Kloeckner & Co SE

XETRA:KCO

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 analyst and investors conference call. [Operator Instructions] I must advise you, the conference is being recorded today. I would now like to hand the conference over to your first speaker today, Felix Schmitz. Please go ahead.

[Felix Schmitz]

Yes. Thank you, and welcome to our Q3 analysts and investors conference call. With me today are our CEO, Gisbert Rühl; our Deputy CEO, Mr. Guido Kerkhoff; our CFO, Dr. Oliver Falk; and our CEO, Americas, John Ganem. They will guide you through the presentation. Afterwards, we will be open for your questions.

[Gisbert Rühl, Chairman of Management Board & CEO]

Yes. Thanks very much. Also welcome -- a very warm welcome from my side. We appreciate that you are taking the call today knowing that there is a more exciting event today than our Q3 numbers, which were not that bad, as you might know already. So our shipments were down, on the one hand side, by EUR 12.5 million -- by 12.5%. On the other hand, that was a significant improvement against last quarter where we were down at 28%. And you know that the start in 2020, even before corona, was already somewhat difficult with minus 9% compared to the first quarter last year. Our sales went down even more pronounced because of the lower price level. Gross profit, on the other hand, was down only by 7.7%, so lower than shipments because we increased our gross profit margin from 19.6% to 20.6%. EBITDA came in before special effects with EUR 40 million, which is a significant improvement compared to last year, where we had EUR 26 million. So we overcompensated here the negative volume effect of EUR 36 million by positive price effects of EUR 20 million, and especially, by lower operational expenses of EUR 31 million, mainly due to lower personnel expenses of EUR 23 million. We reduced already our personnel by 640 employees compared to last year, means by 8%. This year, we, by the way, reduced our employees already by 580 people: 350 of them through our Surtsey-related -- through our Surtsey project. Operating cash flow came in with EUR 68 million, which is a bit lower than last year where we came in with EUR 82 million. Net financial debt is down significantly by 1/3 to EUR 527 million. Gearing, also especially down to EUR 42 million. Up again is our digital sales with more than 42%. We reached here already our full year target. Next slide. A quick look to our Surtsey project, which is on track. So Surtsey goes in 2 directions: one direction is restructuring and the other one is digitalization. So we're reducing with Surtsey our workforce by 1,200 employees. As already mentioned, 350 have been already laid off. We will lay off another 650 this year and then the remaining 200 next year. More than 80% of the workforce reductions are by -- was just implemented by the end of the year. And what is important, all agreements are also already largely completed. Concerning digitalization, here, we're especially working on the automation of our core processes. We expect to increase our digital sales significantly. Again, going forward, next year target will be clearly above 50%. We might even reach already our 2022 target of 60% next year. And then in the coming years, we should come close to 100% from 2025 or 2026. Next slide. How we want to achieve this. Yes, we are moving here, as you know, in 2 directions. One direction is the digital transformation of Klöckner itself. Main drivers are, here, the artificial intelligence-driven tools like the Kloeckner Assistant with which we automate our main process. That means the RFQ and order entry process finally completely. We already processed this year EUR 180 million sales with more than 2,000 customers through the Kloeckner Assistant. By the end of the year, this will be around EUR 300 million, and we expect to process next year sales of about EUR 1 billion through the Kloeckner Assistant. And then on the other side, we have our open industry platform, XOM Materials, scaled from 2 sides. One side is the supply side where we have already 55 suppliers onboarded. 72 have signed our agreement with totally 32,000 products. And we have already more than 1,500 registered customers. On the other hand, we're scaling some through our eProcurement tool. Here, we have already more than 100 sellers active, most of the European mills for instance, and we're getting more and more customers on the platform. And this will be the main driver for the platform going forward, the scale -- further scale of the eProcurement tool. GMV so far this year is EUR 93 million, which was processed through the platform, which is already above our 2020 target of EUR 65 million. By the end of the year, we expect already the total GMV of EUR 130 million. And next year, this number will be somewhat between EUR 600 million and EUR 1 billion. Also here now, a significant scale of the platform going forward. Yes. With this, I hand over to Oliver Falk who will lead us through the financials.

[Oliver Falk, CFO & Member of Management Board]

Yes. Thanks, Gisbert, and good afternoon to everybody. So let's start with the shipment sales and the gross profit for the third quarter. So shipments declined year-on-year significantly from 1,420 tons in Q3 2019 to 1,242 tons in Q3 2020, which means a reduction of 12.5%. So this decline is, as you all know, largely driven by the impact of the COVID-19 pandemic. However, if you look on that from a quarter-on-quarter perspective, we see a recovery in the volume by 16.1%. And this recovery was supported by our digitalization capabilities as we could run our business without major disruptions. Our sales consequently fell year-on-year by 18.3%, even stronger than shipments, due to the lower average sales prices. And also for the shipments, we saw an improvement quarter-on-quarter by 9.3%, which was, of course, less pronounced. Our gross profit excluding restructuring effects was down year-on-year by 12.6% from EUR 284 million to EUR 263 million. Again, here, the main driver was also the COVID-19 pandemic. And in line with our shipments and sales, gross profit increased quarter-on-quarter by EUR 34 million. The gross profit margin went up year-on-year from 18.1% to 20.6%, benefiting from our margin-over-volume strategy, but also on a positive price development. Despite the challenges from the COVID-19 pandemic, margin picked up also quarter-on-quarter by 1 percentage points. On the next slide, you see the EBITDA of quarter 3. So in quarter 3, the adjusted EBITDA by material special effects increased from EUR 26 million to EUR 40 million. Our reported EBITDA came in at EUR 38 million compared to EUR 29 million in Q3 2019. Driven by the COVID-19 pandemic, we suffered from a substantial negative volume effect of EUR 36 million. Based on quite favorable stock prices, we could participate from the recovering sales prices resulting in a positive price effect of EUR 20 million, especially in the European distribution business and in the U.S. OpEx and others improved by EUR 31 million. The main drivers here were lower personnel expenses and volume-driven lower expenses for shipments and operating supplies and tools. On the next page, you see the cash flow and net debt development. So in quarter 3, as already indicated, our cash flow from operating activities came in at EUR 68 million. A very strong driver was our consistent net working capital management contributing with EUR 53 million. Interest payments were EUR 6 million, and we had a cash-out for taxes of EUR 4 million. The changes in the other operating assets and liabilities amounted to minus EUR 14 million. Net CapEx came in at minus EUR 27 million, mainly including a gross CapEx of EUR 29 million and net disposal proceeds of EUR 2 million. The main investment in quarter 3 was related to our new site in the Greater London region with EUR 15 million. So accordingly, the free cash flow was EUR 41 million. Our net financial debt decreased again from EUR 476 million in Q2 to a very low level of EUR 427 million in Q3. Compared to the levels of Q3 2019 of EUR 634 million, we could achieve a reduction of EUR 207 million. Next page shows our maturity profile. So in quarter 3, as we reported already, that we have renewed -- that we are going to renew our European ABS program. So the signing of the new contract happened a couple of days ago and closing will be next week. So we reduced the total commitment for the European ABS program from EUR 300 million to EUR 220 million, as we expect lower volume of receivables in the future due to the Surtsey measures. However, in case of increasing trade receivables, we can easily expand the size of the facility. With the ABS transaction, we improved not only our maturity profile but also the terms and conditions. And this underlines our excellent trade receivables management and our good credit rating in the European banking market. The renewal of our U.S. facility is planned for the quarter 4 of this year. So overall, we have used only 37% of our financing facilities. We still kept a solid equity ratio of 38%, and the gearing, as already mentioned, comes up with 42% despite the COVID-19 pandemic. So there is more than sufficient financial headroom for the current challenges and the expected upswing in the coming quarters. So with this, I hand back to Guido.

[Guido Kerkhoff, Vice Chairman of the Management Board]

Not really back. No, not back. I'll come to the region-specific business outlook, and I'll start with Europe. Overall, for Europe, the uncertainty remains elevated, especially due to the ongoing second wave of COVID-19. However, we're feeling unprecedented challenges for quite some time now, and we've shown that we've tackled them very determinably and will do so going forward. We're not just striving to get through the pandemic. With Surtsey. We've even used it to accelerate the pace of our transformation. And you can -- first, visible effects, you can clearly see as a proof of our consistent execution. .We did some smart networking capital management. We did not blindly sell off stocks during the crisis. We were always able to deliver, while others went out of stock when supply faded. Mills are always reacting rather slowly due to their complexity, and we were able to deliver. And this is one of the reasons why our gross profit per ton increased year-on-year. Again, improvements of the overall market environment in Europe continued in Q3. It was the strongest weeks we've seen throughout this year, end of September, and that continued also with the beginning of Q4. It's still difficult to assess industry's reaction to the second wave for the last 2 months of the year, but we'll rather see effects for the next year. However, recovery of core sectors over the last month, the expectations have clearly improved. We're now to a level of above minus 15%. That was clearly lower when we had Q2. Pricing, overall, we've seen decent increases over the last few weeks and months. Steel demand in China and recovery of auto keeps prices on high levels. Raw materials were trending up, inducing upwards pressure. We have seen, so far, no visible signs of deterioration in the mills' input costs. Spreads of hot rolled coal versus iron ore and scrap are meanwhile increasing without being too elevated. For us, it looks like the mills are returning into what we would call a fair margin zone. Generally, we expect stable or slightly increasing prices until year-end. Let's come to the sectors. Construction, relatively steady through the pandemic and kept up in Q3. However, significant decline overall is expected, 5% to 10% year-on-year. Demand in nonresidential is restrained. That was the subsector hardest hit by COVID-19. Residential performed relatively better. Switzerland and Germany expected to perform better versus the other countries. They coped best with the first wave. They could hold all construction sites open. We're not expecting changes during the second wave. However, construction is diving seasonally into the muted phase of the year. Machinery and mechanical engineering are expected to decline by more than 10%, severely impacted by the pandemic, high-value chain complexity, and the export orientation were not helpful here. New orders, coming in just slowly. There's still a restrained investment sentiment, and the business confidence and trade frictions are not gone. We assume that the business situation will not return to normal, the earliest, until late summer 2021. Energy sector is expected to slightly decline, relatively less impacted by COVID-19 in Europe. Structural issues remain, energy transformation and oil prices, which are still under pressure. Low visibility regarding the midterm views. So the future investments are still restrained like mechanical engineering. Automotive was most severely impacted by COVID-19 pandemic and is expected to decline by more than 20%. However, we had a very sharp pickup in Q3 after value chains were restored. Production in Germany for the 9 months was minus 33%, but Q3 was just minus 17% The trend is promising. Sustainability yet has to be prudent, but we'll see. So far, it looks like the order books seem to be for the short-term pool. Regional stimulus packages and increased premium for e-vehicles should support to drive the demand up. Shipbuilding is still heavily under pressure. Demand for cruise ships and international merchant shipping has fallen sharply. If shipyards busy, then only with great ships. With that, I think I'll hand over to John.

[George John Ganem]

Thank you, Guido. For the U.S., very similar type of development. Year-to-date through August, the overall consumption trend is down about approximately 20%. But clearly, trends in recent months have been much more positive, and we do expect a similar reduction in overall consumption of about 15% for the year when all is said and done. And no question, the Q3 recovery was definitely somewhat stronger than most people in the marketplace had expected. Turning to the specific segments. Construction has definitely weathered the storm, the pandemic, much better than most other steel-consuming segments. Didn't see quite the downturn in Q2 that we saw elsewhere. And similar to Europe, really, what we're seeing is 2 separate developments within construction. Housing, residential building is booming. Overall spending in construction is up 1.5%. Residential is 10%. So housing starts in September came in at $1.4 million annualized, then -- and that was up 11% year-over-year. So very, very positive trends in residential. On the other hand, private nonres, down 6%. Spending was down 6% year-over-year in September. And we're seeing significant weakness in lodging, new office buildings and anything energy-related. And obviously, that's directly correlated to the COVID-19 situation. We do expect trends to maintain through the end of 2020. And of course, the outlook for 2021 is highly unpredictable at this point. Turning to machinery and manufacturing. In the U.S., we saw manufacturing, where we have heavy presence in HVAC, appliance, electrical, really took a deep dive in Q2 and have recovered very, very strongly in Q3. This is obviously tied to residential in many ways. The heavy equipment sector also dipped pretty heavily in Q2. It has improved, but not quite as strong as some of the consumer-driven manufacturing segments. I did note that the ISM Manufacturing Index came in at a very, very strong 59.3% in October, much higher than most consensus. That indicates continued expansion, at least in the near term, and really continuing corporate profits should be supportive of additional investments. And hopefully, after today, we'll have some clarity where we're headed from a political standpoint, and hopefully, that would result in a new round of fiscal stimulus, which would certainly be supportive of additional consumer spending. Turning to energy. Remains by far our weakest segment here in the U.S. We do seem to have finally hit the bottom, but the recovery from here is expected to be extremely slow. Rig counts have actually stopped falling in the past couple of weeks, although we're not expecting any significant increase in the near to medium term. Clearly, the third COVID wave here in the U.S. will likely cause a further contraction in demand over the holiday travel season, which is not going to be supportive of oil prices. We've already saw them come under pressure the last couple of days. Recovery, really, in energy is highly dependent on overall demand and improving consumer confidence, and this is really going to be dictated by the trajectory of COVID-19. This could really be also the industry or the segment that's most affected by the election over the long term in trade -- in terms of energy policies. Automotive, very similar to Europe. Very, very strong recovery in Q3. Production in Q3 was almost identical levels as we saw in Q3 of 2019. Sales are still off, but inventories at dealer lots are down to 43 days, which are very, very low. So supply chains are extremely constrained to catch up and restock the inventory levels. Sales hit $16.6 million in September. We're awaiting the October numbers today, and we do expect that sales will be maintained through Q3. Indications from many of our suppliers are telling us the production forecast coming out of the automotive, OEMs remain very strong through Q1. So we don't see much pullback in the near term. Clearly, low interest rates and pent-up demand coming out of Q2 were the main drivers, very similar to residential, but also a very similar risk to housing. Consumer confidence is going to play a big role in how COVID, third wave, vaccines and all of that come together will really dictate how the future 2021 outlook develops. Shipbuilding for the U.S. remained pretty stable throughout the crisis. We're pretty heavily focused on naval contracts. So that's helped us. From a demand standpoint, we haven't seen any real negative impact from COVID. And we're heavy into the barge business down in the Southwest, and that has actually remained relatively solid, supported by very low interest rates. And no change expected in the short term. Clearly, in the U.S., pricing, based on this improved demand environment and a significant reduction in capacity at the mill levels in Q2, I think, caught the market somewhat by surprise. We shifted into more of a short supply scenario here in the middle of Q3, and prices started to move higher, certainly in flat-rolled, first, and now we're starting to see it in plate. I think that will probably stabilize as we move into the later part of the fourth quarter as seasonal demand factors, lower need for steel and some of the planned and unplanned outages that we experienced at the mill level in Q3, are resolved. And that will bring more supply back in. But I think it's more of a stable price environment as we head into Q1. And then we kind of have to see how demand growth develops. Right now, we're pretty positive that it will be a positive upward movement in demand, albeit more modest than we saw in the third quarter over Q2, which would keep prices pretty stable. But again, very, very uncertain on the outlook based on COVID and a lot of election uncertainty. That's it for the U.S.

[Gisbert Rühl, Chairman of Management Board & CEO]

Yes. Thanks, John. Then we are coming finally to the outlook for the full year. For the fourth quarter, we expect shipments and sales be seasonally lower, like every year. EBITDA, here, we expect to end up at the higher end of our guidance of EUR 72 million to EUR 95 million because we reached already EUR 72 million until the end of Q3, and also, October is doing well. And with this, we clearly expect, as mentioned, to end up at the higher end of the margin. We will also come in with a significant positive cash flow, EUR 68 million year-to-date. The cash flow -- operating cash flow will be, by the end, at least on the level of our EBITDA, maybe somewhat higher. Thanks very much. And with this, I'm opening now the Q&A session.

[Operator]

[Operator Instructions] Your first question is from the line of Seth Rosenfeld from Exane.

[Seth R. Rosenfeld, Research Analyst]

If I can start out, please, with the question on the cost savings initiatives. Can you give us a little bit more color, I suppose, to walk through the various stages of Surtsey and the other cost savings programs, so we can understand, it's going through Q4 and into 2021, how those programs will build and how their contribution to EBITDA should be recognized. You've given them in the past EUR 100 million EBITDA benefit target by year-end '21. But it sounds like essentially, all of the cost savings will be executed very shortly, at least on the headcount reduction side. So just trying to understand staging for the coming quarters, how we should be forecasting that, please? I'll start there.

[Oliver Falk, CFO & Member of Management Board]

Okay. So as we already said, the Surtsey program is running in the execution phase, and we have already laid off 350 FTEs, mainly in U.S., Germany and Austria in quarter 3. What we expect as of year-end that we are going to increase that layoff up 80% of the target figures. So 80% of 1,200, that's close to 1,000 employees. So this will happen in the month of December. So we are going to release in the month of December another roughly 600 FTEs. Why in December? Because the social plan negotiations, which we have conducted in France, in Germany and in Netherlands, have forced us, let's say, to run through all the administrative processes in order to get the layoffs organized. And this is the reason why it's happening in December. So what is important for you is that this layoff, which is happening in September, will generate cost savings then in next year. So this 600 employees will most likely, from January onwards, generate savings in the personnel expenses. The remaining roughly 200 FTEs will be laid off during the next year, a bit depending on the progress of our initiatives. So in some cases, we are merging warehouses, and then we have the full effect then by the end of the year. What is also important to understand is that if you look on the change of our FTEs and temporary workers, we have achieved, so far, during this year, a layoff of roughly 590 employees. So there's an additional layoff which is happening besides Surtsey, and this drives, of course, our personnel expense reduction.

[Seth R. Rosenfeld, Research Analyst]

With that in mind, if 80% of the headcount reduction is going to be completed by year-end, essentially, are we expecting 80% of EUR 100 million annualized benefit by Q1? Or should we be thinking about a more gradual ramp of those actual cost savings benefiting EBITDA?

[Oliver Falk, CFO & Member of Management Board]

No. It's planned for the end of the year that we reach that. And of course, in January, those people are on garden leave. So the costs are accrued in December so that we have the cost-saving effect from January onwards. That's the target with really some minor exceptions.

[Operator]

The next question is from the line of Carsten Riek from Crédit Suisse.

[Carsten Riek, Director & Co]

Two questions from my side. The first one, on the fourth quarter guidance. I guess that you mentioned already you're leaning towards the upper end of the full year EBITDA guidance. But I'm just trying to understand how we get from the third quarter result to the fourth quarter results, which implies somewhere around, I don't know, EUR 20 million, EUR 25 million EBITDA. So half the EBITDA, you could achieve in the third quarter when you have quite a substantial price increase in the U.S. market as well as in the European market from August onwards. Is that not a component which should actually more or less offset the lower volumes? Are you particularly cautious in the fourth quarter? And could we see a similar event as we saw in the third quarter, where -- when come December, you could actually rejudge the EBITDA -- fourth quarter EBITDA, might actually increase your guidance going forward. What makes you so cautious because as most of the volumes for October, and I think at least half of November, should be safe? It's only the second half of the fourth quarter volumes which might be a little bit shaky. That's the first one.

[Gisbert Rühl, Chairman of Management Board & CEO]

Good question. Yes. So first of all, yes, as mentioned, October is still running well. And -- but then the visibility is -- that's why we are somewhat cautious, because we have no real visibility. We don't know how many supply chains will go down going forward in the next few weeks because of COVID. So there are lots of uncertainties. But yes, nevertheless, so it -- I would not rule it out that we end up above this EUR 95 million, but we have to see.

[Carsten Riek, Director & Co]

Okay. Fair point. The second question, and you already hinted on it during your remarks, net working capital. We have seen quite a good net working capital release for third quarter reported. Does that have read across to the fourth quarter ability to release net working capital?

[Oliver Falk, CFO & Member of Management Board]

No. Typically, we see in December that our trade receivables will drop as our customers are paying their bills. And we do not generate in the last couple of days new invoices. So this is the major impact which we will see in the net working capital for quarter 4. All the other components will stay quite stable for quarter 4.

[Operator]

The next question is from the line of Alan Stephen (sic) [ Alan Spence ] from Jefferies.

[Alan Henri Spence, Equity Analyst]

It's Alan Spence from Jefferies. Just one question left for me, and it's around the price increases that we've seen in both Europe and U.S. The mills have obviously been pushing quite hard. Are you having any difficulty on passing these price increases off to customers? Automotive obviously, is doing very well. But in some of the end markets you mentioned that aren't doing as well, are you facing some difficulty?

[Guido Kerkhoff, Vice Chairman of the Management Board]

Not that much. I mean we've seen quite a lot of price increases in the past done very well. You could see it in Q3. We expect for Q4 not to continue with that sharp increase, as I outlined. And so far, we can pass it on. I think the mills are now coming back to margin zones, which are okay. And they had to recover. I mean, they were suffering a lot more than any trading companies. So no, we don't see it. And John in the U.S.? What is...

[George John Ganem]

Yes. I would say, certainly, we're having no problem passing through the increases on the transactional side of the business. Contractually, the mills have been very aggressive to improve the structure of the contract pricing heading into 2021. But to this point, we have had success in passing all of that -- those new structures through. No loss of business and almost most of the contracts have been settled now with the new structures in place.

[Operator]

The next question is from the line of Brauneiser Rochus from Kepler Chevereux.

[Rochus Brauneiser, Head of Steel Research]

A couple of open points from my side. The one is on demand visibility. Maybe can you comment a bit how far your order books are now reaching for the auto business of [ KOSTAL ]. And what is your kind of thinking about overall demand levels for your business in the new year? That's the first question.

[Guido Kerkhoff, Vice Chairman of the Management Board]

Well, I mean, the auto sector, we all know, and they ordered until they stop. The visibility, I think, and the demand that we see in the production levels are on okay levels. I mean, if you try to order a car in Germany, it takes quite some time until you get it. So therefore, it seems that there is some order backlog. And if -- I rather would expect that this is continuing in production, therefore, for quite some time, if we don't see that the supply chain somewhere might get broken due to the second COVID wave. But so far, we have no indication that, that's going to happen. So we see an underlying demand that continues on the levels we have it right now. And if nothing happens, that should start for the new year as it is today.

[Rochus Brauneiser, Head of Steel Research]

And overall for the whole business in terms of how you demand -- how you see demand group-wide for the, let's say, Q1?

[Guido Kerkhoff, Vice Chairman of the Management Board]

Again, so far, we see that demand is stronger, and we have seen the strongest weeks throughout the year. We don't see any changes so far. What we're preparing for here is to be able to cope with the second wave and to be, on the cost side, very cautious. I mean, what you clearly see is that even at lower levels, we can be profitable right now. So I think we're well prepared for that. But we don't see that the underlying demand has to change. Supply chain stays stable. So far, we have no indication of anything breaking that.

[Rochus Brauneiser, Head of Steel Research]

Okay. Makes sense. Maybe a couple of points on your cost performance, which was quite strong, I guess. The one is that your other operating expenses were flattish in Q3 versus Q2 even though you had a rebound in the volumes. Can you give us a bit of a sense about the dynamics here? How much is this due to variabilization of costs? And how -- why hasn't that snapped back and you could maintain the cost at such a low level?

[Oliver Falk, CFO & Member of Management Board]

So the main driver are our variable costs, and on the first position here, are the transport costs. So -- but the amounts are quite low. So if we compare quarter 3 against quarter 2, the change here is less than EUR 5 million. So the increase due to the higher volumes is less than EUR 5 million.

[Gisbert Rühl, Chairman of Management Board & CEO]

So overall, I think, Rochus, we clearly have to say that Surtsey was not only on reducing personnel costs. The rest got relatively better as well.

[Rochus Brauneiser, Head of Steel Research]

Okay. On your gross margin, I think what I couldn't square together is that you had quite good gross per ton in your European business of, let's say, EUR 280 per tonne in Q2, EUR 266 per ton in Q3, which is higher than what you usually had in the business. And this is at a time when you haven't had such tremendous windfall effects. Is there anything I need to keep in mind why you have been better than usual or better than historic average in the past 2 quarters in Europe?

[Oliver Falk, CFO & Member of Management Board]

Yes. What, of course, pays into that is besides the normal operative development is that we see increasing sales prices and they lead, to a certain extent, re-release of stock depreciations. But this is a minor effect for Europe. But this is the only impact, which is positive-included. What we also have to take into consideration, and this is a negative impact, is that due to the reduced turnover volumes, we have also reduced purchasing volumes, and those reduced purchasing volumes are cutting off parts of our supplier bonuses. So that goes in the other direction.

[Operator]

[Operator Instructions] Question from the line of Seth Rosenfeld from Exane.

[Seth R. Rosenfeld, Research Analyst]

Just one follow-up question, please, with regard to the headcount reduction and facility closures. Can you please give us an update on the expected cash outflows associated with these restructuring efforts? In terms of redundancy packages, will those all be recognized at year-end? Can you please give us a sense of scale? And then also in that, if you can please confirm expected cash inflows from facility closures, please?

[Oliver Falk, CFO & Member of Management Board]

Yes. So the 600 -- roughly 600 FTEs, which I just mentioned, which will be released in December, all the severance payments which are due will have a cash impact next year. So its provisioned this year, has a P&L effect, but the cash effect comes in next year. This cash effect will be, to a certain extent, counterbalanced by the sale of sites and the closure of sites, where we expect a positive cash effect of roughly EUR 30 million coming in next year. So this goes positive against that.

[Seth R. Rosenfeld, Research Analyst]

Can you quantify the 600 layoffs that will be hitting in Q4, offsetting that EUR 30 million, please?

[Oliver Falk, CFO & Member of Management Board]

You mean the severance volumes? Or...

[Gisbert Rühl, Chairman of Management Board & CEO]

Payments.

[Seth R. Rosenfeld, Research Analyst]

Yes.

[Oliver Falk, CFO & Member of Management Board]

The payment figure, you can count the figure, let's say, roughly EUR 75,000 per person.

[Operator]

Next question is from the line of Brauneiser Rochus from Kepler Cheuvreux.

[Rochus Brauneiser, Head of Steel Research]

On your cost profit performance again, can you give us a sense how margins are differentiating between your digitally processed business and your conventional distribution business?

[Oliver Falk, CFO & Member of Management Board]

Okay. So typical, in our digital business, like online shop, like order -- contract platform, we have agreed prices. So those prices in the online shop are prices which we have set and which are nonnegotiable. So therefore, we have -- let's say, those prices are stable at the target level. Whereas, the prices which we are using in the off-line business, they are, of course, negotiated. We are in the competition situation. And therefore, those prices are different from those prices which we typically see in the online world.

[Gisbert Rühl, Chairman of Management Board & CEO]

It will be a bit different with the Kloeckner Assistant. So the Kloeckner Assistant -- with the Kloeckner Assistant, the automating process, also when an offer is requested, so the whole process, and in the end, there will be also a negotiation tool available. So that -- yes, the answer is a bit more similar to the off-line world. So we take here the off-line world online, but prices are managed to a certain extent like in the off-line world.

[Rochus Brauneiser, Head of Steel Research]

Okay. What I try to figure out is, with the ramp-up of the Assistant and the -- that you're moving your volumes to these processes to over EUR 1 billion. Is this already getting your margins up? Or is this, at the end, leading to more price pressure? And then net-net, you're similar on a gross level to before for better or worse.

[Gisbert Rühl, Chairman of Management Board & CEO]

No, no. There is a -- so there is one difference, one difference. So currently, as Oliver was saying, more or less, all prices are negotiated. And yes, I would say, sometimes good, sometimes bad, as usual, in the sales force. When this is done by the Kloeckner Assistant, then this pricing will also be automated. There will be an artificial intelligence-driven pricing. And we expect here in the end that prices will be higher because we would not give up, so -- and -- which takes place in the off--line world. When you have hundreds or more -- thousands of salespeople, then as mentioned, some are better, some are not that good. But this is different when this is done by the Kloeckner Assistant. So in the end, our margin will improve with the Assistant.

[Operator]

We have a question from the line of Raphaël Moreau from Amiral Gestion.

[Raphaël Moreau]

Yes. Sorry, maybe my question has been answered. But sometimes, I couldn't hear. We had [indiscernible]. Just on XOM, I think you mentioned some target revenues for next year. Could you maybe provide more details, both in terms of revenue and maybe profitability for XOM?

[Gisbert Rühl, Chairman of Management Board & CEO]

Yes. So the -- first of all, XOM is a completely virtual platform. And the value of the platform is driven more by GMV, and then, of course, also by revenues. And so GMV, the gross merchandise value, which will be processed through the platform, will be this year -- by the end of this year, EUR 130 million. And as mentioned, next year, we should come in with a number between EUR 600 million and EUR 1 billion. And the take rate on this EUR 1 billion depends on the product itself. It could be between 1% and 2% or 3%, and then we will have also a subscription fee. But in the end, where comes the value from the -- for our shareholders, the value is clearly coming from this valuation of the platform itself. Now when this platform scales as expected and when we make the platform also a bit more independent going forward from Klöckner, which is also a target, because, of course, there are some suppliers who are, to a certain extent, reluctant to sell their products through Klöckner platform. So when this platform is more independent, then we will -- or then we could realize significant value for the Klöckner shareholders through the scale -- through scaling the platform as I just mentioned.

[Raphaël Moreau]

Okay. So yes, still next year, you're expecting here the improvement on GMV?

[Gisbert Rühl, Chairman of Management Board & CEO]

Yes, yes. Right. So with this -- so we have on the XOM, we're scaling through this some eProcurement, which is, to a certain extent, similar to our Kloeckner Assistant. So we're using here the same technology like with the Kloeckner Assistant. We're automating, more or less, for the customer also the whole process of requesting an offer and ordering the products, on the one side, and we also open up for the customers' additional suppliers. And with this, we are very confident to scale the platform also because we solved this hen-and-egg problem. Because when a customer is processing a request, an IFQ, through XOM, and when the suppliers want to make an offer, they have to go on the platform. And so we're forcing them in the end on the platform with this. We're then also solving the hen-and-egg problem.

[Operator]

Thank you. There are no further questions at the moment. So I'll hand back to the speakers.

[Gisbert Rühl, Chairman of Management Board & CEO]

Yes. Thanks very much, everyone, and have an exciting day and night. Hopefully, we will end up with the result tomorrow morning, which would be also good for business. Yes. Thanks very much, and then we'll talk again latest to our full year presentation in, I think, March next year. Bye-bye. Thank you.

[Operator]

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.