now, it is- there is not sufficient HBI available. However, we see projects developing and materializing, so let's see how that, how that market, as such, will develop and whether it's an attractive market for us or not. We have taken the conscious decision, for SALCOS phase I, to build the direct reduction facility on site, because we believe this is the also economically, the best option. However, things might change, and we might sort of reconsider for phase, for the next phases.
If you look at our production site, what is evidently needed is electric arc furnace, because you wanna sort of transform the volume in order to to keep the volume constant, which we need in order to then also work on the optimize around the fixed cost. But yeah, the HBI is certainly an option that we could also think differently about and is on the table, yes. And that would then be outside Europe, right? Whether we invest equity or whether we would go for a long-term supply contract is also open.
Okay. No, that's very clear and helpful. Thank you. And a quick, completely unrelated question, but can you remind us of your exposure to the U.S.? How much volumes do you currently export to the U.S.?
Yeah. I'll get to the U.S. in a second. Just to add to the previous question. What is already pretty clear is that we will not, most probably not increase the production of hydrogen on site. Yeah, we are looking at a 100 MW electrolyzer. It's pretty unlikely that we're gonna increase that further, because with this 100 MW, we do understand the market. We can sort of understand also the optionality that you create with hydrogen versus natural gas. And we don't need further investments there for that purpose.
If there's a positive business case, of course, then it's a different thing, but hydrogen production on site certainly is, at least as it looks today, not necessary to further increase. So that's also part of the optionality and the flexibility that we have in the program. Coming to your question, U.S. U.S. is, it's not a big market for us, it's a relatively low market or, yeah, low market share, especially looking at steel, I think we're talking less than 10%. Predominantly, actually, it's line pipe, so mid-size diameter pipes that we are providing to hydrogen gas or natural gas companies. Rest is minor.
Of course, for KHS, U.S. is an important market. We have actually a site in Waukesha, close to Milwaukee, where we also assemble equipment for KHS. So that's there, it is an important market. For the steel part, it is of lower interest.
Okay. Very clear. Thank you.
Are there any further questions? There are none, then Gunnar, maybe some closing remarks from your side.
Yeah, I'm happy to. Thank you very much for joining us and for your interest and all the questions. We're looking at a difficult year, 2024. I think we're well equipped structurally, but also with all the measures that especially Birgit has pointed out, to overcome those challenges and leave this year stronger than we went in, as set, and that we are setting our sails in a right way so that we actually continue our path on the overall strategy, which we still believe is the right thing to do and is stable. And yeah, and then, then let's also look into a most probably better year, 2025 than 2024. Still half a year to go, so we shouldn't forget that.
So we will, we will keep focused on our focus on delivering on what we promised for 2024. Thank you very much for now, and you all have a great day, and you stay safe. See you soon. Thanks.
Bye. Thank you. Bye.