Kloeckner & Co SE

XETRA:KCO

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to today's Q1 2022 conference of Klockner & Co SE. For your information, this conference is being recorded.

At this time, I would like to turn the call over to your host today, Mr. Felix Schmitz. Please go ahead, sir.

[Felix Schmitz, executive]

Yes. Thanks, and welcome, everyone, to our Q1 call. With me today are our CEO, Guido Kerkhoff; our CFO, Oliver Falk; as well as our CEO Europe, Bernhard Weiß; and our CEO U.S., John Ganem. They will guide you through the presentation. We are looking forward to answer your questions thereafter.

With that, I would like to hand over to you, Guido.

[Guido Kerkhoff, executive]

Yes. Thanks, Felix, and welcome also from my side to our Q1 call. Let's directly jump into the highlights of this quarter, again, a set of very strong results.

Shipments were slightly down year-on-year, also due to our strict margin over volume strategy. We could have been clearly positive, but this was the way to boost our earnings. First quarter shipments were also impacted by the Omicron variant and by a reluctance to buy in the U.S. at the beginning of the year, which is now resolved, especially versus background of artificially high U.S. demand in the first quarter of last year and, of course, by the impact of the invasion of Ukraine on the auto business in Europe. However, seasonality is intact, and shipments are considerably up quarter-on-quarter. Meanwhile, March was the strongest and by far the strongest month of the quarter and, therefore, a good starting point for April for our Q2.

Sales strongly up year-on-year due to very positive price development. Accordingly, gross profit improved strongly year-on-year.

We generated a very strong EBITDA before material special effects of EUR 201 million. Reported EBITDA even came in at EUR 254 million. Once again, we benefited from positive pricing dynamics together with our strict and smart net working capital management.

Net working capital is up, especially price-driven, however, managing net working capital smartly with relatively lean inventories still ready to serve the market while others can't and especially booking in very profitable back-to-back and contractual business. More than 60% of our stocks are already sold, strong team performance overall.

With a rock solid balance sheet and a strong and improved financing in our back, we are ready to take an advantage of the special market circumstances and to continue to expand our margin.

Operating cash flow subsequently negative and net debt, up year-on-year as a result of the price dynamics in the United States and Europe.

Digital sales share of 46%, which is rather flattish due to the unprecedented market circumstances, but clearly underpinned by a very strong Kloeckner Assistant development.

In Q1 '22, we continued to push forward our leveraging strength strategy. We completed property sales in France and, most importantly, in Wettingen Switzerland. With the disposal in Switzerland, we generated alone significant cash proceeds of EUR 50 million. The operating business was transferred to other sites in Switzerland prior to the transaction. In total, we generated significant special effects of EUR 53 million in Q1 '22.

Our digitalization efforts have also continued to pay off. Digital sales shares at 46% and is still held back because of the special market conditions. Nevertheless, our self-developed AI solution Kloeckner Assistant again showed a strong development and posted a record quarter. Kloeckner Assistant processed around EUR 390 million of volume, almost double the volume compared to last year's quarter. In total, the assistant processed volume of EUR 1.8 billion since launch and is further gaining speed.

Sustainability is at the core of our leveraging strength strategy. We are proud to be the first company worldwide, first company worldwide to have its net-zero carbon reduction targets approved in the regular process as science-based in accordance with the latest standards of the Science Based Targets initiative, SBTi. Thanks to all employees involved in this process, a great success. And this clearly underpins that we are leading the pack and started earlier and have a clear advantage over others.

By 2040, Klockner & Co will eliminate Scope 1 and 2 carbon emissions, in line with the SBTi requirements for net zero. In Scope 1 and 2 alone, this will enable us to save some 90,000 tons of carbon emissions per year in our emissions. With regard to Scope 3, we will almost completely eliminate directly controllable emissions, such as from business travel by 2040 and emissions that are only indirectly controllable, such as from purchased goods and services by 2050. In line with the newest SBTi standards, Kloeckner & Co has thus committed to reducing emissions in the entire value chain to net zero by 2050. With this step, we demonstrate clearly our role as a pioneer in the sustainable steel industry.

However, we do not stop here. We've started to build sustainable business models because we identified it as a huge opportunity. Last time we introduced you to our green steel metric, which paves the way for our customers to understand and compare steel grades in terms of carbon content. The feedback has been overwhelmingly positive, and we will soon start delivering first quantities of green steel to our customers. This will enable them to build sustainable value chains through us and not just in 2040 or 2030, we are enabling them to start as early as this summer.

That's on the strategy part. Oliver, please take over for the financials.

[Oliver Falk, executive]

Yes. Thanks, Guido. So let's take a look into shipments, sales and gross profit for the first quarter.

Shipments were slightly below the previous year's level, minus 2.3%. However, despite our strict margin over volume strategy, shipments increased by 13.4% to 1.3 million tons compared to the previous quarter. It shows that seasonality is intact and we moved further away from pandemic impact.

Sales improved strongly year-on-year from EUR 1.5 billion in Q1 '21 to EUR 2.4 billion in Q1 '22 due to the considerably higher price level in all operating segments.

Gross profit consequently went up year-over-year from EUR 388 million to EUR 482 million.

Gross profit margin went down year-on-year from 25.4% to 19.8%, and also quarter-on-quarter, 21.6% to 19.8%.

We have consistently managed our net working capital throughout the last year and will do so going forward.

As Guido said, more than 60% of our tons are already sold. Specialty [indiscernible] service did a great job with back-to-back premiums. This is exactly the way how we will manage the situation also going forward.

We'll now focus on the EBITDA for the group. This quarter was again extraordinarily strong. EBITDA before material special effects increased strongly from EUR 130 million last year to EUR 201 million. Reported EBITDA came in even at EUR 254 million. The positive price effect of EUR 85 million year-on-year resulted from the positive price development in, again, very tight markets.

Year-on-year, we saw a negative volume effect of EUR 9 million due to our margin over volume strategy.

OpEx was up, driven by higher expenses for shipments, operating supplies and repair and maintenance, offset by lower personnel costs, mainly in our bonuses. Thus, you can see that the increase in OpEx was mainly driven by increased sales prices and overall environment. The minority is fixed cost-relevant and, therefore, we are on a level-playing field here.

Lastly, we had material special effects mainly from disposal gains but also from provision true-ups of a total EUR 53 million.

A great quarter, thanks to pricing and how we managed our net working capital to realize good margins.

Let's move on with cash flow and net debt. We had an especially price-driven net working capital buildup of EUR 425 million. However, this is not an issue for us due to our strong balance sheet structure and improved financing banking. The net working capital turns, we will then generate very strong cash flows. Meanwhile, more than 60% of our stocks are already sold.

Taking into consideration interest and tax payments of in total EUR 37 billion as well as fixed asset disposals EUR 54 million, cash flow from operating activities came in at minus EUR 261 million in Q1 2022. Gross CapEx mainly results from cash in from the real estate disposals in France and Switzerland as well as other divestments in total of EUR 63 million, which were partly offset by investments of EUR 24 million, which includes an investment in small subsidiary. [ Net cash flow ] from investing activities came in at EUR 39 million.

Accordingly, free cash flow was minus EUR 222 million. As a consequence, our net financial debt increased from EUR 762 million at the end of 2021 to EUR 999 million.

On the next slide, you see our balance sheet, which remains very strong, especially after the funding of our pensions and despite the increase of our net working capital in Q1 2022.

Our equities are -- equity ratio decreased slightly to 44%, still a very strong level.

Our financing instruments and maturity profile are shown in the appendix of this presentation. Please note our improved financing structure, some of which took place after March 31, which gives us a reasonable headroom and allows us to benefit from the current market environment.

Overall, this very strong balance sheet enables us to manage our inventory smartly, also going forward, and follow our margin over volume strategy in the current market situation. And this will support us to grow the business according to our Strategy 2025.

With this, I hand back to Guido.

[Guido Kerkhoff, executive]

Thanks, Oliver. We now dive into the outlook for the regions.

The last quarter was, of course, shaped by the Omicron variant and the Russian invasion with all its impact on the global economy. Prices have risen sharply, and the market environment is tight. As already mentioned, we have responded with a consistent margin over volume strategy, and we'll continue to expand our margins going forward.

It remains to be seen how the end markets will develop. We see that many industries are finding ways to deal with the situation. The order situation is pretty good. In sectors where the supply chain is more affected, we then just see increasing catch-up potential. The impact on the end sectors, especially the automotive industry was, of course, visible in March. As a result, we've slightly revised down real steel demand for '22, but quantification is rather difficult at this stage. However, we remain optimistic about the expected development of our end markets in Europe and particularly in the U.S., where demand has developed in recent weeks.

In general, the different market environment is emerging, characterized by demand for sustainable products, the new energy supply mix, investment in defense and especially infrastructure investments in the U.S. All these factors are particularly positive for steel and our sector and are expected to lead to healthy demand and higher price levels than before COVID.

With that, I'll hand over to Bernhard for the current status in Europe.

[Bernhard Weiß, executive]

Yes. Thank you very much, Guido. What are the market changes versus the last call? Well, end market demand recovery continues, which is a huge positive, and we see seasonality intact.

Material availability and supply chain stability is, of course, a challenge. However, as an independent player, we have first-class mill relationships which, together with our smart stock management, brings us in a leading position in terms of product availability.

Moving forward, we expect a rising demand from governments in defense equipment, which could become an opportunity for us. We manage our inventory very tightly to counter the price-driven networking capital increase, but we make sure that we serve our key strategic customers optimally by avoiding service -- serving opportunistic panic buys. However, we often saw new customers approaching us, certainly through the experience of the market how we were able to handle the tight market situation last year. But we make sure that these buyers will have to stay with us if they want to become partners in this situation.

Rising energy costs as well as material scarcity lead to even higher prices despite starting from already very high level. Timing of reaching peak, uncertain for each product family today.

The main driver for aluminum remains the magnesium scarcity while the Ukraine war's impact on nickel availability. Impacts, of course, the same steel.

We expect real steel demand to be between 1% to 3% for Europe. And as Guido said, the change compared to the last report is due to the lower expected demand from automotive due to the expected supply chain disruption, which is, however, pending potential pent-up at a later stage. VDA still estimated the domestic production growth for Germany of 7% and of 2% internationally.

Coming to our sectors in construction, we see least impacted by the Ukrainian crisis in terms of material availability. We see a very robust performance so far. Machinery and mechanical engineering, here, we see that customers have recovered from COVID crisis and activities are now growing above the 2019 levels. No major demand slagging so far. On the contrary, we see a slight increase of average tonnage by order line due to some panic buys and willingness to secure material and production capacity.

Coming to automotive, which is the most impacted sector by the Ukrainian crisis and of course supply chain disrupted by conflict in Ukraine, customers try to secure material availability with panic purchasers to build safety stock. We monitor very closely to check their capacity to serve the downstream market accordingly.

In shipbuilding, I do not see any major change compared to last reports. Still heavily under pressure. Very muted demand for cruise ships, in particular. Impact on tourism and ecological factors if any, in production, then rather the gray ships interesting for us.

That's it for Europe. And with that, John, I would hand over to you.

[John Ganem, executive]

Thank you, Bernhard. Looking at the U.S., after what we estimate to be strong double-digit growth in 2021, we feel overall real U.S. steel demand is expected to increase a further 3% to 5% in 2022, driven by still positive economic indicators and stronger contributions coming from the auto and energy sectors, which still remain well below prepandemic levels.

Starting later in 2022 and following up on what Guido had mentioned, continuing into subsequent years, we expect additional demand tailwinds coming from significant investments in bridge and highway projects, electrical vehicle production, renewable energy, the upgrading of America's electrical grid and transmission infrastructure as well as the continued reshoring of dislocated manufacturing supply chains.

Turning to the specific market segments. Construction, March construction spending was up almost 12% year-over-year, with residential leading the way at 18% increase and nonres at 8.5%. Housing starts came in at a very strong 1.8 million on an annualized basis in March. However, homebuilder sentiment has come under pressure recently due to rising interest rates and continued labor shortages. While fundamentals for housing remain quite positive over the long term, we would expect to see residential growth moderate as higher rates -- interest rates begin to price some buyers out of the market. Overall, for construction, we expect mid-single-digit growth from this segment, with slower but moderating residential spending offset by a stronger contribution from nonresidential.

Manufacturing machinery and mechanical, all manufacturing indicators in the U.S. remain in positive territory, with the April ISM Index coming in at 55.4, which indicates a slowing but continued expansion. I can't stress enough that labor shortages and supply chain issues continue to be significant constraints to growth, and these are not expected to be resolved in the short term.

Demand from appliance, HVAC and electrical equipment OEMs was negatively affected in early 2022, with the Omicron variant further exacerbating the underlying problems with labor and supply chain shortages. As expected, we did see a very positive recovery later in Q1 and those demand improvements should continue as we move into the seasonally stronger second quarter. Overall, for 2022, we expect growth in these segments to be lower single digits as conditions moderate after a very strong recovery in 2021.

Turning to off-highway and industrial equipment markets, these should show some significantly stronger growth on a year-over-year basis, with almost all major OEMs reporting low inventories and strong backlogs. We expect upper single-digit growth from these sectors.

On the energy front, we see a continued modest recovery. Drilling activity, steadily improving, but still very low by historical standards. Rig counts are up from their 2020 lows, but still remain 20% to 25% below prepandemic levels. With the recent geopolitical events and structurally higher oil prices, we would expect drilling activity to continue to recover, but growth rates are difficult to predict due to the heated political debate that affects this key sector.

Renewable energy, on the other hand, continues to be a top priority with future investments heavily supported by the bipartisan $1.2 trillion infrastructure bill and, frankly, the push to become much less dependent on fossil fuels here in the U.S. These investments should be quite positive for steel over the long term. And in fact, we at Klockner are already benefiting from new business being developed in emerging markets such as storage for renewable energy. Very optimistic about the potential in the renewable energy sector, both in the short term and long term.

On the automotive front, year-to-date production is only -- through March is only up slightly versus 2021 and continues to be hampered by supply chain issues. Production -- March production, however, showed stronger year-over-year growth and major auto companies continue to maintain very positive full year forecast. March sales came in again at a very low 13.3 million units on an annualized basis, which was down from 14 million in February. Again, historically low dealer inventories continue to restrict sales. Pent-up demand, however, remains significant, and auto production should expand strongly once supply constraints can finally be resolved.

Investment in EV production is nothing short of remarkable and continues to move much faster than anyone predicted. Assuming supply chain issues will ultimately be resolved, we continue to expect double-digit year-over-year growth from both the automotive and on-highway truck and trailer sectors.

And then finally, on shipbuilding, our defense business remains quite a bright spot. We should see stable to modest growth year-over-year. And we have a number of new programs in the queue that will drive growth as we move forward into 2023 and 2024.

So in summary, despite potential headwinds from inflation and rising interest rates, we remain quite positive on the underlying base case for steel demand here in the U.S. These positive fundamentals, coupled with a more consolidated and disciplined domestic producer base, will continue to support a positive outlook for the U.S. service center industry.

That's it for the U.S. Thank you.

[Guido Kerkhoff, executive]

Thanks, John. And with that, let's come to the outlook for Q2.

We expect sales to be significantly up and shipments to develop stable to slightly increasing compared to Q1 '22.

EBITDA before material special effects is anticipated to come in with a range of EUR 180 million to EUR 240 million in Q2.

Moreover, we continue to manage our net working capital lean and smartly, and it's expected to go down in Q2. That's why operating cash flow is expected to be very strong and clearly positive in Q2. Our positive full year forecast remains unchanged.

And with that, we're now happy to take your Q&As.

[Operator]

[Operator Instructions] Your first question today comes from the line of Sam Rosenthal from BNP Paribas.

[Seth Rosenfeld, analyst]

This is Seth Rosenfeld from BNP Paribas. If I can start out, please, on the demand side and shipments. Thanks to the detailed commentary on the real demand outlook. Maybe you can give a bit more color on apparent demand conditions to date. Obviously, Q1 shipments were down year-over-year after seeing some panic buying late in the quarter and now still price beginning to decline in both regions. Are you seeing any reluctance from customers to place orders or still continued strength?

And I guess just one clarification. Given your guidance for Q2 shipments, it would imply first half shipments down about 1% or 2% globally for the group. Do you expect your full year shipment to align with the demand forecast or potentially come in lower than that because of inventory management amongst customers?

[Guido Kerkhoff, executive]

Well, let me start a bit with the current demand. I mean, as you saw, Jan, Feb were clearly affected by Omicron. And we saw a strong March. And we have a clear picture on April, and April was not that bad as well. So demand was there. And you see in the auto sector, as John mentioned, going forward, U.S. is strongly improving. And it seems that the April numbers were now very strong in production. Again, not the 13-something again, but stronger. And even in Germany, Volkswagen was positive on the second half of the year. So there is some pent-up demand that we still see coming in.

Now that prices are somewhat stabilizing a bit, you see some reluctance here and there. But overall, that's what we said, we think compared to our Q1, we see it slightly increasing or stable from these levels.

[Seth Rosenfeld, analyst]

Okay. Just to follow up on that front. If that would imply first half shipments basically flat to down slightly year-over-year, would that still mean that, for example, in the U.S. and in Europe, you can get your shipments on a full year basis up 3% to 5%, with all that weighted to the second half?

[Guido Kerkhoff, executive]

Sure. If indeed, the automotive sector and the others kick in, that will drive it, that's clear. The pent-up demand is there. If supply chain issues disappear, then that should be stronger than the second half of last year, yes.

[Seth Rosenfeld, analyst]

Okay. And then one more clarification, please, with regard to working capital. I believe in your prepared remarks, you commented that Q2 with the working capital down. Does that imply a lower level of investment or a potential swing to a release in the second quarter, please?

[Guido Kerkhoff, executive]

Well, look, it's 2 things driving that. One is, as we've always said and you saw it in the year-end numbers that we had -- that we were, as we call it smart networking capital management, there were some opportunities to get in cheaper material and have -- being a bit overstocked. And we've clearly said and through Q1, you can see it, especially if you take a look at the EU, European numbers, very, very strong, that with this margin over volume strategy, we could indeed leverage the good procurement we did end of last year where we bought more and could sell as to the auto sector, but we're very strong and we made the margin out of that. And as we're now picking on the pricing levels that we see, we can now indeed reduce a bit working capital and there is not this buildup -- price-related buildup. And that's why in Q2, not only the strong EBITDA should turn into cash flow, but the reduction in the volumes overall as well.

[Operator]

Your next question comes from the line of Carsten Riek from Credit Suisse.

[Carsten Riek, analyst]

The first question is also on Europe because the European performance has been very, very strong. Can you talk about -- a little bit about the inventory-related gains? Because you mentioned you actually build inventories at the end of the fourth quarter. And especially post the Ukraine conflict, we have seen quite a significant price uptick. How much was that inventory-wise? That's my first question.

[Guido Kerkhoff, executive]

Well, let me take that. I think it's -- indeed, in Europe, it was a bit stronger. And in the U.S., you see that Jan and Feb still were affected by first, flat rolled, hot-rolled pricing was going down and then catching up strongly. And still, it is a very good result. So you had some negative effect in the early weeks in the U.S. coming out of that.

Overall, what we would say, if we take a look at how much is the windfalls, it's a bit difficult to judge exactly because some of these parts, as you mentioned, buying and doing the smart networking capital management, buying more and selling it then a bit higher, which you expected before and is not really windfall, it's not recurring. But we'd say that about half of the total result is windfall.

[Carsten Riek, analyst]

Okay. That helps already. The second question is on the net working capital as well, but more specific on the receivables. We have seen quite an unprecedented move here in the receivables. I would have expected an increase, also a quite substantial increase, but more than EUR 300 million is, I believe, twice as much as the payables increase which is rather rare. Was there any issues with paying more amongst customers or some kind of fourth quarter-related overhangs, which actually had to be reversed? Why is that significant increase?

[Oliver Falk, executive]

No. If you compare Q1 receivables against Q4 receivables, then we always see a seasonable uptick of the figures. You should remember, in December, the last week, we hardly did any business and customers trend to pay their receivables even if they are not due, that's a habit, which we see quite often here in Germany, Netherlands, Switzerland, Austria. So therefore, we typically see that increase by year-end.

And for the payables, we -- at year-end, we paid all our due payables. And at the moment, as we keep our inventories and volumes quite flat and it's solid already, let's say, that our inventories go down. Therefore, the payables are also trending down, which then gives that spread which you just [indiscernible].

[Carsten Riek, analyst]

Okay. Last one on costs, because we hear a lot of complaints about rising costs, be it the home electricity side, or recently the unions which actually asked for 8.2% increase in wages in Germany. What do you expect cost-wise for the second half? Do we see a significant uptick here in costs? Or is it manageable for you guys?

[Guido Kerkhoff, executive]

Well, a couple of things around that energy costs that we have on ourselves, on our books is about 1% of our cost base. So it's not that relevant. Despite that and again together with the wages where we will see some wage inflation, but costs that's level-playing field. It's not only for us, it's for all of them. So that's why I think that's something that will be rolled over. And the more efficient we are, the better we can do it.

And as we are, again, one of the very large players in our field, the efficiency within our organization, the efficiency we can even get out, and that's what we're trying to squeeze a bit more, more truck load, less trucks, less transportation, be more efficient there, we have more opportunities than others.

[Operator]

[Operator Instructions] Your next question comes from the line of Rochus Brauneiser from Kepler.

[Rochus Brauneiser, analyst]

First question is on guidance. I think Q1, you did not provide any numerical guidance in line what you did last year. Why I'm asking is that based on the second quarter guidance, you're expecting up to EUR 440 million of EBITDA after the first half, which was kind of fixed market expectation into the earnings or maybe before the outlook. So what is the kind of message here in terms of the outlook? I think you're sounding still quite constructive. So what is preventing you from getting a bit more specific on the earnings outlook for the whole year? That's the first question.

[Guido Kerkhoff, executive]

Okay. Okay. Rochus, thanks for that question. No, you highlight one thing that is very clear. I mean if you add up our current results and the Q2, you come up to EUR 440 million, which is the current full year consensus that you see. So together with our smart net working capital management, being very cautious on restocking and seeing what we can do, and if you've seen and take a deeper look into how the U.S., for example, how strong they are on working capital management, how to get the cycles down and how small impacts we have only seen from the decline of the prices in Q4 and early in Q1, our operational management here and windfall losses compared to gains, we should be in a much better position. And that's why for the rest of the year, given where we are and with the pent-up demand would give us underlying, we're not that negative. But where finally prices are, and you see that, that, with our own average still something around 3-month stockholding, makes it a bit difficult to guide 9 months down the road, which is largely either you're very vague or you give a precision that you cannot really have.

Underlying, we think it should continue and we see rather a better balanced market supply and demand situation. And then let's take it from quarter-to-quarter and then be a bit more precise because, otherwise, the range would be too broad to take all of that into account.

But against consensus, you can make up your mind. But if we have it by the first half, what is the likelihood that we're negative or 0 in the second half, I don't see that.

[Rochus Brauneiser, analyst]

Yes. Okay. I would agree with that. Maybe on the volume again, just following up on the previous question. So you're still saying you expect considerable volume growth, which, according to your arithmetic, it's about 5% at least. Whereas in the first half, you haven't really grown at all. So do you think that kind of 10% year-over-year growth is still realistic in H2 given the kind of high-level uncertainties we are seeing in the market?

[Guido Kerkhoff, executive]

Yes. Look, I mean, take a look, for example, at the -- let's just pick one sector, the auto sector, how much pent-up demand is there? You've seen that Volkswagen was in production something like 30% down. Now if they can come back, and this is what at least they state, I'm just quoting here publicly available information, if they can come back and you see where the car prices are, if the supply chain is overcome, there will be a lot more production for the whole value chain then and deliveries.

And in the U.S., John has mentioned it. Again, April numbers came in, which are already much stronger and they are clearly double-digit growing. And we've seen January until March effects coming out of Omicron and supply chain issues that they couldn't produce as much as they wanted and dealers' inventories is very low.

So there is positive signals. I mean the whole construction sector is short term, the least affected by the Ukrainian crisis and still, there, you have some supply chain issues. So there is possibilities to grow and to get it to the levels that we guided for.

The underlying demand is there. If you don't see cancellations everywhere and a big recession coming, I wouldn't see why it should be there. Underlying, there is strong demand still.

[Rochus Brauneiser, analyst]

Okay. And then finally, on the demand maybe for the next couple of years. I think when you took over as CEO, you focused more on the top line growth. And I think it was a bit of a change compared to the past decade where Klockner as a company was rather shrinking for the various reasons. And what I can't square together is that you're emphasizing for the last 2 years the price over volume strategy, which obviously does not allow too much volume growth. So how shall we together with your longer-term growth ambitions and how we think about the CAGR until 2025 maybe?

[Guido Kerkhoff, executive]

Yes. I think one has to distinct a bit. Very good question. Distinct between the tactical behavior in a cycle and your mid- to longer-term strategy. We clearly want to grow. We want to grow with value-add businesses. We want to grow in the regions and sectors where we can do it by being more focused on certain industries. And that's what we continuously are indeed doing.

On the other hand, if short term the cycle comes and material is very short, sure, margin over volume like we do it now is name of the game, you see it in our earnings. I mean we could have done more volume just to fulfill the growth pattern we want to have. But if you do that on the back of lower results, tactically, that would be the wrong approach. That's what we've clearly said.

Now within this cycle and the current situation, tactically, we have to do that margin over volume. On top of that, we improve our cost basis so that we're more efficient and can, therefore, be regarding growth more aggressive. But it's rather going into new sectors, be more focused on customers, more value-add and then try to grow as much as we can. But we always distinct between this tactical and the more strategic approach. I think that's what we have to do and you see it in our results. I mean last year and this quarter and the upcoming quarter are a clear proof and this is money you can't leave on the table.

[Operator]

[Operator Instructions] Your next question comes from Seth Rosenfeld from BNP Paribas.

[Seth Rosenfeld, analyst]

Great. Can you give us a little bit of an update, please, with regards to the various digital platforms? You commented in today's release the strength of Kloeckner Assistant. There wasn't much update with regards to XOM and AXOOM. Can you provide an update on the opportunity to monetize these platforms? I believe in years past, there were some discussions and expectation of potentially selling a stake in the digital assets. What's the opportunity to do that in a stake environment, please?

[Guido Kerkhoff, executive]

Yes. Look, what we're focusing on is the strength in developing the platform and especially on the procurement at XOM, the procurement platform, we're developing the tool itself to a higher degree. So the usage, it's largely for us currently, for Klockner, is improving and is gaining traction within the organization and is covering the things that we can bundle and do. And this is -- based on these successes and the capabilities of the tool, we are looking into whether it's marketable or not.

The other platforms, we were into web shops. We did that, we will stop that activity because the web shops by themselves were successful, but there is so much competition in offering web shops that you're not unique in that. So earning money with that was more difficult. So that's why we said, we don't focus on that one. We go with e-procurement. And the other platform we have in the marketplace has been stopped end of last year because there was not that much traffic on it.

[Seth Rosenfeld, analyst]

Just on XOM, is the focus internally now because of the challenge [indiscernible] be able to get third-party vendors onto the site previously?

[Guido Kerkhoff, executive]

First focus is getting ourselves set up and prove what it can do and then open it up and sell it to others and then see whether we can sell a stake of it or not. But it is not really a start-up anymore. So therefore, first, you need to prove where is your business case, where are the internal and external customers and then you can test the market, whether you find opportunities to attract other investors. So we focus first on the capability and the success and then go out.

[Operator]

There are currently no further questions. I will hand the call back to you.

[Guido Kerkhoff, executive]

Yes. Thanks all of you. If there are any add-on questions, you can reach out to us, be it to Felix or Oliver and me. And thank you very much for the call.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.