Release Date: August 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Swiss Steel Holding AG (XSWX:STLN) achieved a positive free cash flow of EUR 85 million for the full year 2023, compared to a negative EUR 54 million in 2022, primarily due to successful inventory reduction initiatives.

• The company has initiated a comprehensive restructuring program, SSG 2025, aimed at restoring a competitive cost structure and ensuring operational excellence.

• Swiss Steel Holding AG (XSWX:STLN) plans a capital increase of EUR 300 million, fully backstopped by its major shareholder, BigPoint Holding, to strengthen its financial position.

• The company is Europe's largest electric arc steel producer, giving it a competitive advantage in producing low-emission steel, which is crucial for global decarbonization efforts.

• Swiss Steel Holding AG (XSWX:STLN) has successfully divested non-core assets, including seven distribution entities in Eastern Europe, to focus on core activities and reduce complexity.

Negative Points

• Swiss Steel Holding AG (XSWX:STLN) experienced a significant decline in sales volume, down 17% to 1,375 kilotons, due to weak market demand and economic slowdown.

• The company's revenue fell by almost 20% to EUR 3.244 billion for the full year 2023, with a more significant drop in the second half of the year.

• Swiss Steel Holding AG (XSWX:STLN) reported a negative adjusted EBITDA of EUR 41 million, EUR 176 million lower compared to 2022, due to weak markets and inventory valuation losses.

• The equity of Swiss Steel Holding AG (XSWX:STLN) decreased from EUR 531 million to EUR 234 million, resulting in an equity ratio of 12.1%, due to a negative net income of EUR 295 million.

• The company faced challenges in the automotive and mechanical engineering sectors, with reduced capital investments and a decrease in order backlog by 22%.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with XSWX:STLN.

Q: Can you provide an overview of Swiss Steel's financial performance in 2023? A: Frank Koch, CEO, explained that Swiss Steel faced a challenging year with weak market demand, particularly in mechanical and plant engineering and the automotive industry. This led to a decline in sales volume and revenue, resulting in a negative EBITDA. The company had to rely on reserves, significantly diminishing shareholders' equity. However, they managed to achieve a positive free cash flow by reducing net working capital.

Q: What were the main factors affecting sales volumes and revenue in 2023? A: Marco Portmann, CFO, noted that sales volumes declined by 17% due to economic slowdown and reduced capital investments, especially in mechanical engineering. The European automotive production remained below pre-pandemic levels. The average sales price dropped slightly, and revenue fell by almost 20% to EUR 3.244 billion, with significant inventory valuation losses due to declining input costs and market pressures.

Q: How did Swiss Steel manage its working capital and cash flow in 2023? A: Marco Portmann highlighted that net working capital decreased significantly from EUR 1.112 billion to EUR 826 million, mainly due to inventory reduction and lower trade accounts receivable. This led to a positive free cash flow of EUR 85 million, compared to a negative EUR 54 million in 2022, despite the losses incurred in the second half of the year.

Q: What strategic measures is Swiss Steel implementing to address its challenges? A: Frank Koch outlined three main challenges: strengthening liquidity and balance sheet, increasing resilience against economic downturns by rightsizing the portfolio, and improving cost structures and operational excellence. The company plans a capital increase of EUR 300 million, backed by BigPoint Holding, and has extended debt funding until September 2028.

Q: What is the outlook for Swiss Steel in 2024? A: Frank Koch stated that the main targets for 2024 include strengthening the group through a capital increase, participating in recovering markets, and continuing the SSG 2025 program. The company expects gradual improvement in earnings in the first half of 2024, with a stronger second half, and aims to capture market demand for green steel.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.