Thyssenkrupp Ag S/Adr

Ladies and gentlemen, welcome to the ThyssenKrupp conference call interim report first quarter 2022-2023. For the first part of this call, all participants will be in listen-only mode and afterwards there will be a question and answer session. I will now hand over to Klaus Ehrenbeck. Please go ahead.

Yeah, thank you very much operator. Yeah, hello everyone. Also on behalf of the entire team, I would like to wish you a very warm welcome to our conference call this morning and not in the afternoon as you are used to. We decided to host the conference call in the morning in order to help to save time for everyone. If we have feedback on that, we would really be happy to receive it. This conference call, as always, will be recorded. A replay will be available shortly afterwards in the course of the day, and all the documents for this call are available on the Investor Relations section on our websites. I think that's it from my side. As always, there will be a Q&A session after the presentation of Klaus Keisberg, to whom I would like to hand over now. Klaus, please.

Yeah, thank you. Also, a very warm welcome from my side to our conference call here on TK's Q1 figures. And I'm pleased to state that ThyssenKrupp has made a good start into the new fiscal year 2022-2023. If it's adjusted for all business, it's in line with our forecast. And free cash flow before M&A is even ahead of our forecast. Overall, the business performance confirms our full year expectations of the group. Nevertheless, the fiscal year is still subject to uncertainties with regard to further macroeconomic development, even though a major economic downturn is expected to be more unlikely. Let us have a look now on the key financial performance highlights for Q1. Overall, sales were at 9 billion euros and basically at the same level year on year. Declines at multitracks and material services were compensated by increases in other segments. EBIT adjusted and EBIT adjusted were significantly lower year-on-year, mainly by, as expected and already anticipated, the normalization of material prices or margins at material levels. This effect has driven EBIT adjusted development year-on-year and outweighed higher earnings contributions from Steel Europe, automotive technology and marine systems. We were able to increase our fee cash flow before M&A by €494 million year-on-year due to lower seasonal build-up of networking capital. The cash flow number was even better than our forecast given earlier. Customer payments at most segments, including also some prepayments at marine systems, that were initially anticipated for Q2. Looking at our balance sheet, I can state that it remained rock solid. Year on year, we gained 0.6 billion euros in net cash. We further improved our equity ratio by 8.3% points to a very comfortable 40%. and pension liabilities came down by 2 billion euros. And I would like to highlight again our valuable assets, such as, for example, our stake in TK Elevator and the growth companies of Lucera, as well as the ammonia and methanol plants businesses. For this chemical industry, experts predict a key role in the upcoming hydrogen economy. Let us continue with further key highlights on the next slide. First of all, I would like to give you an update on our restructuring program. As of now, we have already reduced more than 10,000 FTEs. It goes without saying that this is the largest restructuring program ever. Moreover, I would like to outline that the performance initiatives of our businesses with defined top and bottom line levers are well on track. In Q1, we have already generated a low three-digit million euro amount, which for sure supports our financial targets. In the multitrack segment, next portfolio actions are progressing, with two businesses currently being in an M&A process. For the Automotion Engineering business unit, we are in talks with potentially interested buyers, and we have started the M&A process for the Springs and Stabilizer business unit. Furthermore, our order funnel in our hydrogen and renewables-related business keeps expanding. For example, Nucera was able to turn a memorandum of understanding with UNIGEL in Brazil for a 60-60 MW hydrogen electrolysis plant into a form contract. And wood is selected by ADNOC for the exploration of a large-scale ammonia cracking plant. And bearings recorded rising order intake by wind turbine OEMs in Europe and Germany. And last but not least, building up upon our continuous improvements in ESG in the last fiscal years, our efforts become once again noticeable to some group is on the CDP climate A list in the seventh time in a row. Moving on, let us now jointly take a brief look at the group performance in Q1 more specifically. We see a robust top-line development despite the sale of AST and price-related declines at machine material services. Due to higher sales of almost all other businesses, sales are basically on the same level as the prior year with a total of 9 billion euros. Let's continue with EBITDA adjusted that came in with 477 million euros, a decrease of 21%, similar for EBITDA just, which is down by 33% to 254 million euros, both driven by the price normalization of material services. Moreover, effects from destocking alongside falling spot prices at customers, especially auto, also affected steel group where shipments were lower year on year. Nevertheless, performance and restructuring measures supported all businesses. Free cash flow before M&A has significantly improved by €494 million year-on-year. Besides the early customer payments at most segments, this is mainly driven by seasonally planned but year-on-year lower net working capital build-up. And looking through Q2, we expect a strong cash conversion due to the planned net working capital release on the top of progressing earnings in the second half of the fiscal year. Let us now jointly take a look at the earnings in Q1, namely EBIT adjusted at a glance and by segment. By the way, please note that all corresponding EBITDA adjusted figures are available for you in our more detailed investor relations handout. Material services, as mentioned earlier, with lower prices and volumes in the distribution business, mainly in Europe, on the back of e-stocking and our customers. This resulted in a significant decline of 199 million euros year-on-year, as positive windfall effects were absent. But more important for us, they improved considerably quarter-on-quarter, also on the back of starting price increases in the spot market, and closed the quarter with an EBIT adjusted of 20 million euros. Industrial components reported an overall decline in earnings of 18 million euros year-on-year. The bearings business lowered year-on-year, mainly driven by increased competition in China and rising factor costs. The forging business is also down year on year, mainly due to temporary forging line maintenance stoppages. Automotive technology is up by 5 million euros year on year. Search cost base could be compensated by higher customer demand, operational improvements and price measures. When looking at the Q1 numbers, you have to consider that the prior year includes a positive one-time effect. At Steel Europe, newly concluded contracts led to higher average revenues per tonne, but shipments were at a record low of below 2 million tonnes, while cost of raw materials and energy went up year-on-year. EBIT adjusted increased by 52 million euros year-on-year to 177 million euros, which equals an EBITDA adjusted per tonne of 127. And you have to consider in the Steel Europe result also this includes an effect from our CO2 emission rights hedging activities. These effects are dependent on the market price on the reporting date and in Q1 this was approximately 18 million euros. Marine systems maintained the positive trend with a significant increase of 14 million euros year on year, mainly through improvements in margins by execution of higher quality orders from its order backlog that stood at 13.1 billion euros at the end of the quarter. Multitracks reported a loss in EBIT adjusted, a decrease of €16 million year-on-year, mainly due to the sale of AST and thus a lower earnings contribution, while almost all remaining businesses could improve their earnings. Our headquarters and others improved by €38 million year-on-year. With that said, I would like to provide you with our view on the quarters to come. Q2 will be dominated by the development of P-Loop, where we expect a challenging quarter. not unexpected. This in particular will come from partly renewed contract prices and still a high, but of course only temporarily high, cost level, driven by effects from moving average at our accounting for inventory. On the positive side, we noticed in January ongoing restocking by our customers that will most likely gain momentum going forward. And on group level, the therefore anticipated earnings decline at schedule might not be compensated by offsetting effects, for instance, arising from top line growth at industrial components or strong order backlog execution at marine systems. For Q3 and Q4, we clearly see a substantial step up in earnings as well as a positive free cash flow before M&A for both quarters. This view on the quarters to come is essentially based on the trading conditions that we currently see or expect going forward. Please let me give some examples. I don't want to go through each point here on this slide. But first, economists, of course, and industry experts predict that the macro environment will be stabilizing in spring, followed by a gradual upswing towards the rest of the fiscal year. Moreover, we see indications for the auto sector to work on its order backlog as supply chain pressures continue to ease. In light of this, we expect improving demand and hence increasing shipments for our steel products and car components. Now let's look how these trading conditions translate into drivers for our business for the second half. First of all, we see opportunities for top line and margin expansions for our material services and steel group. Moreover, we see ongoing growth in our components business, also driving bottom line performance. Marine systems will benefit from the execution of higher quality order backlogs. while at the same time the ongoing performance and restructuring initiatives across all segments will additionally support the earnings and cash flow performance. And last but not least, and you might have expected this, there will be a significant networking capital release in the second half of the fiscal year. All these indications make me confident that we will reach our outlook for fiscal year 2022-2023 that I will show you now on the next slide. For our sales, we expect a significant decrease, mainly due to normalized price developments at material services and Q1. We saw early effects at material services in Q1 already. On the earnings side, we project EBIT adjusted in a range of mid to high three-digit million euro figure. This is in particular driven by the absence of the dynamic price effects, which provided strong tailwind in the prior year and which are the main reason for the declines in material services in syrup, as well as still high sector costs such as energy. Improvements in earnings among others at automotive technologies and multi-tricks counteract this development. Overall, if you just consider an expected depreciation of approximately 1 billion Euro, you can conclude a sizable EBITDA adjusted figure for 2022-2023. For a free cash flow before M&A, we are striving for an increase at the last break even. Nonetheless, looking at the next quarter, we expect lower earnings but a broadly stable free cash flow before M&A in Q2, while sales are expected to increase quarter on quarter. With regard to the quarter-on-quarter development for free cash flow before M&A, please consider the Q1-Q2 shift in prepayments, which are, however, of course reflected in our guidance. Let me shortly provide you with some granularity of our outlook for free cash flow before M&A. We expect an EBIT adjusted, as said before, in the mid to high three-digit median range, as we see progress in performance and transformation across all segments. Coming from EBIT adjusted guidance, we plan with higher investments year-on-year, mainly related to the Steel Strategy 2030, and first investments into green transformation, but also into other business areas. In addition, extraordinary and mainly non-cash IFRS 16 effects, in particular in connection with the long-term service contract as material services, which are referring to long-term leasing liabilities, that will increase the value of capital spending, and this also reflected in the previous flow before M&A. Investments are also planned for targeted growth initiatives in our businesses. Of course, the release of investments or the approval of the investments will be restrictive overall and dependent on the development of the businesses and the group. So it is active management steering with potential flexibility. Furthermore, we expect continuous and significant release in networking capital. Payments for restructuring will have an impact on the low three-digit median range. Other positions include taxes, interest and pensions. Overall, we are aiming for an increase to at least break even in free cash flow before M&A, including the extraordinary IFRS 16 effect. Going forward, we see clearly further upside potential, for example, through progress in our transformation of ThyssenKrupp, leading to a much better operational performance across our segments, also supported by a more streamlined portfolio. This also implies the fixing of cash losses at multi-tracks over time and the reduction of restructuring cash out due to continuous progress we have made here so far. In the longer term, also normalized but still above depreciation, invest levels will support our cash flow generation. Having said that, please let me remind you of our mid-term targets, which includes, of course, a significantly positive free cash flow before M&A. As you can see on the chart on the bottom right, we have continuously made progress in the last years, and I am confident that we will continue to do so and deliver as promised. This has highest priority for me and the overall management team. Now let me conclude. As a result of our restructuring efforts and measures to improve performance, our businesses are now in a much better position to cope with challenges in their environment and take advantage of a wide range of opportunities. We strive to further improve performance and productivity and are continuing to press ahead with the transformation of ThyssenKrupp into a group of largely independent high-performing companies. ThyssenKrupp stands for strong materials engineering expertise as well as digital competence as base for more profitable growth going forward. At the same time with our long-standing engineering expertise and the technologies in our portfolio we are an enabler of and profiteer from the global energy transition and we are in a position to really move the needle when it comes to decarbonization and green transformation. We made ESG a CEO priority and an integrated part in all our businesses. Last but not least, rewarding the trust of our shareholders is of high importance to us. This commitment is already reflected in our recently resumed dividend payment of 15 Eurocent per share. Thanks for your attention and we are now ready to take your questions.

Ladies and gentlemen. Thank you very much. Operator, yes, please take over.

Thank you. Ladies and gentlemen, if you have a question for the speakers, please press star one one on your telephone keypad. There will be a brief pause where questions are being registered. The first question is coming from Ingo Schache at Exxon PMB Barilla.

on the multi-track side? Please go ahead, sir.

There was a small delay. Please start again.

Okay. Sure. Thanks for taking my question. The first one would be on multi-tracks. I think Q1 was better than expected, but then you're guiding for lower Q2 earnings. Can you give us a bit more color on which business unit, also which factor would drive the sequential redeterioration of the multitracks profitability? Is it that execution was unsustainably strong in Q1 in certain areas, or rather emerging cost inflations and margin pressure in certain areas? What's really the swing factor here?

Yeah, I mean, What you can see here, of course, is a mixture of many businesses here. So if we guide Multitracks a bit lower, you can see that the cost advantage we see in our automotive business, in the Multitracks business, will be not as good as in the Q1. And we made a good performance at Nucera in the first quarter. We will still have good performance in the second, but not as good as in the first quarter. And alongside with some other things in the chemical plant industry, these are the major problems. explanations for this development.

Okay, thank you. And maybe following up on Lucera, I think at the annual general meeting, you, Martina Metz, were saying that you're very closely following the progress of the first IPO attempt in Germany, and I think the first larger IPO has been completed successfully. So when it comes to waiting for the right capital market environment on Nucera, is there anything else you are waiting for? Any other milestones we should watch out for now that the IPO pipeline has succeeded so far? Or is that probably with the asset being ready and capital markets being fairly ready, now a good time to also think more specifically about Nucera listing in the first half of this year?

Yeah, as I said also before in some other occasions here, so if you look back at the development of Nocera, I mean what we see so far that I think the performance of Nocera showed all proof points so far, and all the order intakes increased a lot, so we think that the value of the business increased between last year and this year. So this is going very well, and as we said before, it is of course still our strategy to do a minority IPO for this business, so we want to keep 50%. this is a strategy we will also pursue the only thing which uh which was let's say in question was the capital market environment and this was last year so and this is uh what we are of course we we carved out the business so we are clearly ready to do so and we are closely looking at the market conditions we see if you look at the last couple of months or weeks we have not seen so much ipo so far so i think lasso for two weeks ago there was the first one but uh The question is, do we really consider this now as a good one? So if we consider it as a good one, we will start with this process. But we cannot give you a timeline whether it's in the first half or not.

Okay, understood.

Thanks very much. We will come when we are ready.

And the growth is not dependent on an IPO. Yeah, of course.

Thank you. The next question has come from Jason Fairclough at the Bank of America.

Yep. Can you hear me, folks? Good morning.

Yep.

Hello. Look, just a couple questions on the working capital. If I look at some of the other steel companies, say ArcelorMittal, they're actually in a situation where they're releasing working capital right now, right? And similarly, if you look at the outlook that we're hearing from some of the other steel companies, it seems to be much more positive than maybe the outlook that you're communicating today. So I'm just wondering, is their business so different to yours?

I'm not too much commenting on the development of the others, but what we are saying is, what we achieved in the first quarter, I think you know. What is the aim for the rest of the year? So if you look at the volumes, In the first quarter, volumes were weak because everybody of you know this. We saw this destocking effect alongside with decreasing prices. What we see so far now is spot pricing coming up a bit again, and volumes are also coming up a bit again. So for the whole of the fiscal year, what we guided so far was that we, of course, see for the rest of the year, let's say, an increase in volumes compared, of course, to the beginning of the year. So we all in all will come with numbers which are not lower than the previous year. So let's say it this way. So we do see, of course, a certain dynamic in the rest of the year. It is at the moment very difficult to say whether this dynamic is going to be that way that we will come to a level which will be before crisis or even before war. This is something we have to see. But we see dynamic for the rest of the year. This is very clear. The rest is with the networking capital here. I can assure you that we have quite ambitious targets to release net working capital for the steel business to the end of our fiscal year, and we are really in the progress to do so. We will see at the end of the fiscal year very much lower working capital numbers for the steel business, as you can see now.

If I could just follow up on the working capital, if you don't mind, Klaus. how do we think about the working capital in the non-steel businesses? I think for a while you were carrying working capital on behalf of some of your customers in some of the capital goods businesses. Is that now largely reversed, or do you still have excess inventory there as well?

Not so much. So, I mean, we will have a destocking over the year, a networking capital release over the year, mainly in the steel business. in the material services business also, and also a bit in the automotive technologies business. The rest of the businesses, of course, we do have, let's say, targets to increase working capital position, but the first three was with a major improvement we planned so far.

Okay. Thank you very much.

The next question is coming from Bastian Sinagowitz. Your line.

Yes, good morning all. Thanks for taking my questions. My first question is actually more on one of your current niche business, which is Ude. I think you've been winning a large project and I think there also have been a couple of pretty bullish comments from your CEO of the business when it comes to the growth ambitions for Ude. So I'm wondering, do you now aim to sharpen the profile of that business a little? It's obviously still within multi-tracks with one of that

niche business you still own which is somewhere hidden in there um so what is the situation here so the line was not too good but the question was whether we want to plan to to sharpen the wood of business because there are some some things we are let's say we are promoting is this something it's a question correct i mean i i mean ultimately it's a business which has

clearly a pretty good growth outlook with the exposure to ammonia and hydrogen-related end markets. And I think you picked that up also in some of the comments at the AGM and I think in other occasions. I think there has been the public comment from your CEO to basically double the top line. So I'm wondering what's your aim to do with this, whether you still aim to leave it within multitracks, whether you aim to sharpen the profile. Basically, what is your plan with that business?

So if you look especially for the ammonia business, and I just also, I think it was mentioned in the speaker notes and things like this, we do see this ammonia business with a very high potential to grow. And this is also what we see in the order intakes. Why is it so? I mean, I think you know this, because ammonia gets more and more important also in the light of the green transformation, because ammonia will most likely be a major part of the carrier for hydrogen. And, you know, we have several other intakes here. I mean, we have not taken so much on the decisions which you would like to hear now, but it is very clear that this ammonia business we want to drive and we want to bring further. And therefore, this ammonia business and also methanol business will play a more important role in the UDU business. And what we are doing with this at what point of time we have to let open.

Okay, thank you. Then just a second question actually on the CO2 item, which I think has been at least surprising in the sense that you're one of the first companies which basically has been carving out a big effect, which is basically within the operation numbers. And it's pretty clear that CO2 obviously has an impact on your operational results here. But unfortunately, it also adds volatility when you're probably also really aiming to demonstrate stability and a little bit of earnings defensiveness in your business with all sorts of others. So I'm wondering, wouldn't it make sense to somehow even find a way to neutralize that and shift it into the other EBIT rather than adding volatility in your operational number?

Yeah, I mean, what you're saying is clear. We have to show this because we had it changed in the accounting procedures from our auditor here. And, I mean, what we do is, I think it's clear. I mean, we do have a hedging strategy. If we are short, we would buy CO2 certificates. And, of course, we get also fee certificates. But in the past, we had access in certificates which were not used. And as part of a hedging strategy, we do forward hedging here. And this has an effect, so far it was not reflected in the P&L, only in the, let's say, in the equity of the balance sheet. And now it has to be reflected in the P&L. I don't know, to be honest, I don't know how our competitors are doing this. If they have this on the balance sheet, they also would have to adjust for market prices at one point of time. And this is what's happening now. So since this is a new item for us, we at least want to give you clearance what kind of part of the earnings for Steel Europe is reflected to this effect. And if we would, as you said, if we would have to bring this into, let's say, if we would not adjust it any longer, so if we would say it as an adjusted factor, if it would not be reflected in the EBIT adjusted but in the EBIT reported, this is something which has a procedure which has to go through supervisory things and frankly like this and has to be also discuss with the auditor but we understand clearly that this is for you a position which is new and which gives maybe this for you it is something like a problem to get really clear I can assure you that we want to make this effect for you very visible and we want to let's say have total clarity on this and yeah this is the only thing I can tell you here so We will always tell you how much the effect is, and you know this effect can also be reversed, but in the first quarter it was a positive one.

I think you're being very transparent about it. I guess what would be good, and even if you're not giving it to us here today, I think would be if you could at least give us maybe a bit of color on the net exposure and the sensitivity to the CO2 price so that we can mentally already do the math at our end and basically just weigh off what the effect would be. But that's something that we can maybe take offline as well. But those were my questions. Thanks so much.

Yeah. Okay. The next questions are coming from Gabriel at Morgan Stanley.

My question is on the comment you made at AGM a couple of weeks ago around restructuring the portfolio, which remains a priority for you. What is the real bottleneck for the Steel Europe spinoff? Is it funding, and what do you need to see, or what are you waiting for to make progress on that front? That's my first question. And my second question is on Steel Europe as well. One of your peers has received significant funding from the German government to help with their decarbonization plans. Where do you stand with securing funding, and what are the timelines that we should be expecting? Thanks.

Yeah. I mean, if you talk about this... or the separation of the steel business. I mean, we are talking about this since at least one year or a bit longer. At the beginning of last year, we told you that we will postpone this project. Why did we so? Because if you look at the, especially at the transformation of the steel business to carbon neutral production, you have to have, I mean, this is a process where you have uncertainties, but you have to have at least let's say certainty about funding about capex about some some some other issues and last year we did not have this very clear and you have to have this to make a really bankable business plan or to make a spin-off or something like this you have to have this security here and um now we are of course uh in a stage where we see clearer clearer about this and um you mentioned this um this subsidy for the direct production equipment. Where are we now? So we of course plan also to invest in a direct production equipment that will come into work in 26. And this is also approved by us here. And now it is so that we have an application in the local government, in the German government, and it is now at the moment lying in Brussels for approval. We don't have any objections or doubts that we don't get the approval. It's only a time or a process issue. So we are, let's say, thinking that we will get approval to this in the next couple of months. So let's say in the first half year of this calendar year. And I mean, this is of course, coming back to your first question, this is of course to have this is of course a major prerequisition to make things like a spin-off and things like this. You have to have, let's say, specific items which you can do into the bank or business plan. This is more an issue than the funding issue.

Thank you. Very clear. The next question is coming from Tom Lang at Barclays.

Good morning. Thanks for taking my question. Maybe just to start on the Steel Europe guidance, you know, you're guiding for lower earnings quarter on quarter. I mean, if we assume the emission rights, you know, costs stay fairly stable, I guess we should expect an 80 million reversal out of that number. And then you have auto contracts resetting. I think you have some high cost inventory sitting on your books that you're now selling into the markets. I mean, if I add all of that together, I get pretty close to sort of break-even EBITs. I guess you have some tailwinds in volumes, but maybe you can just help a bit with the bridge in terms of earnings. Anything else I'm missing? Thanks.

I mean, it's going very much into detail here. So if we guide Q2 or if you give indications, we, of course, are not reflecting potential issues which are coming out of the CO2. So this we are not reflecting here. But it's true what you said. If you look at our inventories, we have this average, global average issue. Therefore, the cost base or the cost level of the inventories is still high, but it's going to improve from quarter to quarter. I mean, this is very clear. And if you look at the first quarter, our sales per ton was, of course, higher than quarter on quarter it was higher but if you look now that we had renewed some contract at the 1st of January and if you look at the development of the spot prices you can imagine that the sales per ton went down a bit in average and having this still this high cost level in the inventories but the sales per ton came down then of course you get a pressure on the margins this is very clear For us, nothing of this is unexpected, and we reflect this in our guidance. This is nothing which is really coming to a surprise for us. Of course, we saw this also before the fiscal year started. For us, it's not a surprise. If we look at our Q1 and the rest we are anticipating, we are totally clear that our guidance is clear, what we are saying is valid. If you ask me what kind of issues we, if you make your bridge, it is indeed, it is the sales per ton and it's the cost of materials. This is more or less, and you can say that the volumes are increasing a bit, yes. So these are the three issues. It's not helping too much in detail, but I cannot give you much more detail.

No, that's helpful. Thank you. And then the second one, just a sort of follow-up to Alan's question on the steel standalone solution. I mean... How important are just the steel markets themselves? I mean, you sort of talked through the funding and the subsidies from governments. But previously, you know, you've ruled out the standalone solution because of the disruption caused by Ukraine and volatility. Obviously, it looks like spot markets have picked up a little bit in Europe. But do you just need steel markets to continue improving? Or do you think you need something more structural, like the end of conflict in Ukraine towards this standalone solution?

I mean, if you look at the situation last year ago, so we were not even sure whether, for instance, electric power or gas would even be available without shortages or something like this. I mean, this is, of course, something you have to consider. How do we look at this now? I mean, gas shortages for us are not an issue this year, most likely also not here, although we are not quite sure, but most likely also not next year. And, of course, a normalization a normalization of markets, of course, is also a prerequisite, but I think we are heading into this direction very much, very much. So, therefore, if this is going on, we will come to the situation where we can say, yes, this is the right time to make an attempt for this spin-off here. But we do not need, really, something more structural. I don't know what you mean with structural, but...

No, that's clear. I just, by structural, I meant something like the end of conflict in Ukraine. But no, that's a clear answer. Thank you very much. I'll turn it back.

As a reminder, if you have a question for our speakers, please press star 11 to enter the queue.

The next question is coming from Ruchus Braunheiser at Kepler Schiffer. Questions from my side?

one is on the bearings business um i guess on the one hand side the expectations on the current year sound quite constructive but if i spread it against some of the commentary from major windmill producers in the world it it looks a bit more different and also you're referencing in your outlook statements on increased competition in the in the space particularly in china so maybe can you share a bit of light, what the bits and pieces are and how you see the business progressing from here in terms of top line, in terms of profitability. That will be my first question.

Yeah. I mean, if you look at the business in Bering, you all know this business. We had a booming market in China two years ago, also with incentives into the market. We could participate quite a lot because we have a An remarkable footprint there. In the past, we invested a lot in this here. And we have local production here. This is important to say. We have local production. What we see in China now, of course, there are Chinese OEMs and also some other foreign OEMs. And therefore, this is what we said. The market is getting closer here, to say it this way. If you look at what you are saying regarding the OEMs, The OEMs are still in a difficult situation. I don't want to comment on this, but this is something you can always read in the newspaper. Where do we see dynamic? We clearly see upcoming order intakes, increasing order intakes, which we have not seen, by the way, in the last one and a half years. We are now seeing order intakes increase, and not in China, but especially in Europe. And if you then look at further potential, if you, for instance, look at Inflation Reduction Act in U.S. and you also know that we have a footprint in U.S. This is also important to notice. We clearly see mid-term potential to grow very much on this business year. And if you ask me when margins and volumes coming, we do see this year and this is also how we guided this, not as a remarkable growth year this year, but we clearly see in the years 24 and ahead volumes to come with clearly dynamic in this case. And it's also not only coming from China, it's more coming then from Europe and US.

Okay, that's clear. The other question is on cash flow. I think, Klaus, you mentioned the effect from the marine prepayment. Maybe you can give us a sense how much that was and Sequentially, what is your expectations on the positive free cash flow in the H2? Will it be more equally spread or, as in many occasions in the past, the free cash flow was very much bound to the final quarter? Any add-on remarks would be great.

Yeah, I mean... I think we guided the Q2 pre-cash flow development, and you clearly have in mind what kind of effects do we have. We had some prepayments of customers in the marine business. Yeah, this was a two-digit one. I think we don't be too precise more, but it was not a low one. It was a two-digit one. We also saw some prepayments in other businesses, some OAMs did prepayments. And if you look at the marine business, business. I mean, you know all these discussions with prepayments. I mean, if we look at the marine systems, of course, we have a year target for the free cash flow. And the prepayments, of course, you cannot steal this. There are some in first quarter, there are some in third quarter, fourth quarter, but you cannot make it really to say, hey, we want to have this in the second quarter. This is something which falls with the contract. So we cannot steal this. And this is the first one. The second one is I mean, you all know that we have the seasonal pattern. And we have this especially in the materials business. You have to bring up inventories a bit. And, by the way, we did this in our first quarter not so much as in the previous years. We have to bring on to be ready to deliver Q2, Q3, and so on. And this is something which has actually happened. We had a small increase in working capital in the first quarter, not as much as so. But we have to prepare for it. and the release of the working capital. Then it's starting with the Q2, Q3, and Q4. This is always the same, and that's the reason why we unfortunately do have this effect that our cash flow in the last quarter is most likely the best as in the history always. So we have an explanation for this. So there are, from the marine side, there are these fee payment dates which we cannot influence, and we have this structural issue that we have our working capital, that we have a seasonal pattern on this.

Right. Right. Got it. And there may be a brief question on steel. Based on what you said on your volume dynamics, I just noticed that the crude steel production in the Q1 was significantly exceeding your shipment levels. So what shall we read from there? Are you in the end, preparing for higher growth than it maybe sounds like, or has production a little bit overshot your shipment performance?

No, no, no. So we know this. Yeah, this is clear. This is also something like a seasonal pattern. If you look at the last first quarter, you would have seen it also. So this is something how we prepare to be prepared for the rest of the year. So nothing special more than this.

OK, great. Thank you very much.

There are no further questions at this time. For closing remarks, I give back to Klaus Ehrenbeck.

Yeah, thank you very much, operator. And thanks again to everyone outside for being interested and for joining our conference call. We hope that this earlier scheduling of the conference call is helpful for you. As mentioned, happy to receive feedback on that. And as always, for the remainder of the day and going forward, the IR team is happy to receive your questions or information requests if you want to discuss things any further. Thank you very much for that, and we look forward to staying in touch with you. Bye-bye.

This now concludes our conference.

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