Thyssenkrupp AG

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.