Thyssenkrupp Ag S/Adr

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

Thank you very much, operator. Hello, everyone. Also on behalf of the entire team, I wish you a very warm welcome to our conference call. All the documents for this call are available on the IR section of our websites. In addition, there is a comprehensive document that contains all the numbers and figures that you need also when you want to take a look at the segments. Here with me in the room are our CEO, Martina Merz, our CFO, Klaus Keisberg, and from Investor Relations, my colleague, Jacques Esser. As always, the presentation of our board members will be followed by a Q&A session. And first, for the presentation, I would now like to hand over to our management. And please, Martina, go ahead. The ball is in your field.

Thank you, Klaus. Good morning, everyone. Martina speaking. Thanks for joining our call today. And we're going to start with the first slide, progress along the transformation path of ThyssenGruppe. As you know, the Q2 Quarterly results are the last ones for which I'm responsible in my role as CEO of Thyssen Group. That's why I would like to take this opportunity to classify the figures published this morning for you together with Klaus. This is not just about the past three months. We also want to take a brief look back at what we've achieved together over the last three years. But above all, we want to look ahead, of course, because ThyssenKrupp can look to the future with optimism. And as you know, after the elevator transaction, we have embarked on a structured transformation path along a framework involving focus, improve, and scale. And we have achieved a great deal along these paths in three steps. First, we clearly structured our portfolio to make performance and potential for all segments visible, We increased value, focused on challenges and opportunities in the businesses. And second, we improved our financial figures. Today, we forecast a mid to high three-digit million euro number in adjusted EBIT and a slightly positive figure for free cash flow before M&A. So we are on track. And third, in addition to improving our balance sheet, we have created development plans for all businesses to create sustainable value. ThyssenKrupp is now a group of largely independent high-performance technology companies that are in a good starting position to take advantage of their opportunities, enabling the green transformation. On the next slide, it's visible that progress becomes especially visible in our improved balance sheet and our expanded footprint in green transformation. Not only have we significantly improved our financial KPIs through performance and restructuring initiatives, today we also have a very solid balance sheet and we turn the net debt into a net cash position, also supported by accretive portfolio actions at Multitricks. And we boosted our equity ratio to approximately 40%. Compared with 1920, the Thyssen Group is now in a much better shape, also for capturing opportunities that might come our way. This brings me to the right part of the chart, the green transformation. In all areas, we have focused on the opportunities that that present themselves for our technologies. And this applies particularly to the hydrogen economy. At Steel Europe, our decarbonization journey continues. In March, we reported the contract for the construction of our first hydrogen-powered direct reduction plant and two innovative smelters. And regarding offer in the triangle, At Nucera, we recently signed an MOU for capacity expansion for an H2 electrolysis plant. The customer, Unigen, plans to significantly expand its Brazilian plant to 240 megawatt. With that, Nucera now holds a large contracted capacity of more than 2.5 gigawatt H2. On the infrastructure side of the triangle, our plant engineering businesses, UDE, signed an MOU with ADNOC for a joint project development of a large-scale ammonia cracking plant. The business is developing very well, and the break-even result is in sight. The next slide shows that we continue on the path of transformation. Thyssen Group has achieved a lot in its transformation. It is now a matter of holding the course we have taken and further increasing the pace. The change in the CEO position will not hold back the company in this phase of implementing the transformation. The strategic lines that have been set will systematically continue. And in terms of performance, all our businesses have the clear objective of achieving benchmark performance. Their mid-term targets are important immediate steps on this path. Looking at the green transformation, we, as an industrial ecosystem player, want to leverage our technological expertise and intellectual property to seize the opportunities that will arise in this disruptive process. For our portfolio, our top priority is to maximize the value and development of our businesses. Even this means adjusting our ownership structure. And finally, our role as active owner is to enable innovation and to empower the management teams to realize the full potential for their businesses and their people. At Steel Europe, we are evaluating stand-alone options and are in promising talks with possible partners to address the diverse economic and ecological challenges of these businesses. We are also working on an independent solution for marine systems. The supervisory board gave the green light for this at the end of March. In addition to this, we will streamline our portfolio to reduce risk and improve performance which also will be reflected in the next measures at Multitracks. For ThyssenKrupp New Serra, an IPO remains our preferred option to unlock the full potential of our hydrogen business. However, the decision on a possible timing will depend on the situation in the capital markets. I can assure you, The ThyssenKrupp has grown very close to my heart over the past few years, and I will follow the company's further development with great interest and great passion, by the way. Not standing in this document, but I say with great interest and with passion. I wish the company and all its employees and its investors all the very best. I'm sure that the transformation we have powerfully embarked on will also succeed. And having said that, I would now like to hand over to Klaus to give you more details on our Q2 figures.

Yeah, thank you very much, Martina, and also a warm welcome from my side to today's call. First of all, I'm pleased to say that ThyssenKrupp has continued its solid performance in the recent quarter. Overall, I would like to clearly state that the year-to-date performance is fully in line with and strongly supports our fiscal year 2022-2023 financial targets. Now, let us have a closer look at our financial highlights. In the first half year, sales were at 19.1 billion euro, slightly below last year. However, looking at quarter two, quarter on quarter, sales significantly picked up again by 12%. Before coming to earnings, I would like to emphasize that we have adjusted our special items guideline. based on your feedback from the capital market after Q1 reporting. From now on, effects from the valuation of CO2 certificates are treated as a special item and are thus not included in EBITDA adjusted and EBIT adjusted anymore. This also implies that the respective Q1 figure is on a restated basis. Overall, and as expected, EBITDA adjusted and EBIT adjusted were considerably lower year on year, mainly by, as already visible in Q1, the ongoing normalization of material prices at material services. Also at Steel Europe, normalized prices at customer contracts in addition to cost-moving average effects impacted earnings. On the positive side, we saw improved contributions from automotive technology, multitracks, and marine systems. With regards to cash flow, we were able to significantly improve our free cash flow before M&A by more than 500 million euros. on the back of network and capital improvements. Looking at H1, we even increased free cash flow before M&A by more than 1 billion euros year-on-year. This clearly confirms our ambition for the fiscal year to drive free cash flow before M&A into positive territory. Let us continue with some further highlights on the next slide here. Looking at our balance sheet, I can state that It again shows a rock-solid picture. Year on year, we gained €0.5 billion in net cash, resulting in a net cash position of €2.9 billion. We further improved our equity ratio by 4.7% points to a very comfortable 39.8%. At the same time, pension liabilities came down by €1.4 billion to €5.7 billion. And please, let me remind you, we own some valuable assets, such as our stake in TK Elevator, or our growth company, Mucera, which I'm sure you are already very familiar with, and also our chemical plants business for ammonia production, Ude, with convincing growth perspectives because ammonia is not only key for organic fertilizers production, but can also be a carrier for hydrogen in long-distance transportation. Moreover, our strong balance sheet strongly backs our transformation journey, as it provides resilience with navigating our group through the current macro environment and enables us to grasp strategic opportunities going forward. Let us now jointly take a brief look into our group's Q2 performance. We experienced a slightly decreasing top line year on year with sales at 10.1 billion Euro, more function of lower prices at our materials businesses than demand as well as the sale of AST in the previous year. Nonetheless, quarter on quarter, sales significantly picked up, especially driven by material services and steel rope on the back of increased spot prices and higher volumes. Automotive technology and industrial components could both enhance their top-line performance quarter on quarter and year on year. EBITDA adjusted came in at 430 million euros, while EBIT adjusted came in at 205 million euros. Although price normalization from high levels again dominated earnings this quarter, Let's not forget to appreciate the positive development at automotive technology, marine systems and also multitracks. In addition, the continuation of performance and restructuring initiatives supported the performance of all our business. So far, FTE reduction is more than 10,500. Please let me remind you that the adjusted earnings figures EBITDA adjusted and EBIT adjusted as said before do not include any effects from the valuation of CO2 supply. certificates anymore and Q1 figures are shown on a restated basis. Free cash flow. Free cash flow before M&A has significantly improved and was at minus 260 million euros. This encouraging development was supported by networking capital improvements, mainly driven by release of inventories and materials levels. Now let's go on one step further and take a look at the earnings in Q2, 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 and well-known investor relations handout. Material services, as mentioned earlier, was affected by lower prices and warehousing shipments, especially in the European distribution business, although total shipments increased, mainly driven by volume expansion in our direct-to-customer business. However, even more important for us, EBITDA adjusted again improved considerably quarter-on-quarter, also on the back of recent spot prices development demand recovery and our internal efforts to increase efficiency industrial components was broadly stable year-on-year supported by better performance at forge technologies even though this could not completely compensate the softening at bearings bearings is still impacted by ongoing competition especially in china whereas forge technologies benefited from continued strong demand from the trucks and industry customers both businesses Units faced a higher cost base, which they counteracted to a large extent with respective pass-on efficiency measures and cost cutting. Automotive technology experienced a substantial increase of 86 million euros year-on-year. The pleasant year-on-year development reflects a step up in customer demand as well as operational improvements and price measures to tackle the surged cost base. The EBIT adjusted figure includes a positive one-time effect in the range of a mid-two-digit million amount from the settlement with the supplier from quality issues in previous years. At C-Europe, EBIT adjusted came down by €493 million year-on-year. This equals to an EBITDA per tonne of 22. Recent customer restocking led to increasing volumes, while earnings development was overcompensated by lower market prices basis year-on-year as well as cost-moving average effects from semi-finished goods on stock produced in Q1 and earlier. The good news, this is very important to know, this clearly is a temporary effect which will disperse in the coming quarters. By the way, in the running quarter we already see that cost basis is coming down, so good news on this. Marine systems again could continue its positive trend with a solid increase of 11 million euros year-on-year. Here, we continue to focus on performance improvements, and we could further stabilize the older and less profitable orders as well as benefit from the higher margin orders in the pipeline. By the way, our order backlog stood at 12.8 billion at the end of Q2. Multitracks reported a profit of 7 million euros in EBIT adjusted for the first time, with all remaining businesses showing clear improvements. This upbeat development was also supported by ongoing restructuring and cost-cutting measures. And last but not least, our headquarter and others improved by 14 million euros year-on-year. Having talked about the past quarter, let's now have a look on the quarter to come and our full-year guidance. Looking at the overall economic situation, it seems that things might get better than assumed at the beginning of the year. For instance, fears on recession slowed down and GDP predictions for our main regions are going in the right direction. In light of this, we expect, let's say, improving market conditions, a step up for our industrial application components, for instance, from our auto customers, and at least stable shipments for our steel products. Hence, for Q3, we see a step up in earnings on a like-for-like basis. On a relevant note, please consider the positive one-time effects that automotive technologies in Q2. And we see positive free cash flow before M&A actually ready already 4Q3 and of course then 4Q4. Let's now look at the full year guidance that is basically unchanged, except for the free cash flow before MLA. For sales, we expect a significant decrease. On the earnings side, we project, as you know, EBIT adjusted to end in the range of a mid to high three-digit million number. Overall, if you consider an expected deviation of approximately 1 billion euros, you can conclude a sizable EBIT adjusted figure for 2022-2023. For free cash flow before M&A, we are now striving for an increase to a slightly positive figure. The adjusted wording underpins our confidence to deliver as promised. Please let me emphasize this target has and will have our highest priority and I'm very confident that we will make our way into black territory this year and we will be there to stay. Having said that, I would like to provide you more details on our earnings to cash flow bridge on the next slide. Many of you might know this picture, which provides some granularity for our outlook. We have discussed it in our Q1 call already and in several meetings and conversations along the way. We, as we said before, expect an EBIT adjusted in the range of a mid to high three-digit number as we see progress in performance and transformation across all businesses. We plan higher investments year on year, including mainly non-cash IFRS 16 effects, Investments will be above depreciation, as there are also further strategic growth investments planned at all businesses. These, for instance, include investments for the direct reduction equipment plant at S steel Europe, but not only. Overall, we are closely monitoring our capex spending and are steering it with flexibility. This is important to know. Furthermore, we expect releases in networking capital, especially in our second half year. Then there are payments for restructuring, which will have an impact in the low three-digit million range. And other positions include taxes, interest, and pensions. All in all, this leads us to our target of an increase to a slightly positive figure in free cash flow before M&A. With this slide, I would like to remind you where we are coming from when looking at our financial performance in the past years. And I also would like to highlight the further upside potential going forward. As Martina already said, our financial KPIs substantially improved through performance and restructuring initiatives. In the first half year, performance initiatives accounted for a positive effect in the range of a low to mid three-digit million Euro amount. In addition, the largest headcount restructuring program ever at TECA is further progressing, showing a fulfillment level of more than 80% already. This all helped us to enhance both EBIT adjusted and free cash flow before M&A as you can see on the left hand side. Things are strongly moving into the right direction. In this context please let me remind you of our mid-term targets which include an EBIT adjusted margin in the range of 4 to 6% as well as a significantly positive free cash flow before M&A for the group. And this again has highest priority. And going forward There are various upside potentials, for example through progress in our transformation, leading to much better operational performance, also supported by a more streamlined portfolio, fixing of cash losses at multitracks over time, further reducing restructuring cash out, and normalized, but still above depreciation, invest level will support our cash flow generation in the longer term. Now let me conclude with the last slide here. I was able to give you some details about the status of our transformation and our financial performance and targets, including long-term commitments. Let me conclude this call with a bigger picture. Our investment highlights. I know that many of you are familiar with this chart, and this is why I will keep it short and not go into too much detail. As a result of our structuring initiatives and measures to improve performance, our businesses are now in a much better position. to cope with challenges in the environment and take advantage of the wide range of opportunities. Our transformation also resulted in a rock solid balance sheet. Please let me remind you in the last years we turned a net debt into a net cash position and we boosted our equity ratio to approximately 40%. We are fully committed to further improve performance to benchmark level and generate sustainable, positive free cash flows going forward. TISM Group stands for Strong Materials and Engineering Expertise as well as digital competence as base for more profitable growth going forward. And at the same time, with our long-standing engineering expertise and the technologies in our portfolio, we are an enabler and a profiteer, as Martina said, the global energy transition. Last but not least, rewarding the trust of our shareholders is of highest importance to us. This commitment is clearly reflected also in our recent dividend payment. With this, I want to thank you for the attention.

Thank you very much, Klaus, and also Martina. With that, we can go over to the Q&A session. And for that, I would like to ask the operator to take over.

Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press star 1 1 on your telephone keypad. There will be a brief pause whilst questions are being registered. Once again, that is star 1 1 to register for any questions. And our first question comes from the line of Ellen Gabriel from Morgan Stanley. Please go ahead. Your line is now open.

Yes, thank you for taking my question. I have two questions from my side. Firstly, on Steel Europe, you stated that you are in discussions with third parties. What do you look for in potential partners? Or in other words, what value can a third party bring to the table? Is it more about sharing the risk of the business? Is it more capital? Is it more technology or anything else? That's my first question.

Thank you very much for the question. This is Martina speaking. First, I think it's important to know that in a scenario going forward, 40% of a green slab in a steel production are energy-related costs, 40, 4-0. This is our current scenario at the end of this transformation. Considering that anything which is energy intense as a kind of pre-product or material is relevant. And there are three most important ones. One is hydrogen, the other one is hot-bricketed iron, and possibly, together with hydrogen, ammonia. That means that partners who have access to those materials can bring a synergy potential to the steel business because they either produce it or we would help them to scale up their businesses. So that means energy partnerships with a win-win approach would focus on partners who are somewhat active in these areas because they could create synergies based on our demand. This is the logic behind And this is why we feel it goes beyond, of course, an investment rationale. It is also a synergy case for partners active in these areas.

Thank you. That's very clear. And I guess my second question relates to the first one. This is not the first time that you engage with third parties. In your opinion, what has been or continues to be the key focus point in these discussions Obviously, you can't really talk specifics, but in general terms, is it more the pensions, is it the scale of the investments needed to decarbonize, or is it the size of the workforce that you have in place that is not adequate to the future of the business?

Thanks. Thanks for the second question. I have to... Being very open, of course, we have always investigated in the past cases logic and part of the industrial logic was, of course, the question always, are there synergies in the industrial base? Means, is it a concept where we consolidate the industry? I would say this time it is less a consolidation approach because we believe in our capabilities in the steel units and mainly on the competitiveness of the downstream processes. On the upstream processes, this is where the energy intent part of the process is. This is where we focus in the current talks on. Is this clear?

Yes, absolutely. Thank you.

Thank you very much.

Thank you. One moment, please, whilst we take the next question. And the next question comes from the line of Jason Fairclough from Bank of America. Please go ahead. Your line is open.

Thanks both for the presentation and for your time today. Two questions for me. One's on multitracks. The other one is on the restructuring costs. So just on the multitracks, I think we were a little bit surprised to see a positive result there this quarter, and yet you're still guiding to quite – a negative result for the full year. So could you maybe just give us a little bit more color around multitracks? You know, what drove the positive result and why is it going to be a lot worse in the next two quarters? And then secondly, just on restructuring, I think the guidance is that the restructuring costs this year should be a low three-digit millions of euros in costs. What's the trajectory here? So if we go out to next year, should we expect similar costs, still low three-digit millions, or could we actually get into sort of double-digit millions next year in terms of those restructuring costs? It does feel like those are an ongoing drag on the free cash flow.

Okay, so I think I'm going to take this question. So Jason, hello. Multitracks, yes, we saw a positive number in this quarter here, and you know that we have a lot of businesses in here. you know that all of the businesses actually are improving their operational performance. But of course, it is so that there are some kind of businesses where, let's say, if you look at special orders, there are coming some positive effects in the P&L. This might not mean that if you look at some orders which are not so good, that they will not also burden our EBIT in the coming quarters. So let's say this quarter was a good one. But because of the structure of the orders and the businesses, this does not necessarily mean that there will be the same direction, yes, but not the same amount, a positive amount in the coming quarter. So we still keep on the guidance regarding multitracks as we did before. Regarding the restructuring, it is so that, as you said before, we said there will be a cash out of the low three-digit number in total. For the next fiscal year, we are going to be, let's say, there will be, of course, a lower cash out for the restructuring, and there could be also a two-digit number at the end of the day.

Okay, thanks. That's really helpful. Just to follow up on multitrack, could you remind us, I understand that the Nucera preferred path here is still the IPO. What is stopping you from doing progressing that? Is it market conditions or is there something else that still needs to be approved or structured before you can go ahead with that IPO?

No, nothing is stopping us. As we said before, business is developing very good. So I think we achieved all our KPIs and all the plans we did so far, the way we looked at it. And I think we also communicated it. The only what hindered us so far was, let's say, the capital market environment. But we are looking very close to the development in this year and I can clearly say that it is still our preferred option to do so. And yes, we are encouraged to do so. And therefore, you can be sure that we, let's say, are ready and we will look at the environment very closely and give you information when we are ready to give you information about it.

Maybe allow me to add something which I consider a bit. This is, of course, our perspective on market development. But market developments are very positive in the hydrogen area. I think this surprises nobody. But in addition, of course, at the end of the day, the release of orders has a lot to do with the framework in individual regions. And we do believe that we have to consider that time is working in our favor. Do you understand what I mean? So, of course, we look, what Klaus said, for the best window. But at the same time, I do believe that time is working in our favor.

Okay. Thanks for that color, Martina. And, Klaus, thank you for your answers. I appreciate it.

Yes, the regulation and the individual regional approaches with the different admin areas, I think they are slowing down processes for decision-making in regions, and this should not be to our disadvantage. So as I said, time is working in our favor.

Understood. Yep. Thank you very much.

Thank you. And one moment whilst we take the next question. And the next question comes from Bastian Sinagovitz from DB. Please go ahead. Your line is now open.

Yes, good morning all, and thanks for taking my questions as well. I've got a couple of questions, and Ms. Merzai, my first one actually would be on your departure, if I may. So if we just look back, you obviously took over the seat on the supervisory board and the management board in probably one of the most difficult times at Thyssen, and you sold elevators, you sold AST, you sold the mining business. You said it's probably the largest restructuring program in the company's history. And then last year, your contract has been extended until 2028. And now you're deciding to leave. I guess if we just reconcile the stock price reaction on the day, it tells us that the market probably reads this as certain capitulation on your ability to further pursue maybe some of the changes you were aiming for. So maybe could you just, again, talk about your rationale and what were the frictions and the reasons which were causing you to leave?

Actually, I have to say, as you said, Bastian, thank you very much for your kind comments. But first, it is a teamwork. It is a company as large as ThyssenKrupp is. I think it's all about the team, let me say, developing an exercising strategy. But I do believe that I have to say after these four years, the major cornerstones have been achieved. So it's now up for execution, I have to say. And allow me, this sounds a bit, this might sound even arrogant, but look, we have defined, we have taken the three pillars now to a point that it is about execution now. We took the portfolio choices. So it's clear we identified where ThyssenKrupp can achieve leadership positions versus maintaining marginal positions. So we have taken that decision. We are exercising on that. We make bold investments that define the industry's future trajectory. We are a major hydrogen player. We are a major ammonia player. We have defined the steel going green. So the portfolio choices are for execution now. On the financial choices, where, of course, all our focus was on finding ways to pursue growth while preserving liquidity, I think things are also going on in the right direction. And you know that we focus our equity story on what I said before, on leadership goals regarding the leadership positions in our portfolio. And last but not least, with Thyssen Group going green, we acquired Now, the strategic capabilities for the long-term advantage of our individual businesses. So, Bastian, I definitely do believe that me as an engineer, I love technology, I have to say. I do believe ThyssenKrupp owns the necessary capabilities and IP to develop its path going forward based on our aim to develop standalone capabilities in the businesses. So all I can say, I do believe that somebody who has the capabilities and background to exercise and make the best of those choices taken already, I think this is the best path going forward. And as I said before in the press conference, I really... I can only say, and it sounds very emotional, I love this company. And I just changed from the board to the fan club. It is not that I do not see the value of this company. I stay close. I love this team. And I feel I'm with my will to make transformational changes that we now have. go into a better way by simply harvesting by performance, by proceeding in these directions described. I think for the value, for a long-term value creation, it's all in place. It's now to execute.

And the company will surely not slow down in terms of performance, initiatives, and restructuring, right?

Yes, yes. But then I say this, I'm more the type of a transformational leader, and I do believe that the team in place is best prepared to execute on what we as a board have initiated. I was a bit shocked, I have to say, to see the drop in the market cap at that day, because I'm sure there is a team in place at ThyssenKrupp. It's not only at the top, but this company has broad competencies, very broadly distributed in our business areas.

Okay, thank you. Thanks for clarifying on that. And then my second question is just related to steel, which at least this quarter was clearly I guess, disappointing, given that you fell back to probably the bottom of the sector range, despite the fact that you generally should have a more defensive business model. Can you maybe quantify the temporary cost headwinds for us, which you talked about? And are you still confident to get your EBITDA per ton back up to the 100 euro EBITDA target in the course of this year? And then secondly, and related to that also, and related to the strategic questions which have been asked already, it does seem like these discussions are firming up. Is there maybe a timeframe until when we can expect more details on where you're heading with that business?

Yeah, first of all, on the more operational side of your question here. So we are not going to quantify any headwinds here. You may understand this, but I mean, what is the ratio behind? You know that if we talk about higher energy costs and raw material costs, they are coming into our balance sheet when they occur and they come into our balance sheet we are going to activate or going in the semi-finished products and stocks, then we have the cash effect. But the P&L effect is coming then when these goods are sold, when we are going to send them. And that's the reason why, and you know that we also guided for a week at Q2. We were very, very clear that this is going to happen. This was not a surprise for us. And this is now what happened here. I can comment on other steel companies, cafeterias, how they are treat this and then what is the effect on them. But this is what we saw in the Q2. And if you say what is going to happen, as I said also in the presentation here, if you look at the development in the current quarter, we clearly see that this, let's say, cost disadvantages are vanished. So we clearly have a much better cost position, and therefore we are, let's say, very optimistic that we are improving our results in the remaining quarters. against what we saw in the Q2. Very clear.

Dr. Kaisberg, and against your target of three-digit EBITDA per ton, do you think you're confident to get back to that in the course of this year?

I will never exclude something like this. Let's say it this way. Okay.

And then getting back to the strategic side of the question,

Well, there is a timeframe regarding the discussions with the partnerships.

I have to say, of course, first, the business itself. Let's start with that. The business itself is still business. There are still a lot of uncertainties in the regulatory framework. You know that. And based on that, of course, we cannot, we will not be able to to close whatever deal in a short period of time. But I can say it's becoming clear day by day, and you see that not only in discussions between ThyssenKrupp and these kind of energy partners, it's around the world with the IRA and the ecosystems in development. I do believe that it's not to hurry up Of course, we do that. We speed up and we are as quick as we can, but also we see continuously new players showing up because on what I said before, ammonia, H2, HBI, these are becoming world market commodities. And on these world market commodities, not only the present players are offering to partner, there are new ones showing up too from regions we have not seen before because they are offering energy or HBI. They are today not so known on the industrial landscape. So what I would want to say is I think we have very good talks ongoing But I would not expect a decision, a final decision in the next month.

Okay, that is very helpful. Thanks for all the color and all the best for you, Ms. Merz.

Thank you very much. And thank you all, really. It's been a pleasure. And thank you for your continuous challenge. I lost five kilos at ThyssenKrupp since I've been working. It's also coming. Thanks to your challenge. So I look much better now than when I started. Thank you.

Thank you. One moment. We'll see you take our next question. And our next question comes from our line of Dominic O'Kane from JP Morgan. Please go ahead. Your line is now open.

Good morning. I just wanted to maybe expand on the previous question a little bit. Could you maybe just help us with some real-time commentary on current markets? So I suppose specifically within Steel Europe, to what extent your contract structures will help insulate you from some of the weaker steel prices that we're seeing at the moment?

then and then also um just maybe some some real-time commentary on on automotive that'd be very helpful thank you if i would start with with the marketing in um in steel you know if you look at the at the spot price development we saw some upcoming spot prices during the last quarter um we saw all those upcoming prices till april what we see now is um I'm not commenting too much on prices, you know, that we do not get it this way. So do we see on volume and also price-wise, we are, let's say, our opinion on this is that we would see at least more or less a stable development for the rest of the year, let's say it this way. And now you know that our contract issue is so that we, our main contract dates are for renegotiation for contracts is the first of January, then there's something going to happen in April, and then the next one is, the bigger one is also going to be done in July. And these contracts are more or less 12 or six months contracts we are going to renegotiate. So this is where we're at. Our portion of spot price related business is a bit lower than 20%, something like this, so you can make up your mind on this. I think this explains all. Regarding automotive, what we see so far is that we increased our sales and also our volumes in comparison to last year. Very clear, also quite sizable. So what we see is that the market in general increased against the previous year in Europe. Yes, also in the US. In China, it's a bit, let's say, more flat. But it depends very much in what kind of cars you are. So you know that we are working on a global footprint and we are working, of course, in special cars we are in. And therefore, the overall development in the market is, of course, of importance. But for us, it is more important in which kind of vehicles we are in. And what we see in our prediction of this year is that we, all in all, as we saw it already in the Q2, that we compared the volumes we saw last year.

Thank you very much.

By the way, the market still suffers from supply chain issues. So this is clearly the case. So the volumes would be higher if we would not have constraints regarding this. But as I said, instead of this, we saw increasing volumes.

Thank you. And once again, as a reminder, if you do want to ask a question, it's star 11 on your telephone keypad to register. And one moment whilst we open the next line for the question. And our next question comes from the line of Christian Obst from Baader Bank. Please go ahead. Your line is now open.

Yes, hello and thank you for taking the question. Again, auto. So can you remind us what was it positive in one time effect on the Q2 results? And can you give us the status of the current negotiation about the possibility to ensure with the companies partner, therefore the steering business? This is the first question.

So I don't know if this is Martina speaking. The discussions with our Japanese partners are still ongoing, so we are in due diligence. It is a relatively complex item, I have to say, more complex than what we thought. But for the time being, the due diligence is still ongoing.

And the one time there was a quality issue several years ago. which we faced, I don't know, in 2017, 17, 18, 17, 18, something like this. And there we had, of course, then negotiations with some of our, one of our suppliers, and there now we get to the position that we get a compensation regarding this quality issue, and this is now built up in the quarter here, to build in the figures. It's a two-digit mid-to-digit number, but we are not going to give more precise information about the number.

Okay. Then I have two questions regarding the balance sheet. You said that rising interest rates resulted in a 350 million impairment for Steel Europe. Can you give us some kind of a closer idea what part of Steel Europe was affected?

Yeah, you know that we do these acid impairment tests on a regular base. This is very clear. What we see here now is this is just normal. You know that the interest rates, especially you know that in the impairment test you have so-called WECs, which differ from business to business. So you have business-specific WECs, and especially for the materials business, these WECs increased. And then you make these impairment tests, and there we had, let's say, this impairment need. 350 million euros, but it is nothing special. It is, let's say, an encampment for the whole cash generating unit. This is nothing special on, let's say, upstream or downstream. This is for the whole cash generating unit. And, you know, this is nothing which is casual. I don't have to tell you that this is nothing which is just operationally. You know this, but you know that in the steel business, of course, capital implode is higher and then if you then have a higher WAC or interest effect then this happens unfortunately in this quarter.

So you cannot directly link it to any kind of special plant or activity? No. Never the less it would help for any partnership going forward and you have a lower book value. But the last one is again on pensions. Do you have any kind of, or do you see any kind of changes in your possible plans, externalized pensions or whatsoever, due to the rise in interest rates and lower pensions on the balance sheet? Or is it still pending, maybe linked, or mostly linked to the future of Steel Euro, what you will do going forward?

Well, first of all, it is pending. And of course, we are making up our mind on this issue time to time or every quarter but as you said it is pending and it also has something to do with with the development of portfolio issues yes very clear but we are looking at it very closely but we have not taken a decision on that so far okay what would be a major trigger for any kind of decision well it depends on Not so much at the moment, not so much the interest development which you are describing. It has also something to do with, I mean, if you talk about separation of steel business, you know that 50% of our pendular abilities is linked to steel. And, of course, this is a decision-taker. This is very clear.

Okay. maybe an additional one on your, you have stakes and elevator in the ASD part and so on. Do you have any plans for any kind of divestment for that? Maybe to pay some kind of a higher dividend? No. No. Are you able to do that if you want to?

Yes, we could do that. We are totally free to sell the stakes whenever we want, but there is no plan to do so.

Okay. What is the return on these assets?

Well, you know that we are having some shares on this and you know that we have a value development on this, but more we are not communicating about this.

Okay. Thank you very much and all the best for your future also. Thank you.

Thank you very much.

Thank you. And one moment whilst we take our next question. And our next question comes from the line of Christian Agarwal from Citi. Please go ahead. Your line is now open.

Hi. Thanks a lot for taking my question. Quick question on the material services. which has seen a significant pickup in the IPIC adjusted quarter-on-quarter. What has driven that increase? And then related to that, you are guiding for a working capital release into the H2. So is it more of a Q3-weighted or more like coming into the Q4 of this fiscal year?

It was about the earnings development in Q2 and material services, what has driven that development, and it's about the working capital release going forward. How will this be distributed? I think it is fair to say that it will happen in both quarters.

Yes, yes, yes. So, I mean, you know that we have a seasonal pattern in the working capital. I mean, if you look at the history or one year back, you know that we had increasing working capital in the last fiscal year, mainly because of prices. And then we also have a seasonal issue. We know that in our first quarter, we are, let's say, bringing more inventories into our inventories because we want to be prepared to the more stronger quarters for our Q2 and Q3 and things like this. And in the nature of this, of course, we see decreasing net working capital levels anyway through the years. And I clearly can say it was in Q2 and Q3 and in Q4 also. So this is how it works every season. And regarding the earnings, the EBIT development or performance, yes, we are very, very much happy with this development here. I mean, we saw regarding what did we see in this quarter? We saw some restocking effects with our customers, some good price developments here. And therefore, I think our performance in material service in this quarter was very satisfying, and this is how it is.

And very good start also in the third quarter.

Yes, by the way, in the third quarter also.

Thank you. And as we have no more questions registered, I hand back to our speakers.

Thank you very much, operator, and thank you very much. Before I say something, of course, I would like to hand over to Martina who wants to say something.

Thank you, Klaus, and thank you everyone on the line. We are well aware and I am well aware that you represent the owners of our company. I can only express my deepest thanks for your support throughout this, I would say throughout this journey. We focused on high impact actions, yes, and the next phase is now to rebuild and execute with speed. And I know that this bumpy road we had so far is not easy for you to explain always, but I said our owners. I thank you very much for your support, for your trust, for your continuous challenge. and wish you all the best also. Thank you very much for your trust to ThyssenKrupp and for your support to my person. Thank you very much and all the best.

All right. And with this, we can now conclude the call. And as always, for more questions and information, the Investor Relations team is there for you, and we are happy to respond. And as always, we look forward to staying in dialogue. Thank you very much and bye-bye.

This now concludes our conference. Thank you all for attending. You may now disconnect your lines.