© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Dear ladies and gentlemen, welcome to the conference call of Swiss Steel Group on the Second Quarter Result of 2021. At our customer's request, this conference will be recorded. [Operator Instructions]May I now hand over to Daniel Geiger, who will lead you through this conference. Please go ahead.
Thank you, Martin, and good afternoon, ladies and gentlemen. I would like to welcome you to the Swiss Steel Group's Investors and Analyst Conference on the Second Quarter 2021. The speakers at today's conference are our CEO, Frank Koch; and our CFO, Markus Boening. The slides for the presentation that will follow shortly, the media release and the interim report for the first half of the year has been available on our website, swisssteelgroup.com since 7:00 a.m. this morning.During the conference, the speakers will make forward-looking statements as described in the disclaimer on Slide #2. These statements are based solely on our expectations or forecasts of future developments and may differ materially from actual results, performance or achievements.With this comment, I would now like to turn the floor over to our CEO, Frank Koch. Please, Mr. Koch.
Daniel, thank you very much, indeed. I'm delighted to be finally on board. I have known Swiss Steel Group for years as a high-performance competitor. Since joining, I've already visited numerous sites and was able to confirm my expectations towards the competence of our team and the quality of our products.In addition, I've recognized we can confirm that we have fully embedded the required COVID-19 safety programs and concepts into our day-to-day operations. This enables us to ensure compliance with the highest safety standards at all times to protect our employees in our production and sales processes along the value chain. We will be in a position to counter any effect should further COVID-19 waves break out.Although it is not part of the report on the first half of the year, I would like to mention a recent event, I'm assuming that you are well aware that there were massive floods in Western Germany in mid-July, which also affected our DEW, particular at the Hagen site as one of the smallest sites which we have in our portfolio. Most of the production facilities were flooded. We have started the cleaning and repair work immediately.This work will continue throughout the current summer shutdown that was planned previously before. At this stage, we do not have a reliable estimate of the overall financial and impact resulting from the damage and the restricted production delivery capabilities as well as the corresponding insurance reimbursement.Important to note is that certain activities of the plant, including shipping logistics, are already in operation again. DEW is in close contact with its customers to reduce possible delays or cancellation of deliveries. I'm really into the uptick about the solidarity in our group, the way we are helping our colleagues in Hagen and finally, how the employees on-site are raising the bar there.Maybe starting with the Chart #4. Let me start by giving you a general overview of business development in the second quarter, meaning that we are already -- excuse me, I apologize, in Chart #5. And the recovery in all key end markets, such as automotive as well as mechanical and plant engineering resulted in high sales volumes. Our customers are continuing to place orders resulting in an order intake remaining at high level. Our high order backlog means that delivery times are sometimes extended and that we are only able to meet some orders to a limited extent as so noted.In the second quarter of 2021, we achieved our best quarterly results for some time. This was due to a combination of a positive market environment along with selling prices at high levels and cost savings arising from our transformation program that you for sure all know. Further increases in raw material prices led to a further investment into our net working capital and negative free cash flow.With regards to positioning for future success, I would like to highlight 2 projects which are of strategic importance for our group. In the second quarter of 2021, we completed the legal merger of the 2 Swiss business units forming the new [ Dtech ]. We expect a significantly improved product positioning in the relevant markets.In addition, we are striving for organizational synergies and reducing internal interfaces to increase our productivity there. Furthermore, we have launched an innovative sustainability project at our French subsidiary Ugitech in Ugine to extract alloys from waste materials, which will significantly reduce our usage of natural resources and at the same time improve our carbon footprint. This project emphasizes our ambition to address the demand for sustainable climate-neutral production of specialty steel long products in Europe.Handing over to Chart #6. Let us now have a look at our most important procurement and sales markets. The upward trend in the raw material prices continued in the second quarter. Consequently, the monthly average price for German scrap grades #2 and 8 ended with a year-on-year increase of 86%. As you certainly know, our business model is largely dependent on scrap and melting scrap steel.If you now compare the consumption of alloys and un-alloy scrap of 1.5 million tons in 2020, given the COVID-19 ramifications to the consumption in the first half of 2021 of 1 million tons, you can figure out how significant the impact of such a price increase on our cost structure is. European prices for high carbon ferrochrome also continues to rocket in the first quarter and are now 50% higher than in Q2 of 2020.After price declines in March, nickel rose again in the course of the second quarter and stands 42% higher than in 2020. There is some ambiguity concerning the raw material prices given we cannot say yet whether these developments are of temporary or sustainable nature. As you probably know, our pricing includes a surcharge mechanism so that although the increases in raw material prices are significant, we can certainly pass on part to our customers albeit with a time lag.Compared with the first half of 2020, automotive production was significantly up, particularly in Europe and the U.S. despite the partly limited availability of semiconductors. Overall, however, production remained below the pre-crisis level of 2018. Chinese passenger car production was down slightly in the second quarter of 2021 compared with the previous quarter, which already included a recovery from the effects of COVID-19 pandemic. Germany's mechanical and plant engineering sector recorded a strong year-on-year growth in April and May 2021 compared to a deflated COVID-19 base in 2020.Handing over to Chart 9 with our key figures. The positive development in our main end markets, in combination with our cost-saving measures, led to the best quarterly results at adjusted EBITDA level for some time. Compared with the prior year quarter, the order backlog was more than double at 650 kilotons and at 518 kilotons. We sold 72% more of steel.The increased sales volumes in combination with a 4% price rise arriving at EUR 1,621 per ton, resulted in sales of around EUR 839 million. Coupled with continuous improvement and efficiency measures, adjusted EBITDA significantly increased against prior year quarter to around EUR 65 million. Free cash flow decreased substantially, amplified by higher raw material prices in combination with significantly higher capacity utilization.My colleague Markus Boening will give some more insights in a moment.Going over to Chart 8. Our transformation program continues to make good progress. The positive market environment with higher volumes enabled faster implementation of key measures. Overall, we exceeded our savings target by the end of Q2 2021, achieving EUR 102 million. A particular example of successful measures concerning the scrap optimization at our DEW plant. An especially developed scrap concept encompassed with the human and technical intelligence is used specifically to regulate the ratio of scrap to alloying element. This is not advantageous from the cost point of view, but also with regards to our CO2 footprint. If you are wondering whether the results allow us to relax somewhat, the answer is clearly no.We look back on a positive first half year, but we cannot afford to slow down. We will, therefore, continue to maximize our efforts to improve our performance on a daily basis. Each of our thoroughly thought-through measures embedded in the transformation program plays a vital part and is necessary to contribute to a sustainable future of our company. At the same time, we should not forget the most important asset, the health and the safety of our employees.Before I explain our outlook for the full year of 2021, I would now like to hand over the floor to my colleague and CFO, Markus Boening, to present the financial results of the second quarter. Markus, please.
Thanks, Frank. And a warm welcome also from my side, and let us start with the key economic data for the second quarter on Chart #10. Following a strong increase in the first quarter, the order backlog slightly declined in the second quarter of 2021. This is mainly due to capacity constraints.With many of our plants at full capacity reaching inside the fourth quarter, only limited new orders are accepted right now. It is to this is the seasonality. And therefore, the [ reluctancy ] of our customers to place new orders before the summer-break.We significantly exceeded the COVID-19 deflated order backlog of the prior year quarter by 113.8%. The recovery of demand in the automotive and mechanical and plant engineering market is continuing. In combination with an upward trend in the energy segments, we continue to observe a broader market recovery in our end markets.In response to the continuing positive market trends, crude steel production remained at a high level in the second quarter of 2021. In total, our 8 melting furnaces were in operation for over 504 days in the second quarter. This corresponds to utilization of 87% of the scheduled production shift. A 606 kilotons, we produced significantly more crude steel than in the prior year quarter, the corresponding number was 332 kilotons.Sales in the second quarter of 2021 was 72% higher at 518 kilotons compared with 301 kilotons in the prior year quarter. This uptick was mainly attributable to a 90.8% increase in sales volumes of quality and engineering steel. The recovery in demand from the automotive industry and mechanical and plant engineering was particularly evident in this product group. Sales volumes in the tool steel and stainless steel product segments were also significantly higher than in the prior year quarter.Let us now turn to Chart 11 with regard to profitability. In addition to the market recovery, further progress in our transformation program resulted in adjusted EBITDA of EUR 65.4 million in the second quarter of 2021, significantly above the prior year quarter of minus EUR 45.8 million. At the same time, adjusted EBITDA in the second quarter of 2021 was EUR 20.9 million higher than in the first quarter of 2021 with almost the same sales volumes.The one-off effects amounted to EUR 1.9 million and mainly included one-off costs for the efficiency improvement program. Including the one-off effect, EBITDA amounted to EUR 63.5 million compared to minus EUR 53.7 million in the previous year's quarter.Gross profit, that is sales less cost of materials, increased by 96.9% to EUR 304.2 million in the first quarter. Despite continued high price pressure, the gross profit margin increased by 3.4 percentage points to 36.3%. Personnel costs rose by 14.5% to EUR 175.8 million in the second quarter. Short-time work programs in Germany, France and Switzerland had a significant impact in the prior year quarter, while we only sporadically used short-time work in the second quarter of 2021.In total, Swiss Steel Group received EUR 1.1 million in compensation for short-time work in the second quarter of 2021, of which EUR 0.7 million was offset against personnel expenses. In comparison, the compensation for short-term work in the second quarter of 2020 amounted to EUR 9.3 million. In addition, we recognized in the prior year quarter around EUR 4.5 million income in personnel expenses arising from a reduction of the pension conversion rates in Switzerland.Depreciation, amortization and impairment in the second quarter was at around EUR 21 million, significantly below the prior year quarterly figure of EUR 105.9 million. This position included impairments of the Ascometal business unit of EUR 3.7 million. In the prior year quarter, the item included impairments of the DEW and Ascometal business unit of EUR 86 million.At minus EUR 10.8 million, the financial result in the second quarter was less negative than in the prior year quarter. As part of COVID-19 support programs, Swiss Steel Group received state-guaranteed bank loans in 2020 with below the market interest rates, leading to lower borrowing costs. In addition, the capital increase carried out in the first quarter of 2021 reduced our net debt. By optimizing its capital structure, Swiss Steel Group will be able to continue to save significant interest costs in the future.Let us now turn to the liquidity KPIs on Chart 12. We currently see a further increase in the net working capital due to higher production and sales volumes, amplified by a significant rise in raw material price. Compared to December 31, 2020, net working capital increased from EUR 698.1 million to EUR 943.1 million. Trade receivables increased by EUR 184.1 million and inventories by EUR 183.8 million. These 2 effects outweighed the increase in trade payables of EUR 122.9 million.Triggered by the growth in sales, we were nevertheless able to continue to improve the ratio of net working capital to sales to 28.1% as of June 30, 2021, compared to 28.9% at the end of 2020. Concerning trade payables, we already managed successfully to stabilize supplier payment terms. Going forward, we expect that the improved equity situation as well as the continuous increase in profitability will have a positive impact on payment terms.The investments into net working capital more than offset the positive cash flow effect of our operational performance. Cash out from investing activities in Q2 2021 was slightly higher at EUR 17.7 million compared to EUR 15.4 million in the same quarter of the previous year. With regard to our investments, we remain focused. But as usual, investments in the second half of the year will be significantly higher than in the first half. To sum it up, free cash flow in Q2 2021 ended up at minus EUR 65.2 million.Net debt was amounting to EUR 605.4 million, below the December 31, 2020, level of EUR 639.9 million due to the increase -- the capital increase in the first quarter, which was partly offset by investments into net working capital. Last thing to mention from my side is that we are planning to re-dimension our capital market communication in the third quarter of 2021 by publishing a media release only for any future third and first quarters.With that, I will close my part and hand it back to our CEO. Please, Frank.
Markus, thanks, indeed. Looking to the next chart, Chart 13. This brings me to the assessment of the market environment, the priorities and the outlook for the fiscal year 2021 on Chart #14 now to the outlook. For the remainder of 2021, we expect a continued trend of recovery in our main and end market automotive, mechanical and plant engineering and of course in the energy market. However, the overall economic environment remains fragile.In the automotive industry, the supply bottlenecks for semiconductors is continuing, which is affecting our customers and order volumes. The supply situation on the raw material market also remains volatile.On the scrap market in particular, we see continuing trend towards price increases in conjunction with supply bottlenecks. Finally, COVID-19 infection rates are currently rising again in most parts of the world. This could lead to a new wave of restrictions and decommissioning measures, which indeed we do not hope. We will continue to focus on the transformation path for the second half of the year.In addition, the focus will be on cost improvement through smart innovation management and process optimization by our employees. Externally, we will strive to increase our sales in our main customer sectors and significantly improve market shares in the relevant markets. Assuming that our markets remain stable and taking into account the seasonal effect in the third and fourth quarters, we expect to achieve adjusted EBITDA in the range of EUR 150 million to EUR 180 million.If you wonder about our strategy going forward, I would like to give you my answer right away. I've just been on board for 5 weeks, and I'm currently in process of getting to know the people and processes in this company. Of course, we need to have the strategy discussion. And we have to do it with a necessary sense of urgency, but we also have to do the right things at the right time. What I can already tell you is that as one of the largest electrical steel producers for specialties in Europe, we will face the future challenges of sustainable and climate-neutral production as an innovative driver of the circular economy. This concludes my remarks. And I look forward to your further questions.
[Operator Instructions] There are no questions for the moment. And so I hand back to Daniel Geiger.
Yes. Thank you for attending today's investor and analyst conference and for your interest in Swiss Steel Group. The announcement of the full year results in March 2022 will be the next occasion you will hear from us. This is due to the change of our capital market communication for the first and third quarter, where we will issue a media release only.For Q2 and Q4, we will continue to provide the full financial reporting package, and we count on your participation during the Q4 '21 conference call in March 2022. If you have any further questions or comment, please let us know. We look forward to continuing the dialogue with you. Thank you very much, and goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.