Klöckner & Co Aktie

Hello, everyone. This is Fabian Joseph from Investor Relations. Also on behalf of my entire team, I wish you a very warm welcome to our Q1 '26 conference call.

With me today are our CEO, Guido Kerkhoff; and our CEO, Americas, John Ganem. They will guide you through the presentation. And afterwards, we're happy to take your questions. [Operator Instructions]

With that, I'd like to hand over to you, Guido.

Yes. Thank you, and welcome to our Q1 '26 conference call. I'll now begin with the financial highlights of the quarter, followed by an update on our strategic progress and the voluntary public takeover of Worthington Steel.

Before we look at our KPIs, I'd like to make some remarks. As you know, we sold 8 U.S. distribution sites at the end of '25. In order to enable a year-over-year comparison on a like-for-like basis, we've also included the delta for a divestment adjusted baseline. Shipments decreased considerably year-over-year mainly due to the divestment of these 8 U.S. distribution sites. Excluding the divestment of the 8 distribution sites, shipments increased by 2.1% year-over-year, supported by positive momentum in Europe.

Sales came in considerably below the previous year's quarter as a result of a lower reported shipment. However, on an adjusted basis, excluding the divestment, sales increased slightly, also by 2.1%. Gross profit decreased considerably year-over-year due to lower sales volumes. However, gross profit margin remained constant compared to prior year's quarter.

We achieved a considerable increase in EBITDA before material special effects, also driven by a positive contribution from our Kloeckner Metals Europe segment. We'll take a closer look at that on the next slide.

Operating cash flow was at minus EUR 270 million, mainly due to seasonal net working capital buildup at the beginning of the year. As a result, financial debt increased to EUR 1,092 million at the end of the first quarter '26.

Let's have a look at our performance in Q1 '26 by segment. Now Kloeckner Metals Americas segment shipments decreased considerably year-over-year in Q1, but just due to the aforementioned divestment of the 8 U.S. distribution sites. Consequently, sales in Q1 came in considerably below previous year's quarter as well due to the same reason. Adjusted for the divestment of these 8 sites, shipments in the segment were constant compared to the prior year quarter, while sales decreased only slightly.

To put the like-for-like comparison into perspective, I would like to highlight that March '25 was largely driven by restocking activity, providing a temporary uplift in volumes. EBITDA before material special effects came in at EUR 37 million in Q1 '26.

In our segment Kloeckner Metals Europe, shipments increased slightly, while sales increased considerably compared to previous year's quarter due to higher average price levels. This development was supported by the continued and effective implementation of our optimization measures. As a result, EBITDA before material special effects of the segment Kloeckner Metals Europe increased considerably to EUR 10 million, reaching its highest level since the first quarter of '23.

Now let's have a look at our strategic progress in the recent past. We continue to reduce underlying volatility by focusing on higher value-added products and services. We further strengthened and sharpened our portfolio through targeted acquisitions and divestments, including Ambo Stahl, Haley Tool & Stamping, Simfloc, and Locher Bewehrung. At the same time, we divested the distribution business in the U.S. and Brazil in order to enhance strategic focus.

We broke ground on a new aluminum flat rolled processing facility in Columbus, Mississippi, and launched a new heavy fabrication operation at the former Bauer Built manufacturing site in Paton, Iowa. Our strategic progress also includes targeted capacity and technology investments such as increasing electrical steel capabilities and installing a new coil fed Schuler laser blanking line in Queretaro, Mexico.

As you can see on this slide, our efforts are clearly visible. We grew our HVAC and Service Center sales split from 63% in full year '25 to 87% in Q1 '26, a strong development. The higher sales exposure to HVAC and Service Center, our underlying volatility continues to decrease while we increase our profitability.

Let me now give a brief and important update regarding the voluntary public takeover by Worthington Steel. As you know, Worthington Steel and Klockner & Co signed a business combination agreement on January 15, after which Worthington Steel submitted a voluntary public takeover offer for all outstanding shares of Klockner & Co. After successfully reaching the minimum acceptance threshold, Worthington Steel was able to secure in total approximately 61.87% of Klockner & Co's outstanding shares by the end of the additional acceptance period.

Furthermore, on March 27, '26, Worthington Steel informed the Management Board of Klockner & Co that it intends to enter into a domination and profit and loss transfer agreement between Worthington Steel GmbH as the controlling company and Klockner & Co SE as a controlled company. Strategically, this takeover marks a new chapter in Klockner & Co's corporate history and fully aligns with our strategic focus on higher value-added products and services across North America and Europe. Closing of the transaction remains subject to regulatory approvals and is currently expected to take place in the second half of '26.

With that, let's have a closer look at the financials. Overall, we experienced a favorable pricing environment in the first quarter of '26 after the pronounced volatility of the previous year's quarter. Prices continued to rise in the first quarter of '26 in both U.S. and Europe, supporting our operating income. The U.S., unlike previous cycles, the increase has generally been slow but steady, which results in a rather limited positive windfall.

We achieved an EBITDA before material special effects of EUR 46 million in Q1, a considerable increase both quarter-over-quarter and year-over-year. Due to the seasonal net working capital buildup at the beginning of the year, operating cash flow came in negative at EUR 270 million.

Looking ahead, we're confident that we'll continue to convert the currently positive pricing momentum into strong operating results in the second quarter of '26 and beyond. In addition, we continue to leverage our digitalization automation initiatives. The numbers of digital quotes increased by around 7% year-over-year in the first quarter of '26. With that, we continue to release salespeople from manual work related to [ quoting ].

Let's take a look at the development of our shipments, sales, gross profit and gross profit margin in the first quarter of '26. We're also providing the figures for the group, excluding the divested U.S. distribution sites, enabling a like-for-like comparison. Shipments decreased considerably year-over-year, mainly due to the divestment of 8 U.S. distribution sites at the end of '25. Sales decreased considerably year-over-year, mainly due to the lower shipments in the Kloeckner Metals Americas segment. As already stated on a like-for-like basis, both shipments and sales slightly increased by 2.1%. This is proof that our growth strategy is intact and remains intact like last year.

Gross profit came in at EUR 298 million in Q1 after EUR 317 million in Q1 '25, a considerable decrease year-over-year due to the negative development of sales. Meanwhile, gross profit margin remained constant year-over-year at 19%. On a like-for-like basis, gross profit increased slightly, while the gross profit margin was also increased.

We will now focus on the EBITDA development in the first quarter of '26. We've adjusted the EBITDA for Q1 '25 for the divestment of the 8 U.S. distribution sites to enable a like-for-like comparison, therefore, starting with the EBITDA before material special effect for Q1 '25 of EUR 34 million. All year-over-year effects visible here have also been adjusted to enable the like-for-like comparison. In Q1, EBITDA before material special effect came in at EUR 46 million, a considerable increase year-over-year.

In the first quarter of '26, we had a positive volume effect of EUR 6 million and a positive price effect of EUR 20 million, supporting our operating result. OpEx, however, was slightly higher at EUR 9 million year-over-year, mainly due to higher personnel expenses and high expenses for shipments and operating supplies. Further, we had negative ForEx effects of EUR 4 million, mainly resulting from the U.S. dollar. Lastly, we recorded negative material special effects totaling EUR 6 million, mainly related to expenses resulting from share-based payments due to the gains in the share price since the beginning of the year.

And now coming to the cash flow and net debt development. The first quarter of '26 had seasonal net working capital buildup of EUR 279 million. I would like to stress that this buildup is temporary and is expected to reverse over the course of the year, ultimately resulting in a positive operating cash flow. Taking into consideration interest, tax payments and other items totaling EUR 32 million, our cash flow from operating activities came in negative at EUR 270 million in Q1. Including net CapEx of EUR 36 million, free cash flow was negative EUR 306 million.

Let's look at the net financial debt. Additional negative impacts were visible for ForEx, leasing and other items totaling EUR 77 million. Consequently, our net debt increased from EUR 709 million to EUR 1.092 million in the first quarter of '26.

I'll now hand over to John to have a closer look at our end markets in North America.

Thank you, Guido. While some extremely challenging weather disruptions impacted our shipments early in 2026, we continue to expect a decent recovery in this year with North American real steel demand increasing between 1% and 2% compared to the prior year. Of course, there remains significant uncertainty and some downside risk related to the current conflict in the Middle East and the continued unpredictable trade policy shifts that can negatively impact the outlook.

Now turning to the expected development in specific market segments. Looking first at construction activity, building starts for both residential and nonresidential investments are expected to be generally flat to slightly higher versus prior year. While underlying long-term demand should remain strong, affordability remains a significant growth constraint. Lower mortgage rates would certainly provide further upside potential to the outlook. Nonbuilding and infrastructure investments should continue to grow in 2026, albeit more moderately than last year. Data centers as well as grid expansion and modernization will continue to lead the way for the next several years.

Turning to manufacturing. Activity, as indicated by the ISM Manufacturing Index, has expanded during the first 4 months of 2026. This is a very positive development considering the index indicated contraction for almost all of 2025. In line with this indication, we expect overall new orders for industrial and off-highway equipment to increase modestly by between 2% and 3% in 2026 with some variation depending on the specific segment.

Some larger OEM customers forecasts in these sectors continue to indicate even substantially stronger growth rates heading into the second quarter and second half of 2026. Trade policy clarity and lower interest rates could also help these key consuming segments regain even more positive momentum as the year develops.

Turning to transportation. The Automotive segment has been the most impacted by changing trade policy as well as the removal of the EV tax credit. For 2026, current forecasts indicate stable auto production in both the U.S. and Mexico. Subdued consumer confidence, higher for longer interest rates and the recent spike in gas prices will likely limit growth prospects in the near term for auto. On a more positive note and after a significant pullback in 2025, we now expect a solid recovery of more than 5% in the heavy truck and trailer segment.

On the defense shipbuilding front, activity remains very robust. Kloeckner has been recently awarded a number of large multiyear programs, and we remain extremely well positioned to take advantage of what is expected to be a very significant increase in defense shipbuilding investments over the next decade.

Appliance, HVAC and Electrical, which are key segments for KMC Americas, are expected to remain challenging in 2026 as OEMs work to rebalance supply chains to be better aligned with forward demand. After a slow start in Q1, we do see signs of a modest recovery in the second quarter, but we don't expect these segments to deliver material growth in 2026. Energy, on the other hand, will continue to be the strongest steel consuming segment this year.

Power transmission will remain extremely strong in 2026, generating growth of greater than 15% year-over-year after achieving a similar result last year. Modernizing and expanding the North American transmission infrastructure is imperative in order to support the significant forecasted increase in demand for electricity across North America. This is especially critical for data center investments. While renewable energy growth was expected to come under pressure after last year's changes in government policy, we are now expecting a strong growth of almost 10% in 2026 as both wind and solar continue to be the most immediate solution to help bridge the growing deficit between surging demand for electricity and constrained supply.

With that, I will quickly summarize the North American outlook as follows. While the current variance in growth expectations between industry segments is nothing short of unprecedented and despite potential downside risks that still need to be navigated, we remain firmly optimistic when it comes to the overall North American outlook for 2026. Additionally, the significant reduction in imports resulting from the Section 232 tariffs has clearly created better balance between U.S. supply and demand, which is likely to result in a higher for longer and potentially more stable pricing cycle.

With these positive market dynamics at our back and with our continued focus on higher value-added products and services, we are very confident that Kloeckner Americas' continuing operation will once again deliver strong year-over-year growth, record market share gains and further improved financial results in 2026.

With that, I will turn it back over to Guido to provide an update on Europe.

Thanks, John. In total, we continue to expect the real steel demand in Europe to increase as well as in North America by 1% to 2% in '26, which is, in this case, unchanged compared to our last conference call in March. However, it is important to acknowledge key geopolitical risks could weigh on our outlook and escalating tensions in the Iran conflict could trigger sustained oil price spikes negative implications for the macro economy, inflation and ultimately adverse effects for our core customer industries.

Coming now to our sectors, starting with the construction industry. No major change compared to our previous conference call. We continue to expect the construction industry in '26 to grow slightly with structural drivers intact and pent-up demand providing growth.

Manufacturing, machinery and mechanical engineering, a sector in which we continue to expect a slight growth in Europe, driven by the emerging effects of past monetary policy loosening and rising defense spending, especially in Germany. However, uncertainties in trade policy and competition from Asia will dampen the EU's domestic mechanical engineering sector.

Transportation: first, focus on automotive, also a sector where we see no major change compared to our last conference call. The industry association still expects a slight increase of 2% in '26 though absolute volumes will remain far below 2019 record levels. Demand is expected to remain on rather low levels for as long as there is no significant improvement in the broader economic outlook, including global trade and consumer sentiment.

Now coming to shipbuilding, we continue to expect increased pressure on the commercial shipbuilding segment due to economic uncertainty while remaining well positioned in the gray ship sector to benefit from upcoming demand. Household and commercial appliances segment marginal impact on our European business. We still expect a constant development in '26 with increasing pressure from the U.S. and China, resulting in a negative impact on the competitiveness of the EU sector. Energy industry, no major change compared to our previous conference call, slight growth expected in the energy industry, driven by the continued electrification of transport and heating.

Let's now come to the financial outlook for the second quarter of this year and the full year '26. John and I pointed out, we expect the macroeconomic environment to remain challenging, especially due to geopolitical uncertainties. For the current quarter, we expect a slight increase in shipments and a considerable increase in sales each quarter-over-quarter.

EBITDA before material special effects in Q2 '26 is expected to come in between EUR 40 million and EUR 80 million. For the full year '26, we're now forecasting a slight decrease in shipments for the full year '26, mainly due to the aforementioned divestment of 8 U.S. distribution sites. Sales are now expected to increase slightly year-over-year. We still expect the EBITDA before material special effect in the full year '26 to considerably increase year-over-year. Moreover, we also expect operating cash flow to come in positive, although below previous year's figures.

We're now happy to take your questions.

Our first question comes from Boris Bourdet, Kepler Cheuvreux.

Do you hear me?

Yes, we can hear you.

Yes, I would be interested in getting your view on the potential change in customer behavior in Europe and that might be related to your inventory buildup. How much is linked to the price increase? How much is linked to some restocking ahead of the new [ TR2 ] in Europe that might require some volume availability? And maybe also connected to that, what are the reasons for the slight downgrade in your operating cash flow outlook? Is that also related to this potential increase in demand?

And maybe I will have a last one on [ Thyssenkrupp ]. You point in the press release that you are in the due diligence phase with some nonbinding offers. What kind of price are you looking for, for this asset? And what would be the profile of those acquirers?

Thanks, Boris. The customer behavior that we expect, I mean, is a bit more cautious going forward as customer sentiment has declined a bit in Europe. We've seen some price and prestocking developments that underlying, honestly, the year started more positive than we expected beforehand. So although we see a decline from -- or slight decline from what we've seen at the beginning of the year, we remain positive that it's going to be an increase throughout the year. The price and prestocking behavior was there, but not that big and not that strong.

Now the cash flow, yes, it's slightly reduced. You see higher price levels and a bit more increase in volumes and shipments that we expect for the year that will require a little bit more of working capital buildup. That's mainly reflected in this cash flow going forward.

On [ Deca ], I can understand your question, but you will understand my answer as well. We're in the due diligence phase, and we have a couple of good offers that we'll continue to elaborate on, and then we'll see what will come out and how the pricing will look like. But the process is running very well, and there is more interest than we originally expected.

Okay. And maybe then related to that, we know that Thyssenkrupp is working on a potential IPO of its Metal Services business. I would be interested in getting your thoughts on the potential for consolidation in that space in Europe.

Look, I can't take a look into -- and I don't know what they are doing. I think currently, they are busy with preparing their kind of decoupling from the group, and we'll have to see how that works. But I think that won't have a big impact on us and what we're doing.

[Operator Instructions] There seems to be no further questions at this time. So I would like to hand over to Guido for some final remarks.

Yes. Thank you all very much for joining the call. And if there are any outstanding questions you'd like to raise, Fabian and his team are just waiting for it. So call us. Thank you very much.

Hello, everyone. This is Fabian Joseph from Investor Relations. Also on behalf of my entire team, I wish you a very warm welcome to our full year 2025 conference call. With 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 are happy to take your questions. [Operator Instructions]

With that, I'd like to hand over to you, Guido.

Yes. Thanks, Fabian, and welcome to our full year '25 conference call. Before I dive into the highlights of the past financial year '25, let me start with a brief and important update regarding the voluntary public takeover offer by Worthington Steel. As announced by Worthington Steel yesterday, the company has decided to adjust the terms of its offer. Specifically, Worthington Steel has lowered the minimum acceptance threshold to 57.5% and extended the offer period to March 26, 2026. We understand this step and consider it a logical and common procedure for further increasing transaction security. With the total number of shares currently secured by Worthington Steel, including acceptances and direct holdings standing at 56.92% as of yesterday. The transaction is now very close to reaching this new threshold. Please always keep in mind that the management shares, which account for around 0.5% will be tendered, but due to the quiet period, they can only be tendered from now on.

I want to emphasize that this technical adjustment does not change the compelling strategic rationale for the business combination or the attractiveness of the offered price of EUR 11 in cash per Klöckner & Co share. Therefore, our Management Board and Supervisory Board of Klöckner & Co SE will perform a detailed review of the amended offer document and update their joint response statement in a timely manner, both remain convinced that the offer by Worthington Steel is in the best interest of the company and its stakeholders. All shareholders who have not yet tendered their shares now have time until March 26, 2026, 24 hours local time in Frankfurt online to do so.

I will now begin with the financial highlights of the year. We have delivered a solid performance for the full year '25 despite tariff and trade-related uncertainties. Also, ForEx effects have negatively impacted our results. Despite the aforementioned difficult environment, we were able to grow our shipments on group level slightly to [ 4,500 to 8,000 ] tonnes. The slightly negative development in the Kloeckner Metals Europe segment was overcompensated by the continued strong performance in Kloeckner Metals Americas, driven by further market share gains. Sales came in at EUR 6.4 billion, a slight decrease year-over-year in both segments as well as on group level, largely price related. This development was a result of lower average price level over the year compared to the previous year as well as negative ForEx effects.

We achieved a considerable increase in gross profit despite the volatile steel price development in full year 2025. Gross profit in the previous year have been heavily impacted by windfall losses caused by the substantial steel price correction over the course of '24, an effect that did not repeat itself in '25. The gross profit margin also improved considerably compared to the previous year. EBITDA before material special effects came in at EUR 171 million, a considerable increase year-over-year and a result within our guidance range for the fourth consecutive year. And as we guided, we achieved a positive operating cash flow. Full year '25 operating cash flow came in at EUR 110 million.

Consequently and also positively affected by the proceeds from the 8 distribution sites in the U.S., we were able to considerably reduce our net financial debt year-over-year, reaching the lowest net financial debt level since Q2 2023. We will propose to the Annual General Meeting to pay a dividend payment of EUR 0.20 per share. This would be the fifth consecutive dividend to our shareholders, demonstrating that we are a steady and consistent dividend player throughout the cycle.

Let's now have a look on our performance in Q4 '25 by segment. Our segment Kloeckner Metals Americas shipments increased slightly year-over-year Q4 '25, continuing the positive trend seen throughout the previous quarters of the full year '25. Therefore, volume was the highest ever achieved in the fourth quarter, which underscores the success of our North American growth strategy. However, due to the lower average price level year-over-year, sales in Q4 came in slightly below the previous year's quarter, further impacted by adverse ForEx effects. Prices remain volatile after the temporary repeats in Q2 '25. EBITDA before material special effects came in at EUR 19 million in Q4.

In our segment Kloeckner Metals Europe, shipments increased slightly, while sales remained constant compared to the previous year's quarter. EBITDA before material special effects of segment Kloeckner Metals Europe was approximately breakeven, which is a considerable improvement compared to the last year's quarter and a constant development consistent to last quarter. This demonstrates that our consistent optimization efforts are continuing to pay off.

In the recent month, we made important steps in our company development in the region DACH and North America. On January 15, we announced the intended divestment of the Becker Group in Germany. Prior to this, we conducted a comprehensive analysis of all strategic options. This will enable Becker to participate in an industry consolidation in Europe under new ownership, allowing us to place a sharper focus on higher value-added products and services. Becker delivered an improved performance in January and February this year, reflecting the solid foundation we've built together and demonstrating that the business is well positioned to accelerate its growth even further under new ownership.

In Switzerland, we completed the acquisition of Locher Bewehrung to further strengthen our regional footprint. This step has enabled us to achieve efficiency gains by leveraging the asset base in the existing network. The acquisition was closed in December '25 and the integration process has already been completed. We continue to expand our production and processing footprint across North America with targeted investments that strengthen our higher value added and service center business. These investments ensure that we can meet growing customer demand with expanded production and processing capabilities. As you know, we're constructing a new aluminum flat rolled processing facility in Columbus, Mississippi, directly located at Aluminum Dynamics new production site.

During the fourth quarter, we reached a milestone by breaking ground on the construction side. Building completion is planned for late Q4 '26 with equipment start-up expected in Q2 '27. By adding a dedicated cutting-edge aluminum processing facility, we can make the most of the NMM acquisition and accelerate our automotive growth in North America.

In Paton, Iowa, we started a new heavy fabrication operation after agreeing to lease the former Bauer Built Manufacturing site by bringing the entire Bauer Built team into Klöckner and preserving their long-standing expertise in ensuring a seamless transition. The site significantly expands our heavy fabrication capability, including welding, assembly and complex finishing services. With this operation, we can better support agricultural and industrial customers who rely on advanced fabrication and large-scale production capacity.

In Queretaro, Mexico, we're installing a new coil-fed Schuler laser blanking line to meet rising demand for aluminum blanking, especially from automotive customers. This line is being installed at our new facility and scheduled for commissioning in the second quarter of '26. The technology delivers superior consistency and cut quality compared to traditional blanking methods. Customer inquiries from automotive OEMs in Mexico are already increasing as the start-up approaches.

Following these steps, we generated around 44% of our sales with [ HVAB ] when considering our group, excluding the 8 distribution sites in the U.S. that we sold. This business is responsible for the majority of our EBITDA, which clearly proves that we are on the right track with our strategy. Going forward, we will capitalize even more on our strong presence in North America and the DACH region and press ahead with our group strategy.

With that, over to you, Oliver, for further financial insights.

Yes. Thank you. As Guido stated, the market environment continued to remain challenging in '25 with a volatile steel price development following the U.S. tariff announcement in February. Despite these steel price volatilities, coupled with the ongoing challenging macroeconomic environment, we achieved an EBITDA before material special effects of EUR 21 million in quarter 4, '25 and EUR 171 million in full year '25. The result within our guidance range.

In addition, we delivered a significantly positive operating cash flow for the fourth year in a row. Solid results taking into account the macroeconomic environment we operated in. Although steel prices remain volatile, we are seeing an upward trend in the U.S. and Europe right now. This trend was already visible in quarter 4, '25 as well as in the first 2 months of Q1 '26 based on higher expected demand. We are confident to translate the positive pricing trend into strong operating results in quarter 1, '26 and beyond.

In addition, we continue to leverage our digitalization and automation initiatives. The number of digital quotes increased by around 13% year-over-year in full year '25. Therefore, we continue to release salespeople for manual work related to quotes.

Let's take a look at the development of our shipments, sales, gross profit and gross profit margin for the fourth quarter '25. Shipments increased slightly year-over-year, driven by a strong performance of both segments. Sales decreased slightly year-over-year due to the overall average price level and unfavorable FX effects despite the positive shipment development and came in at EUR 1.5 billion in quarter 4, '25. Gross profit came in at EUR 272 million in quarter 4 '25 after EUR 261 million in quarter 4 '24, a considerable increase year-over-year. Gross profit margin also increased by 17.6% to 18.6% year-over-year.

We will now focus on the EBITDA development in the fourth quarter and in the full year '25. In quarter 4 '25, EBITDA before material special effects came in at EUR 21 million. In the fourth quarter, we recorded positive price and volume effects, adding up to a total of EUR 19 million year-over-year. OpEx in quarter 4, '25 were in total EUR 26 million higher year-over-year. In addition, we experienced negative year-over-year FX effects of EUR 3 million in quarter 4, '25. Material special effects mainly consisted of gains related to the divestment of our 8 distribution sites in the U.S., partly offset by restructuring costs coming to a net total of EUR 30 million for quarter 4, '25. For the full year '25, EBITDA before material special effects amounted to EUR 171 million. Over the year, we benefited from a positive volume effect of EUR 90 million and a positive price effect of EUR 89 million. The results of full year '24 were burdened by windfall losses related to steel price corrections that did not occur in '25.

OpEx increased by EUR 65 million year-over-year. Further, we recorded negative FX effects of EUR 7 million, mainly resulting from U.S. translation. Lastly, material special effects came in negative at EUR 20 million with the non-quarter 4 impact primarily driven by the deconsolidation of our Brazilian entity and restructuring costs.

We are now coming to cash flow and net debt development. In the full year '25, reported EBITDA was EUR 152 million. Further, we had a net working capital release of EUR 63 million. Taking into consideration interest, tax payment and other items totaling EUR 106 million, our cash flow from operating activities came in positive at EUR 110 million in full year '25. Including net CapEx of EUR 5 million, free cash flow was positive at EUR 105 million for the full year '25. This also includes the proceeds of EUR 96 million from the divestment of 8 U.S. distribution sites.

Let's have a look on our net financial debt. Negative effects were visible for leasing and dividends. Leasing totaled an amount of EUR 71 million and are mainly related to the execution of our strategic projects, such as our on-campus partnership with Nucor in Brandenburg, Kentucky. Dividends, of course, EUR 20 million related to the dividend we paid to our shareholders in full year '25. Positive effects of EUR 57 million were visible for FX and other, including effects from divestments. Accordingly, our net financial debt decreased considerably year-over-year to EUR 709 million after EUR 780 million at the end of the previous year. This is the lowest level of net financial debt since quarter 2 '23.

We will now focus on the group's financing. We continue to possess a diversified financing structure with credit facility of approximately EUR 1.3 billion, excluding leasing, we are very solidly positioned, including contractual terms and financial covenants. Overall, we maintain a total financial headroom of around EUR 0.8 billion. Net debt came in at EUR 709 million for the full year '25, a considerable decrease year-over year-end, as mentioned beforehand, the lowest level since Q2 '23. Further, leverage came down considerably and will continue to do so as we execute our strategy.

I now hand over to John to have a closer look at our end markets in North America.

Thank you, Oliver. After a fairly challenging demand environment in 2025, we now expect a decent recovery in 2026 with North American real steel demand increasing by 1% to 2% compared to the prior year. Of course, there remains significant uncertainty related to the current conflict in the Middle East and continued unpredictable trade policy that can impact the outlook. Also critical for North America will be a positive outcome to the USMCA review, which is now underway. This would provide more clarity for all participants within the metal supply chain and may help kickstart many investments that are currently on hold, giving a potential boost to steel demand starting at some point in the second half of 2026.

Now looking at the expected development in specific market segments. Construction activity is expected to recover with total building starts expected to improve between 1.5% and 2% in 2026. This is after both residential and nonresidential square footage contracted by approximately 3% in 2025. Lower mortgage rates could provide further upside on residential. Nonbuilding and infrastructure investments should continue to grow in 2026, albeit more moderately than they did last year, which saw these segments surge by more than 15%. Data centers as well as power and utilities should continue to lead the way for the next several years.

Manufacturing activity, as indicated by the ISM Manufacturing Index has expanded during the first 2 months of 2026. This is a very positive development considering this index indicated contraction for almost all of 2025. In line with this indication, after 2 consecutive years of negative growth, we now expect overall new orders for industrial and off-highway equipment to increase between 2% and 3% in 2026 with some variation depending on the specific segment. I would also note that current forecasts from critical large OEM customers are indicating even stronger growth rates heading into the second quarter of 2026. Trade policy clarity and lower interest rates could help these key steel consuming segments regain even more positive momentum as the year develops.

Turning to Transportation. The Automotive segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. This resulted in auto production declining by approximately 1% in 2025. For 2026, current forecasts indicate flat to slightly lower production in North America with Mexico recovering slightly and the U.S. potentially contracting modestly. On the defense shipbuilding front, activity remains positive and Klöckner's current defense programs are set to grow strongly with multiple large program 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 significant increase in defense shipbuilding investments over the next decade.

Demand from appliance, HVAC and electrical, which are all key segments for KMC Americas were flat to down in 2025 as many companies work to reduce inventories and rebalance supply chains, especially over the second half of the year. The situation for 2026 is now expected to be fairly stable with production at key OEM customers normalizing at more consistent levels by the second quarter. Improving conditions in residential construction could provide some additional momentum in the second half of the year as well.

Energy continued to be the strongest steel consuming segment in 2025, and this trend should continue in the current year. Power transmission growth will remain extremely strong in 2026, increasing by over 15% year-over-year after achieving a similar result in 2025. Modernizing and expanding the North American transmission infrastructure is imperative in order to support the significant forecasted increase in demand for electricity across North America. This is especially critical for data center investments. While renewable growth rates have come under pressure due to recent changes in government policy, we are still expecting modest growth again in 2026 of between 1% and 2%.

So with that, I'll quickly summarize the North American outlook as follows. While risks and uncertainty remain, we are firmly optimistic when it comes to both steel demand and price -- market price fundamentals in 2026. Market cycles are setting up somewhat more favorably than the past 2 years. And as previously mentioned, a positive outcome on the USMCA review would provide some much needed clarity and further upside potential for North American steel demand.

With that, I turn it back over to Guido to provide an update on Europe.

Thank you, John. In total, we expect real steel demand in Europe to increase by 1% to 2% in '26 compared to the previous year. However, it's too early to assess the economic consequences of the escalating war in Iran. Disruptions to trade and surging energy prices could add to global uncertainty with adverse effects to our key customer industries.

Coming now to our sectors, starting with the construction industry. Overall, we expect the construction industry to have a slightly positive development in '26. Activity in the sector will be supported by elevated infrastructure spending while structural drivers such as pent-up demand also remain in place.

Let's continue with manufacturing, machinery and mechanical engineering. Mechanical engineering is expected to grow slightly in '26, also supported by increased German infrastructure and defense spending. However, capacity limits, labor shortages, trade policy uncertainties and rising Asian competition will prevent a faster recovery. In the defense sector, we're seeing a surge in demand that considerably outpaces previous year's demand growth. We continue to benefit and capitalize from our active positioning in the sector by leveraging our capabilities and also our financial strength, providing a clear advantage over smaller competitors.

Transportation -- let's first focus on automotive. The industry association expects a slight increase in '26, though absolute volumes will remain far below 2019 levels. Demand is expected to remain on rather low levels for as long as there is no significant improvement in the broader economic outlook, including global trade and consumer sentiment.

Now shipbuilding. While the commercial segment in shipbuilding could face increased pressure due to economic uncertainty, we're well positioned in the gray ship sector to benefit from upcoming demand. Household and commercial appliances, a segment with marginal impact on our European business is expected to develop on a constant level in '26 as the EU-U.S. trade deal is expected to reduce uncertainty marginally. However, customer demand remains rather subdued and will restrain activity in the sector.

Energy industry. The energy industry is expected to grow slightly, supported by ongoing electrification of transport and heating, which will provide structural support to electricity demand over the medium to long term.

Let's now come to the financial outlook for the first quarter of this year and the full year '26. As John and I pointed out, we expect the macroeconomic environment to remain challenging, especially in Europe, for the current quarter, we expect a considerable increase of shipments and sales each quarter-over-quarter. EBITDA before material special effects in Q1 is expected to come in between EUR 20 million and EUR 60 million. For the full year '26, we forecast shipments and sales to develop on a constant level year-over-year. As you know, we closed the divestment of 8 U.S. distribution sites at the end of last year. We are therefore forecasting a constant development for the full year '26 without these locations. Consequently, sales are also expected to come in at a constant level. In total, we expect a strong EBITDA before material special effects in the full year '26 and a considerable increase year-over-year. Moreover, we also expect operating cash flow to come in significantly positive above full year '25 figures.

We're now happy to answer your questions.

[Operator Instructions] The first question comes from Boris Bourdet, Kepler Cheuvreux.

Can you hear me?

Yes, we can hear you.

Perfect. So the question would be maybe the first one on Iran. I've noticed that you consider it's a bit early to assess, but I would be interested in getting your thoughts on the potential impact on your clients and on your side, if any. That would be the first question. And then regarding the outlook. So you're building an outlook with volumes and sales pretty flat. So I was wondering how much of that is linked to the deconsolidation of your distribution sites? And what would be the underlying assumption? And regarding prices, obviously, U.S. prices have been moving up quite substantially as well as the European prices. So what could we expect as a positive -- we've seen that prices have been a positive contributor, a tailwind of EUR 89 million in '25 versus '24. So what would be the bridge on current prices for '26? And maybe a last one on Europe. Do you see -- you have elaborated on your expectations, but do you see early signs of rebound in demand with the CBAM and the coming new TRQ.

Yes. Well, let me start with Iran. As you know, we are largely supplying and I will start with the direct effect of us locally. So therefore, our direct impact that our supply chains will be affected, we don't foresee anything there. So we can continue. And I think within the steel supply chain overall for our suppliers, we don't foresee anything. Whether there will be any impact on our clients remains to be seen. And I think it's rather a question of how long the conflict will remain and the straight of will be closed. If not and oil prices will recover and customer demand will not that much be affected, that would be the ideal case. If it takes longer and uncertainties prevail, that could impact us. But so far, we don't see it and directly, there will be no impact.

Now outlook, the flat -- the 8 sites, I mean, it was distribution business. Therefore, that was the 8 sites that was quite some revenue and some shipments that were affected. That's why in total, indeed, our guidance clearly is an increase that rather be above the 1.2% you see that we see in the market. And our current performance we've seen in Jan and February prove that. So that doesn't look too bad. The prices in the EU and in the U.S. lately as well are supportive of all that development and the increase in the demand that we see.

Now how the second half will turn out, John has talked about USMCA, we have the Iran conflict. It's all a bit too early to really say how the second half will look like. That remains to be seen. But otherwise, underlying, I think we're more positive than we have been a quarter or 2 ago. So what we see is order intake and development of the business is organically better than last year structurally.

And the projects which we are ramping up right now in the U.S., like Brandenburg, Mexico...

They will be supporting in CBAM. And as you rightly mentioned, these things will help that especially here in Europe, we have continued support from that side that this might continue and we might have seen the trough now and see an increasing recovery. And not coming back to 2019 levels, but still recovery.

I would only add on the pricing front, with the divestment of the distribution sites, our portfolio is much more contractual in nature than it was previously. And I think that's somewhat -- it doesn't eliminate exposure to market price volatility, but it certainly mitigates it to a fair degree. So I think the current pricing environment is quite positive for our contract business into the second quarter and likely into the third quarter.

Okay. And may I ask another one. I don't know whether there are other people in the queue or not. Otherwise, I would -- just looking at the consensus because you provide guidance for the qualitative guidance in terms of you expect a considerable growth, which in your means more than 5%. So that lets a lot of options open. Consensus is currently at EUR 233 million. Are you comfortable with that level?

We would have to state that.

[Operator Instructions] There seems to be no further question at this time. So I hand back to Guido for some final remarks.

Yes. Thank you very much. And if there are additional questions that will come up, just don't hesitate to contact Fabian and his team. We're available for that. And thank you very much, and talk to you next time.

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. [Operator Instructions] With that, I'd like to hand over to you, Guido.

Yes. Thank you, and welcome to our Q3 '25 conference call. Looking back at a quarter characterized by a persistently challenging market environment and decreasing steel prices in the U.S. 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 1,440 tonnes, showing a slight year-over-year improvement. This development was mainly driven by the continued positive performance of our segment Kloeckner Metals in Americas but still supported by shipments in our segment Kloeckner Metals 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 '24. 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 Kloeckner Metals 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 Kloeckner Metals 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. So Q2 was comparatively a bit overstated and Q3 is weaker. So, you should look at the quarters rather together than just look on Q3. And 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 '25 by segment. Now segment Kloeckner Metals 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 the third quarter and would be even stronger if we excluded shipments from our divested Brazilian entity in Q3 '24.

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 repeats in Q2 and remain volatile. EBITDA before material special effects came in at $44 million in Q3, which is a considerable increase compared to last year's quarter.

In our segment Kloeckner Metals Europe, shipments came in slightly increased sales slightly down compared to previous year's quarter. For the first time since '23, our Kloeckner Metals 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 U.S., but even to see in Europe. We're on a better track and again, 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 Kloeckner Metals Americas. United States, we announced divestments of 8 distribution sites of Kloeckner Metals, 7 of which we intend to sell to Russell Metals and 1 to Service Steel Warehouse. For the 7 sites intended to be sold to Russell, we agreed on a purchase price of approximately USD 119 million based on a net working capital as of June 30, '25, 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.

We've mutually agreed not to disclose details of the sale of Service Steel warehouse. The fact that we are able to sell business at a premium that are on group level on the lower end of profitability demonstrates the underlying value of our assets. In the fiscal years '23 and '24, the 7 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.

Segment Kloeckner Metals 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 Ambu 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 8 U.S. distribution sites. Following recent successes, the U.S. divestments marked the next step in our transformation to the leading service center company in metals process 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, Sol Components and Amerinox 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 U.S. Sol Components is a U.S. market leader in integrated structural solutions for solar installations. The acquisition positions Kloeckner Metals to play a bigger role in North America's transition towards renewable energy. Further, we extended our service portfolio with Amerinox and polishing and high-drose 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 our FTEs.

Our latest achievement on our way was the aforementioned divestment of the 8 sites in the U.S., with which we focus on selling distribution sites with a low EBITDA contribution throughout the cycle. Our portfolio optimization is complemented by organic initiatives. Targeted investments, we have developed selected sites from sole focus on distribution to high-quality processing and metal working. Our strategic shift towards higher value-added and service center business is clearly reflected in the numbers. 2019, 63% of our sales came from these businesses. And as of the first 9 months of '25, the share has increased to 81%, a significant increase of 18 percentage points. If we exclude the sites in the U.S. 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 U.S. 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 coal prices in the U.S. 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 will have 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 9 months of '25, 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 IFRS 5, positions linked to the planned sale of 8 distribution sites in the U.S., amounting to EUR 68 million, are already excluded. The temporary high net working capital, especially in the segment Kloeckner Metals Americas, is the main driver for our negative OCF of EUR 118 million in the third quarter of '25. Nevertheless, we expect a significantly positive operating cash flow for the full year '25, driven by a strong cash flow in quarter 4 of this year. As part of our operational excellence pillar within the Klöckner & Co, leveraging strength Step 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 9 months of '25.

Let's take a look at our shipment sales, gross profit, and gross profit margin for the third quarter of '25. Shipments came in slightly above previous year's quarter, mainly driven by our segment Kloeckner Metals 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 3. Gross profit came in at EUR 295 million in quarter 3 after EUR 262 million in quarter 3 2024, a considerable increase year-over-year. Also, gross profit margin increased considerably year-over-year from 15.9% to 18.3%. We will now turn to the EBITDA development in quarter 3. 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 U.S. dollar, which impacted the translation of earnings from our U.S. 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 '25, 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 buildup is temporary and will reverse in quarter 4. 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 3. 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 1.03 billion in quarter 3. 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 25, 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 '25, which will be further supported by the proceeds from the sale of the 8 U.S. distribution sites, leading to a reduction in net debt.

I'll 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 U.S. economy is forecasted to have expanded again in the third quarter of 2025, but the forward outlook remains somewhat uncertain and difficult to assess. Stubborn inflation, weak consumer confidence in 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 8 consecutive months.

As such, demand for metals in both the U.S. and Mexico has been constrained over the first 9 months of 2025, and this is likely to persist through the end of the year. This is evidenced by the latest industry benchmark 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 better align 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 nonresidential building square footage are forecasted to be generally stable to slightly down in 2025. However, nonbuilding investment and infrastructure are forecasted 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 by lower mortgage rates.

Manufacturing activity continues to be under pressure, as previously mentioned. We expect the situation near 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 and is now expected to be down by approximately 1% year-over-year in both the U.S. and Mexico. Auto sales have been fairly resilient, so we expect positive growth in production to return once automakers can adjust tariff-impacted 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's current defense programs 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 Americas business generated record 3-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 prebuild of inventory in the late second quarter. This caused a temporary increase in third-quarter accounts payable and receivable, which 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 are planned. This positive development will generate a strongly positive operating cash flow in both 4Q and the full year, as previously mentioned.

So, in conclusion, despite recent market challenges, we remain very optimistic about the long-term demand fundamentals in both the U.S. 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 don't see a significant change in expected wheel steel demand in Europe. Therefore, we reiterate stable to slightly negative development of around minus 1% in '25, which is unchanged from our last conference call. However, if we take a look -- a slight look into '26 and the sentiment and outlook there, based on the slight improvements we've 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 doesn't continue to be as negative as we've seen. So it might be that we've 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 quarter. Approval from the European Parliament and EU member states is still pending, but let's continue, therefore, with an outlook on our core industries, but the price hikes that are coming out of that and the stabilization of the tariffs should help on the market to develop a bit better going forward as well.

And now coming to the sectors, starting with construction industry. We continue to expect a broadly stable development into '25, consistent with the outlook provided on 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 mid-term growth. Manufacturing, machinery and mechanical engineering continue to expect a slightly negative sector outlook for '25, which is consistent with the Q2 call, reflecting market 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 automotive sector, where we also see no major change since our last call. We continue to expect slightly negative development in '25 uncertainty remains elevated and consumer confidence at low levels. The export ban on the next period ships from China pose a threat to supply chain with the potential for short-term production costs and rising input costs in the automotive sector, downside risk 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 great ship sector, we are well-positioned to benefit from upcoming defense-related demand, but no notable uptick is expected before late '26, and 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 '25 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 '25. We still expect EBITDA before material 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 are 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.

[Operator Instructions] There's no questions. So, I will then give to it Guido for final remarks.

Yes. Thank you all for listening. It obviously looks like we've answered everything in advance. But in case it is not, don't hesitate to call us or Fabian and the whole IR team. So, thank you very much, and talk to you soon.

All right. So I would suggest to get started. Hello, everyone. This is Fabian Joseph from Investor Relations. Also on behalf of my entire team, I wish you a warm welcome to our Q2 2025 conference call. With 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 are happy to take your questions then.

With that, I'd like to hand over to you, Guido.

Yes. Thanks, Fabien, and welcome to our Q2 '25 conference call. And it looks like technically this time, it works compared to the last call. Before we dive into the highlights of the quarter, let me briefly emphasize the environment we faced and in which we showed a solid performance.

The second quarter continued to be shaped by a persistently challenging market environment. The general market environment was characterized by a high degree of economic uncertainty in light of ongoing geopolitical tensions and partly unresolved global trade disputes. This also affects the demand in our core customer industries. Despite the aforementioned development, we posted a solid operating performance in the second quarter. I will now begin with the financial highlights of the quarter.

Shipments came in at 1,164,000 tons and therefore, remained at a constant level year-over-year and quarter-over-quarter. Given the current environment, this is clearly a strong signal, and it's driven by continued positive development in the segment Kloeckner Metals Americas, while our segment Kloeckner Metals Europe experienced a continued challenging macroeconomic environment with a decline in shipments. We'll take a closer look at our segments later.

Sales came in at EUR1.6 billion, considerable year-over-year decrease despite stable shipments. This is clearly due to the year-over-year lower average price level. However, steel prices in the U.S. saw a broad recovery compared to year-end '24 levels due to implemented tariffs. We achieved a considerable year-over-year increase in gross profit, and that's really an important step forward. This gross profit margin also improved compared to the previous year. So the underlying margin mix despite the challenging environment was good. EBITDA before material special effects, therefore, came in at EUR65 million, considerable increase both year-over-year and quarter-over-quarter. This increase was driven by our segment Kloeckner Metals Americas. Despite a challenging market environment, we generated a positive operating cash flow in the second quarter of EUR75 million, a considerable increase year-over-year as well. Net financial debt increased compared to the level of Q2 '24 and Q1 '25. However, it has already decreased considerably quarter-over-quarter after a seasonal buildup at the beginning of the year.

Let's now have a look at our performance in Q2 '25 by segment. Now segment Kloeckner North America shipments increased slightly year-over-year in Q2 '25. The development would have even been stronger if we excluded shipments from our divested Brazilian entity in Q2 '24. In total, we reached a new record level, a clear proof that our growth strategy is working. The shipments increase was achieved despite the according to local Steel Association's overall negative development in the North American market. This development clearly demonstrates our ability to outperform competitors and gain market share. However, due to the lower average price level sales in Q2 came in considerably below the previous year's quarter. At the same time, prices have increased significantly compared to year-end '24, primarily driven by the imposed tariffs. EBITDA before material special effects came in at EUR 66 million in Q2, more than doubling the result of the first quarter.

In our segment, Kloeckner Metals Europe, shipments were considerably below the previous year's quarter and sales were slightly below the previous year's quarter, driven by persistently weak demand and increased economic uncertainty stemming from both announced and implemented U.S. tariffs, which weighted on our core industries.

Our German service center business was particularly affected by lower-than-expected offtake from the automotive industry, while customers from our other industries partly offset the weakness in the automotive, contrary to the overall market trend. Consequently, EBITDA before material special effects in our segment Kloeckner Kloeckner Metals Europe came in negative at EUR 2 million in Q2. However, it improved considerably quarter-over-quarter and month by month towards the end of the second quarter, we were better than in the beginning.

Now let's have a look at our strategic progress in the recent months. We continue to further expand our higher value-added business through targeted investments in both of our regions. First, let's have a look at North America. In response to the rapidly growing demand for transformer cores and electrical steel slip coil, we've made a significant investment in the Monterrey area of Mexico. Electrical steel plays a critical role in enabling efficient energy transfer, especially in transformers, which are the heart of electrification and energy infrastructure. This investment directly supports key growth markets, particularly electric grid infrastructure, renewable energy and data centers, areas facing a substantial demand overhang and substantial order backlog.

We've constructed a new state-of-the-art fabrication and service center that expands our cold-rolled grain-oriented processing capabilities. The facility includes advanced slitting and transformer core fabrication lines, enabling us to significantly scale production. We're on track to have this new center fully operational in Q3, positioning us to serve the North American market even better. Now let's take a closer look at our strategic progress in Europe.

In our German organization, we've continued to strengthen our operational positioning. We installed a new press brake that enables autonomous bending of flame and laser cut parts. The integration of Ambo Stahl is fully on track and enables us to capitalize on increased defense spending, enhancing our strategic position within the supply chain and strengthening our role as supplier of the defense industry.

In Switzerland, we did a small-sized acquisition, Simfloc, a specialist in pre-wall installation, [indiscernible] flocculation located in town. This acquisition extends our building installation value chain, enhancing our service offering in the Swiss market. It also establishes us as the country's leading one-stop shop for prefabrication, providing an end-to-end solution from planning to modeling to production and installation.

With that, I'd like to hand over to Oliver for a closer look at the financials. There's connection issues. I continue. I already mentioned the environment we're faced with. So steel prices were subject to considerable volatility as shown in the upper part of the slide. In the U.S., hot-rolled coal prices increased significantly after the end of the year, partly driven by announced and implemented tariffs and fell slightly in the second quarter. Also, the European market faced headwinds of declining demand and generally weaker price dynamics.

Regarding EBITDA before material special effects, we achieved a considerable increase year-over-year and quarter-over-quarter. In total, we generated EUR 65 million in the second quarter. In the first half of '25, EBITDA before material special effects came in at EUR 107 million, which also represents a considerable increase year-over-year. Our strategy execution is fully on track, and we are continuously improving our underlying profitability.

Despite the continued challenging market environment, we achieved a positive cash flow from operating activities of EUR 75 million in Q2. Our digitalization and automation initiatives remain part of the strategic pillar operational excellence in our strategy. Hence, we continue to leverage our digitalization and automation initiatives. We're able to increase the number of digital quotes by 5.4% year-over-year in the first half of the year.

Let's now take a look at our shipment sales, gross profit and gross profit margin of the second quarter. Shipments developed constantly compared to the level of the previous quarter. This development is driven by the continued positive development of our segment Kloeckner Metals Americas, while our segment Kloeckner Metals Europe continued to face a challenging environment, negatively affecting demand. Sales decreased considerably year-over-year due to the overall lower average price level and came in at EUR 1.6 billion in Q2. Gross profit, though, came in at EUR 320 million in Q2 after EUR 294 million in Q2 '24, a considerable increase and margin increased considerably year-over-year from 16.6% to 19.5%. So despite the weak environment we're facing, our shift towards more value-add and higher-margin business is clearly visible. And this is true for both regions, North America and Europe. So the underlying margin is improving, which shows that our strategy is clearly paying off even in this difficult environment.

We'll now focus on the EBITDA for Q2 '25. EBITDA before material special effects came in at EUR 65 million. There was no volume effect year-over-year as shipment volumes remained stable. However, we did benefit from a positive price effect of EUR 34 million compared to the same quarter last year, which contributed significantly to the result. Here you see again that the positive margin effect pays off.

OpEx were EUR 8 million higher year-over-year, mainly due to higher personnel and shipment expenses. We also faced negative ForEx effects of EUR 3 million, primarily driven by the weaker U.S. dollar, which impacted the translation of earnings from our U.S. operations.

Finally, material special effects were mainly related to restructuring expenses. We're now coming to cash flow and net debt development. Second quarter of '25 with a net working capital release of EUR 43 million. Taking into consideration interest tax payments and other items totaling EUR 31 million, our cash inflow from operating activities came in positive at EUR 75 million in Q2. Including CapEx of EUR 31 million, free cash flow was positive at EUR 44 million.

Let's take a look at our net financial debt. Positive effects were visible to ForEx translation mainly due to the aforementioned weaker U.S. dollar, while negative effects were visible for leasing and the dividend for our shareholders. Consequently, our net debt increased considerably from EUR914 million -- decreased considerably, sorry, from EUR914 million at the end of the first quarter to EUR870 million. Moreover, leverage came down considerably quarter-over-quarter and continue to do so as we execute our Kloeckner & Co leveraging strength Step Up 2030 strategy.

I now hand over to John to have a closer look at our end markets in North America.

Thank you, Guido. Let me start with a general overview of the market situation in North America. The U.S. economic outlook remains quite uncertain and difficult to assess or predict, and GDP is showing significant volatility over the first half. This is primarily due to major swings in net imports resulting from rapid changes in trade policy. Consumer spending and fixed investment contributed to growth in both quarters, which is a positive and important development. However, overall momentum does appear to be slowing. And while a recession looks to be avoidable, risks remain high and overall growth is likely to remain constrained at levels well below the economy's potential. As such, demand for metals in both the U.S. and Mexico have faced headwinds over the first half of 2025, and this is likely to persist through the second half of the year.

This is evidenced by, as Guido mentioned, an approximate 2% decline in year-over-year service center first half shipments as indicated by industry -- leading industry benchmarking data. Slowing economic growth, higher for longer interest rates, stubborn inflation and trade policy uncertainty are all combining to constrain business investment and consumer confidence. As a result, we now expect demand for metals in North America to be generally flat year-over-year with more downside risk than upside potential, at least in the short term.

As noted earlier as well, despite this challenging demand environment, metal prices are actually significantly higher versus the start of the year across all major product lines. This positive development is primarily due to the reimplementation and then expansion of Section 232 steel and aluminum tariffs. Prices have remained range bound for the past 6 to 8 weeks and could potentially move higher later in the year when the full impact of expected lower import volumes begins to reduce available supply.

Now looking at expected development in the specific market segments. Construction activity is moderating and both residential and nonresidential building square footage is forecasted to be flat in 2025. Nonbuilding investment in infrastructure are forecasted to grow strongly and will continue to provide a partial offset to the slowing growth trends in the building sectors. All segments are expected to return to a more positive growth trajectory heading into 2026.

Manufacturing activity continues to be under pressure with the ISM index in negative growth territory for the past 5 months. We expect the challenging situation in manufacturing to persist in the near term. New orders for industrial and off-highway equipment continue to be under pressure and are expected to be down significantly in 2025. Demand from these key segments has been severely constrained since summer of 2024 as OEMs curtailed production to rebalance supply chain inventories. With that said, third quarter 2025 OEM forecasts have actually been trending higher, indicating that actual production may soon be better reflective of actual underlying demand. Trade policy clarity and lower interest rates should help these key steel consuming segments regain more positive momentum in 2026.

Turning to Transportation. This segment has been the most impacted by changing trade policy as well as the recent removal of EV tax credits. As a result, North American production has been declining and is now expected to be down year-over-year. Auto sales have been fairly resilient, so we do 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 Kloeckner’s current defense program set to grow strongly with large contract commitments already in hand through the year 2032. We are also working closely with key mill partners to position ourselves strategically to support and benefit from what is expected to be a significant increase in defense shipbuilding investments over the next decade. Thanks to resilient consumer spending and stable building construction trends, appliance, HVAC and electrical demand have held steady and are expected to deliver flat to slightly positive year-over-year growth, while also noting that 2024 was a very strong year for these industry segments, meaning that despite limited growth expectations for 2025, demand remains quite strong in absolute terms.

Energy continues to be the most active steel-consuming segment with highly 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 appears that power transmission growth will be unrelenting and should be up approximately 35% in 2025.

Modernizing and expanding the North American transmission infrastructure is critical to support the expected massive demand increase for electricity across North America, especially in support of data centers. The strategic electrical steel expansion that Guido referred to earlier appears well timed and optimally positioned to benefit from these positive trends.

So I'll end with a few comments and observations and also to reemphasize some of Guido's earlier comments. Despite short-term market demand headwinds and declining service center shipments, the Kloeckner Americas business, excluding the discontinued Brazilian operations, continues to outperform by generating record shipping levels in Q2 2025, continuing to gain impressive market share and achieving a remarkable 35-plus percent increase in year-over-year first half EBITDA.

These extremely positive and resilient results are clear proof that our transformative [ HVA-B ] investment strategy is working and delivering strong financial returns. We are highly confident these positive trends will continue in the second half of 2025 and even further accelerate as we head into 2026 as already approved investments come online and begin contributing in a meaningful way.

Finally, we remain extremely optimistic about the long-term demand fundamentals in both the U.S. and Mexico and are committed to strategically positioning our North American business to take advantage of the significant growth opportunities that should develop as trade policy stabilizes, reshoring trends continue, manufacturing activity recovers and steel demand begins expanding once again in the not-too-distant future.

So with that, I'll turn it back over to Guido for an update on Europe.

Thanks, Tom. By avoiding a trade war between the U.S. and the EU, overall uncertainty has been reduced. Still, the adverse effects of tariffs impacted and will impact our European end markets to a certain degree. Overall, we expect wheel steel demand in Europe to remain stable to slightly negative at around minus 1% in '25. This represents a downward revision compared to our last conference call in '25, primarily due to the aforementioned adverse effects on tariffs and overall economic uncertainty.

Starting with the construction industry, we now expect a broadly stable development in '25, whereas we anticipated a slightly positive development at the beginning of the year. The impact of recent rate cuts has yet to be fully seen in the market, which was also affected by the overall weaker economic development. However, structural drivers remain intact, underpinned by German infrastructure spending, providing midterm growth, and there's still a big need for residential buildings to be constructed.

Manufacturing machinery and mechanical engineering, a sector where we now also see a slightly weaker outlook than anticipated at the time of our last call. We now expect a slight decline in '25. sectors negatively affected by implemented tariffs, especially in Germany, where the industry is more export-oriented. However, Germany's fiscal stimulus package should provide strong growth for defense in the coming years. With the integration of Ambo Stahl fully on track, we position ourselves to benefit. And once again, as you've seen in the -- as I already mentioned in my comments to the service center business in Europe, we could grow in this segment our German operations coming from a weaker '24. So it seems there we're back on track to win again.

Transportation, let's first focus on automotive sector where we see no major change since last call. U.S. tariffs on automotive imports continue to create headwinds, especially for German auto exporters, even though the now decided level is less than previously discussed. But again, here, some customers and some talks we're currently leading indicate that there might be some increases in certain models and in certain demands for the second half remains to be seen how it comes through. So uncertainty is still there, the overall market is slightly negative.

Now coming to shipbuilding. While the commercial segment in shipbuilding may get more under pressure due to increased economic uncertainty, we're well positioned in the gray ship sector to benefit from upcoming demand in defense. Household and commercial appliances segment with marginal impact on our European business, we expect, nevertheless, an output to contract in '25 due to weak demand, trade pressures and policy uncertainty.

Energy industry growth is expected to remain constant in '25, reflecting subdued utility demand and weak economic momentum. However, long-term demand remains supported by the electrification of transport and heating.

Now let's come to an outlook. the financial outlook for the third quarter '25 and the full year. For Q3, despite the aforementioned challenging market environment, we expect a considerable increase in shipments and sales compared to the previous year. EBITDA before material special effect is expected to come in between EUR 40 million and EUR80 million, also a considerable increase year-over-year. Looking at the full year '25, we now expect a slight increase in both shipments and sales compared to the previous year, which represents a downward revision from our earlier forecast. As a result, EBITDA before material special effects for full year '25 is expected to come in between EUR 170 million and EUR240 million, considerable increase year-over-year. Further, we expect operating cash flow to come in significantly positive on the strong level of '24. We're now happy to answer your questions.

So I can see the first question from Boris from Kepler Cheuvreux.

Can you hear me?

Yes, we can hear you.

Perfect. I have 2 questions. The first is on the guidance. If we add up the nonrecurrence of the negative windfall impact last year, which was around EUR 100 million from the starting base, we arrived at EUR 230 million something. The midpoint of your guidance today points to a bit more than EUR 200 million. So I would be interested to know which elements of caution there is in the guidance and which are the main reasons for being more cautious? That's the first question. And the second is on free cash flow for the full year. Do you expect a positive free cash flow for the full year?

Yes. Boris, let me start with the guidance. Your calculation is correct, the EUR 136 million plus EUR 100 million, especially what we see now in Europe that prices have been declining and the price effects are not positive supporting. So the calculation how the year-end, given all the uncertainties that we currently see will be and where our windfall will be for the full year is unclear. And as we don't see on the volume side, it's too early in the year, still summer break. So there are mixed signals, as I try to guide you is we do have some customers that announced and clearly give us a signal that the second half in Europe, especially will be stronger than the first. We haven't seen it come through as still summer break is there.

So there are in this quite a bit more open points to see how the second quarter will be -- the second half will be. So that currently, there is a broader range we have to provide for. And if the trends continue and you see most of the announcement, negative expectation from European companies for the second half, then volume and price-wise, we might have some impact so that we can't realize the EUR136 million plus EUR 100 million as you indicated, and that's what we try to reflect in the guidance. But I think with the third quarter, we will see how finally, especially in Europe, it will turn out.

And Europe and U.S., as Tom outlined, is given all the uncertainties we had and the gambling around the tariffs is short term a bit weaker on the demand as uncertainty is a natural growth. But now that most of the deals, especially on the tariff side have been done, I think companies can settle, but it remains to be seen when these effects will finally come through. And I fully agree to what John said. The midterm outlook is positive, and there are positive effects, not strongly positive in the U.S., but even in Europe, some positive signals, but the question is when will they come through and we needed to reflect that. And that's why the range is broader than we would like to have it.

Free cash flow for the full year, yes, we expect it to be positive.

Okay. And just on the windfall, you mentioned the declining prices in Europe, but American prices are still up year-on-year. So how much of the windfall last year was linked to Europe and how much was linked to the Americas?

Kind of -- yes, I'd say 80-20.

So the next question comes from Lars Vom Cleff, Deutsche Bank.

I mean both of you for Europe and the U.S., you mentioned increasing defense spend and that you intend to profit from that. The background, I would be interested in finding out how much revenue you are already today generating with this customer sector and whether you can already give us any hint or how much you expect that to grow?

Well, on the defense spend, it's clearly going to increase, but it's not going to be there very short term and won't make such a big difference for the second half. Our numbers, especially in Europe, are still rather lower. I mean the Ambo Stahl acquisition we made is contributing, but it's one-digit item overall million revenues that we do there. We're working on the applications that we're ready once the pickup is there, we can do it. We are in the ship industry, in the gray ship industry, we have been active and we're growing in that one in the northern part of Germany. And as John outlined in the shipbuilding, he's active as well, where steel is clearly an important factor. But it's not huge numbers. So there is quite some upside potential for us. Maybe, John, you'd like to add.

Yes, yes. Obviously, we have the new investment in Brandenburg, Kentucky. That's certainly part of the strategy that we have is that that's going to help target defense type of opportunities. We're also looking at additional opportunities in the Gulf region, we'll have some investment concepts that we'll be pushing through. We really think that on the defense side, we could easily double and likely triple our current position.

Okay. And then regarding the German infrastructure package in general, I mean, many of your customer sectors will and should benefit from that. Is that something you can already see materializing in your P&L in '26? Or internally, are you rather planning for '27 to see that materially being beneficial for your P&L?

No, no, Lars. It's going to start in '26, but the pickup will take longer. So it's going to lead into '27 and will be higher in '27. But I clearly see it '26 already coming through.

Okay. And then the last one, if I may. U.S. tariffs, I know we have a deal, we don't have a deal, difficult. In the U.S., you're, of course, benefiting from higher steel prices. driven by the tariffs. With regards to your Mexican business and Metals Mexico, if I remember correctly, you said you would rather be indirectly impacted by that because your customers might then think about shifting capacity to the U.S. out of Mexico. Is that still the case? Or are you expecting any additional negative effects that we so far haven't talked about?

Let me start and you can add on the Mexican and U.S. But no, I think that especially now for Europe that we have the 15% and we have certainty, people can now settle and see what it means and how to deal with it. Again, our setup overall, be it in Europe or be it in North America, is vocal for local. So direct impact in our case are smaller. Now the indirect effects, we will see how strongly the 15% will affect exports from Germany into the U.S. They will, but maybe not to a degree that many have expected. On the part, Mexico and U.S., there's uncertainty in the consumer spend is there. USMCA, we have to see how that turns out. But there is still a big cost advantage of producing in Mexico and there's availability of people. And for example, in the electrical steel business, that's where we are. And in the U.S., you don't find these capabilities. But John, you may add to that.

Yes. We've certainly -- there was a risk of some indirect impacts where demand could be curtailed because of tariffs. We have yet to see that. And frankly, forecasts have been very consistent. I would say if there's been any impact, it's probably the rate of growth that we are expecting has probably slowed or come to a temporary halt, pending hopefully, a trade deal with Mexico and then ultimately a renewal and reset of the USMCA. But at this point, we don't see any indication of a negative impact on demand and our business has remained very, very stable, and we expect it to remain so and in fact, grow because of some of the new business that we've been able to obtain, and that will be ramping up in the second half of the year. So I think net-net, we'll still be growing in Mexico despite what is pretty much a flat situation right now.

And maybe to add is we're clearly not in Canada. So all the frictions between the United States and Canada are not affecting us.

[Operator Instructions] From me an e-mail as he's not able to attend the call. So I will read out the question on behalf of Thomas Schor. The business in Europe remains loss-making for the time being, even negative at the EBITDA level. What are your concrete expectations from the planned infrastructure spending and defense investments in Germany in the medium term? Are there any considerations to potentially adjust the portfolio in order to sustainably improve profitability?

First of all, I think for the mid and the longer term, the infrastructure and the defense, as we already outlined in the Q&A here, will be positive for us. I mean, given the current market environment we're seeing in Europe, which is really contracting and people are very cautious and demand is going down, auto production 20% down compared to pre-COVID levels. One clearly has to see that our strategic measures and initiatives to improve our European business show traction. You've seen quarter-over-quarter that our negative EBITDA improved, margin improved. And as I outlined, we saw in automotive and in industry, we do our forecast internally for the year growing volumes, which shows that we're back on track that we're working on the higher value businesses outside the service center business, we seem to be slightly growing in our market share again in a contracting market.

And in the KMG, the German market, with a higher value-add focus, we're losing volumes, but the margin level and the market mix is improving. And therefore, I think we're on the right track to continue that path forward to reduce losses and make our business in Europe self-funding and sustainable again. And I think we just need to continue. Unfortunately, the market environment and the volume and the margin shrinkage overall is not supportive, but step by step and month by month, we are improving in our performance.

The second question was regarding guidance, but I believe that was already answered. So I do not see any further questions. So I give to Guido for final remarks.

Yes. Thank you very much for attending the call. This time, it worked technically. So let's cross our fingers and see that we can continue with the new supply here. And if you have any other additional questions, just reach out to us. We're available today and clearly always. Thank you very much. Thank you. Bye.