Thyssenkrupp Ag S/Adr

Ladies and gentlemen, welcome to the ThyssenKrupp Q4 and full year 2022-23 results. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. I will now hand you over to Klaus Ehrenbeck. Please go ahead.

Thank you very much, operator. Hello, everyone. This is Klaus Ehrenbeck from Investor Relations. Also, on behalf of the entire team, I wish you a very warm welcome to our conference call on Q4 22-23 and the outlook for the new fiscal year 23-24. With me in the room are Miguel Lopez, CEO, Klaus Gaisberg, CFO, and Jack Esser, senior manager in my IR team. Before I hand over to Miguel and Klaus for their presentations, please allow me some housekeeping. All the documents for this call are available in the IR section of ThyssenKrupp's website. We also uploaded the equity stories of the segments. The call will be recorded and a replay will be available shortly after the call has been concluded. After the presentations by Klaus and Miguel, there will be a Q&A session. Please only ask three questions at a time so that everyone has the chance to ask his questions. At the end of the call, Miguel and I would like to make some short statements. We would be thankful if you stay tuned for them. And with that, I would like to hand over to Miguel. Miguel, please go ahead.

Thank you, Klaus. Warm welcome also from my side to today's Q4 and fiscal year 2022-2023 conference call. again it's a pleasure for me to participate in this call and keep staying in touch with you with you all fiscal year 22 23 really was a milestone year for us that's why i would like to start with this very important highlight for us free cash flow before m a is back in positive territory after significant improvements in recent years we finally made it today we delivered with a very pleasing free cash flow before M&A of €363 million. And our commitment is we are here to stay. After this jump into the deep end of our achievements, I would like to continue with some further highlights that I will present to you now. Overall, fiscal year 2022-2023 was dominated by a challenging and volatile macro environment, still we were able to clearly deliver on our management priorities that you are well aware of. First of all, portfolio. Let me remind you of the successful IPO of ThyssenKrupp Nocera at beginning of July in an overall demanding capital market environment. Another very important step in our transformation journey has been the creation of our new segment, Decarbon Technologies. We are simplifying the group structure by reducing the number of segments to five, which leads to less complexity. Of course, we will continue the transformation at the other segments as well and relentlessly strive for standalone solutions for Steel Europe and marine systems.

Miguel, if I may shortly interrupt you, we have some issues here with the slides. The slides are not showing up on the screen. And we have to say sorry to the audience. We are in contact with the service provider to fix the issue. I just want to make you aware of it. Maybe for the sake of time, we continue with the presentation. The slides are available, as mentioned on the internet. And you can also go directly into the slides. And in the meantime, we try to fix it, or the operator will fix it.

Please go ahead. Thank you, Klaus. Of course, we are relentlessly striving for standalone solutions for steel, Europe, and marine systems. The second topic is performance. And here, I'm happy to state that our fiscal year 2022-2023 targets of a high three-digit million adjusted as well as a positive free cash flow before M&A were both fully met. However, we have to give credit to the difficult economic environment that kept us busy almost all year round. Nevertheless, we have decided to maintain our dividend continuity and propose a dividend of 15 cents per share to reflect especially the operational performance of the group. On top of that, we rolled out our new performance program, APEX, also in response to challenging macro conditions and in order to reach our financial mid-term targets. We will provide you with more details in the course of this presentation. last but not least on our priority list is green transformation as you might remember from our q3 conference call in august we have received the long-awaited approval by the german government for the funding of the tk h2 steel decarbonization project of around 2 billion and with the formation of decarbon technologies we are enhancing business opportunities by comprising our green and able technologies in that regard We see an expanding order funnel in our hydrogen and renewables related business. I will give you two examples. At Polyseus, we could win an order from Holcim to erect a Polyseus pure oxy-fuel plant. In the oxy-fuel procedure, the high purity CO2 that is generated in the cement kiln is later separated and eventually processed, stored or used as an input for the chemical industry. Just recently, the colleagues from ThyssenKrupp Nussera announced the signing of another capacity reservation. It is planned to collaborate with the Finnish company Neste on a project to incorporate 120 megawatt water electrolyzer at one of their refineries in order to make it more sustainable and to significantly reduce its carbon footprint. Within the next minutes, I would like to take the opportunity to present our new segment to carbon technologies in more detail. Let's call it a deep dive into management priority portfolio, but also green transformation. As mentioned, with the beginning of the new fiscal year, we have sharpened our group structure. We created the new segment eCarbon Technologies, which bundles ThyssenKrupp's decarbonization technologies and forms a green industry powerhouse to efficiently capitalize on emerging business opportunities. At the same time, we allocated forged technologies, spring and stabilizers, and automation engineering to the automotive technology segment that now comprises all auto components businesses. But, by the way, we will continue to proceed with the M&A processes for springs and stabilizers and automation engineering that are already initiated. With industrial components and multitracks being resolved, Tusen Group now consists of five segments, a streamlined and less complex basis for the future. Now, let me give you some more insights on decarbon technologies. Here, we bundle the capabilities of four businesses that each plays an important role in the green transformation and each offers key technologies. With many years of experience, in-depth expertise in international plant engineering, a broad brought installed base and with close customer relationships. We are making our own business climate neutral and simultaneously helping our customers with innovative sustainable solutions. Let me provide you some more details and also highlight the respective growth potentials. In wind turbines, our Rote Erde sluice bearings ensure that wind is efficiently converted into electricity making the energy transition possible in the first place. With a comprising, promising growth projection for newly grid-connected wind capacity, we see many opportunities for this business. Our ThyssenKrupp Ude is a global leader in plant engineering for green ammonia, which serves as a transport medium for green hydrogen and is itself a sustainable raw material for the chemical industry. With an installed base of more than 2,000 chemical and process plants built worldwide, we can clearly benefit from our know-how and from the growth perspectives the green transition offers. With its innovative technology, our ThyssenKrupp Polyseus is pioneering the path towards a climate-neutral transformation of the cement industry. We erected more than 800 cement plants and installed over 17,600 machines and systems worldwide. This offers a huge potential for service and our oxy-fuel technology. Now being a stand-alone listed company, ThyssenKrupp Nocera uses renewable energy to produce green hydrogen in an industrial scale. Pearson Group Lucera is technology leader in electrolysis plants to produce green hydrogen and possesses the largest order book with more than 3 gigawatt for green hydrogen electrolysis plants in the industry. Now I would like to provide you with more color on our management priority performance and present you some more details on our performance program Apex. Apex is our response to a challenging macro environment, a boost for sustainable performance improvements, and also a supportive factor to reach our mid-term targets. It's not just about new and incremental performance measures, it is also about the reinforcement of already existing initiatives. The program itself is framed by a clear program set up with respective project governance and top-down target setting by TUSEN Group AG. This, for instance, includes the installation of a group chief transformation officer, but also a dedicated transformation office. I'm really happy that we could convince Chetty Nasikol to take the position of the newly established group CTO. Moreover, the EPIC setup also comprises program and chapter leads across all segments. Those chapters, meaning functional expert groups, divide into the following areas where different initiatives find use. Asset and CapEx, business models and sales, cost of materials, operating network and capital, and organization. Besides the chapters, EPICS also aims on a cultural change. It is our clear ambition to establish an entrepreneurial, performance-driven culture across the group that will push forward the further development of ThyssenKrupp. And for sure, with a clear commitment and execution, of the dedicated performance measures by each of our segments. Please let me describe two examples what APEX is practically about to make it a little bit more tangible for you. First, at Steel Europe and Material Services, we are using artificial intelligence to manage and optimize networking capital. With the support of our software pacemaker, we are projecting customers' demands to enhance volume planning. Second, at Forged Technologies, we are using software-based identification of alternative suppliers to expand and diversify the scope of our network while simultaneously reducing our cost base. With that having said, I would like to hand over to Klaus for the financial highlights of our APEX program and further financials.

Thank you, Miguel, and also a warm welcome from my side to today's conference call here. Overall, I have to say I'm very confident that APEX, our group-wide holistic program, will be a success story and an important lever to support our midterm targets as well as our transformation. In other words, our midterm targets are clearly confirmed and it's of course our ambition to reach them as soon as possible as for fiscal year 2024-2025. APEX is designed to carry us to our mid-term targets that we communicated to the capital market in December 2021. To be more precise, an EBIT adjusted margin of 4% to 6%, a significantly positive free cash flow before M&A, and reliable dividend payments is also my target to return money to shareholders. Overall, APEX strives for total performance gains up to 2 billion until fiscal year 2024-2025, and I would also like to highlight that the total APEX effect is spread almost equally across all segments. Please always keep in mind that the mid-term targets are just a milestone on our journey, and there are further upset potentials beyond APEX safeguards or performance stabilization, and thus forms a sustainable basis for our further improvements. Coming to the next slide, again, I am pleased to say that we can present a very solid set of numbers to you. Being in the positive territory with regard to free cash flow before M1A clearly marks a milestone for us. Throughout the year, we have always promised to get there and we frequently improved free cash flow before M1A. But now, let us have a closer look at our financial highlights. On the top line, we saw decreasing sales. This development is mainly driven by the materials businesses in light of a persistent price normalization but also partially weaker demand and muted market dynamics. For fiscal year 2022-2023, sales came in at 37.5 billion euros with 9% below last year's level, which is also true for Q4 that came in lower year-on-year at 8.8 billion euros. Like in the previous quarters, EBITDA adjusted and EBIT adjusted were again considerably lower year-on-year, mainly on the back of ongoing price normalization that especially drove the performance of material services in steel Europe. On the positive side for the fiscal year, we saw improved earnings contributions at automotive technology, marine systems and multitracks. And overall, I can say that earnings came in as expected and met our guidance. With regards to cash flow, as Miguel has already highlighted, free cash flow before M&A for fiscal year 2022-2023 came in at 363 million euros, an improvement of more than 800 million euros year on year. Looking at Q4, Precash flow before M&A was 597 million euros and thus less volatile compared to the years before. But let us now continue with some further highlights on the next slide and this of course should be familiar chart to you regarding our balance sheet highlights. I have to say proud to state that our balance sheet continues to show a quite solid picture looking at the details. Year on year we gained 0.7 billion euros in net cash resulting in a net cash position of 4.3 billion euros. Please note that the net cash figure also includes approximately 0.6 billion euros proceeds from the Tieka Nucera IPO in July. Our equity ratio decreased to 38%, 38.1%, still a high number, and essentially due to increased cost of capital and continued muted market demand that triggered asset impairments, mainly SD group with an amount of 1.8 billion euros in Q4. leading to total impairment of 2.1 billion euros in fiscal year 2022-23. However, as I said before, our equity ratio with 38.1% still is on a very competitive level. And pension liabilities were again reduced by 0.3 billion euros to 5.5 billion euros. Moreover, please let me remind you that we own some valuable assets, such as our more than 50% stake the now listed company ThyssenKrupp Nussera and of course our stake in TK Elevator. Let us now jointly take a brief look into the group's Q4 performance. On the next slide on the top line we saw a decline of minus 70% year-on-year in sales that was driven by both ongoing normalization of prices at our materials businesses as well as partially weaker demand with somewhat muted market dynamics especially after the summer break. In the light of that challenging market environment, EBITDA adjusted came in at 380 million euros, while EBIT adjusted was down to 88 million euros. As in previous quarters and in line with the top-line trend, the ongoing price normalization from last year's high levels kept dominating earnings development, especially at Stereo. On the positive side, the continuation of performance and restructuring initiatives supported the performance of all our businesses. Our restructuring program is well progressing and with a fulfillment rate of more than 85% almost finalized. As mentioned, free cash flow before M&A came in at 597 million euros, implying to be in a positive territory in Q3 and Q4. Next page, let us now look at the Q4 earnings composition, namely EBIT adjusted by segment in the structure that was effective until the end September 2023 going forward we will then of course report in the updated and more streamlined structure. Let us start with the material services where we recognized solid earnings despite the challenging market environment with weak demand especially in Europe. EBIT adjusted increased by 127 million euros to 23 million euros. Looking at the volume side here we however noticed total shipments up year on year supported by strong volume expansions in our direct to customer business but also less warehouse shipments. At industrial components, EBIT adjusted came down by 60 million euros year on year. Both business units had to handle a higher cost base that was counteracted by a respective path on, as well as efficiency measures to some extent. At bearings, competition, especially in the wind industry in China, kept on going. EBIT adjusted came in at 22 billion euros and forged technologies faced a weaker demand EBIT adjusted came in at 25 million euros. Automotive technologies recorded an EBIT adjusted of 55 million euros, a slight decline of 6 million year-on-year from a prior year quarter that was also supported by catch-up effects from corona shutdowns in China. The satisfying year-on-year development reflects an ongoing solid customer demand, partial cost improvements for instance for transport and material as well as price and efficiency measures. On the other side, An overall increase in factor costs had an offsetting effect. At Steel Europe, EBIT adjusted came down considerably by 167 million euros year-on-year to 54 million euros. And again, the ongoing normalization of spot market prices compared to last year, as well as slightly lower volumes in a muted market environment with typically weaker demand drove earnings development and overshadowed the favorable cost development, for instance, for energy. Consequently, EBIT up a ton also reduced to €51. Marine Systems could improve its performance with an increase of €10 million year-on-year. It pays off that the focus continued to be on performance improvements and project execution. In addition, we could further stabilize the order and less profitable orders and thus benefit from the higher margin orders in the pipeline. Please also note that our order backlog stood at €12.6 billion at the end of Q4. EBIT adjusted at Multitracks was up by €18 million year-on-year. Here we saw increases at the plant engineering business, namely Ude, Polysius and, of course, Düsseldorf Lucera, that were partially offset by the auto-related businesses. Last but not least, our headquarters and others are lower, €39 million year-on-year. And having talked about the past quarter, let us now have a look at our full-year outlook on the next slide. Maybe let me start with a short comment on the market conditions. So overall our outlook is based on a rather stable but still slightly growing market conditions for 2024. For instance, a GDP growth rate of 0.5% in Germany or 1.6% in the US. However, uncertainties in key variables that drive our performance are closely to monitor. Those variables comprise of course geopolitical tensions, volatility in factor costs, visibility on auto production, etc. In the light of this, we only expect a slight increase in sales. On the earnings side, we project EBIT adjusted to increase to a figure in the high three-digit million euro range. This projection includes an earnings contribution for Steelrobe in the mid three-digit million range and which is expected to be higher year on year. Overall, we are optimistic that we also see increased earnings at automotive technology, material services, and marine systems. Overall, if you consider an expected depreciation of approximately 0.9 billion euros, you can conclude a sizable EBITDA adjusted figure for fiscal year 2023-2024. For feed cash flow before M&A, we are again striving to end up in a positive territory, that means that we expect a pre-cash flow before M&A with a figure in the low of €300 million. Please note that the macro environment, especially at the rural areas, as well as the payment profile in our project businesses, especially at marine systems, both have an essential impact on that development. Having said that, I would like to continue with our EBIT to cash bridge. Let's start on the left-hand side with EBIT adjusted with a figure in the high 32 million euros number. Here, you can also see that the group guidance for EBIT adjusted includes a sizable contribution from Steel Europe. And from there, we expect depreciation to be in the range of 0.9 billion euros. We also plan significantly lower investment year on year, including IFRS 16 effects. The year-on-year decrease mainly follows a shift in the payout profile in context of the support of our first DRI plant at Steel Europe. But like last year, investments will continue to stay above depreciation as there are also strategic growth investments planned at all businesses. Overall, of course, we are closely monitoring our CAPEX spending and are steering with flexibility. Furthermore, We expect some further releases in net working capital, which are, however, significantly lower compared to fiscal year 2022-23. And as part of APEX, it is also our ambition, of course, to sustainably improve cash generation. Then there are payments for restructuring, which continue to decline and will have an impact in the mid to high two-digit million range. And our other positions include tax, interest, and pensions, etc., And all in all, this leads to our target of a again positive recast low before M&A with a figure in a low three-digit million range. And with this, I would like to hand over to Michael again.

Thank you, Klaus. Please let me take this opportunity to take a look beyond the current fiscal year. On our midterm targets that I have already confirmed on group level on the fiscal year 2024-2025 in context, of the new group structure, we are to review the mid-term targets on segment level respectively. For automotive technology, the bottom line targets remain valid with an EBIT adjusted margin of 7% to 8% and a cash conversion rate of at least 0.5, always assuming that the ongoing M&A processes for spring and stabilizers and automation engineering will be coming to an end. For the new segment decarbon technologies, the initial mid-term targets looks as follows. EBIT adjusted margins of more than 5% and the cash conversion rate of more than 0.6. All other mid-term targets on segment level are unchanged. In general, please consider that the mid-term targets are just a milestone on our journey beyond the mid-term. There are upside potentials, for instance, through the progress in our transformation, also leading to much better operational performance leveraging the potential of our leading technology positions, further reducing restructuring cash out, and normalized but still above DNA invest levels, which will support our cash flow generation in the longer term. Let us now move to the last slide of today's presentation, and let me emphasize the key highlights once again. overall our fiscal year 22 23 financials are fully in line with our guidance we promised and we delivered especially on free cash flow before m a where we reached the positive territory again and please let me repeat myself we are here to stay moreover we are committed to return money to shareholders which is reflected in our dividend proposal of 15 cents per share looking at fiscal year 23-24 and despite challenging macro conditions our outlook includes ambitious targets also supported by our performance program apex and we are fully on track with our tk h2 steel decarbonization strategy as we finally received the necessary approvals for funding of around €2 billion for our first DRI plant. Going forward, we can rely on our strong balance sheet that also supports our group transformation while navigating through an uncertain macro environment. It is always important to keep in mind that we have a sizeable net cash position and some valuable assets such as our more than 50% stake in the now listed company to Syncope Nucera. And last but not least, we have a clear commitment to drive performance and leverage our position as an abler of the green transformation and thus support our customers to meet their ESG targets while we are deeply committed to our own. Since my start as CEO, I really pushed on those two topics that resulted the APEX performance program on the one hand, and in the foundation of the DCAP technology segment on the other hand. And with that, we are at the end of our presentation. Thank you so far, and now we are ready for your questions.

Thank you, ladies and gentlemen. If you have a question for the speakers, please press start. And once again, it's star 11 on your telephone keypad to register for any questions. And our first question comes from the line of Jason Fairclough from Bank of America. Please go ahead. Your line is now open.

Good morning, gentlemen. Thanks very much for the presentation. I did just want to say up front, hi to everyone. Dr. Kaisberg, and I noted that you're not standing for re-election to the role, so it's been a pleasure working with you over these years, so thanks for that. I did have a couple questions on cash. So we have 4.3 billion euros of net cash, and your market cap is 4.4 billion euros. So something's going on here, and I guess my question is, How much of this cash is actually available for distribution? Is some of it tied up in performance guarantees? Some of it, I think, is buried in New Sarah. So it's $4.4 billion of cash. Is that telling the whole story? And I guess if I look at the capital return, $0.15 per share looks very miserly, looks cheap, looks like you're being stingy. what would it take for you to announce a buyback? I mean, your shares are ridiculously cheap. Why not buy them back?

Yeah, thank you for your question, and also thank you for your personal response. It is 8.9 billion euros. Of course, when you say, is there something tied up with Nocera? Yes, of course. The proceeds we saw with Nocera, of course, is dedicated to the business of Nocera. And you know that we have also that we own for 52%. So it is, of course, something if we said it belongs to Nocera, it stays so. So this is not really, let's say, really available for us. So, but again, yeah, so know that we have, let's say, outstanding loans of roughly 2.4 billion. This makes our net position to 4.3 billion. And the question of buying back shares, yeah, you know, I always get the question is, what do you do with the liquidity on the balance sheet? And then, of course, there are several opportunities to do so. But to be very honest, we discussed it also internally a few times. But to be honest, it is not the moment that we could, let's say, pronounce something like this strategic move because we first want to, let's say, make other improvements with the overall other strategic issues, and that would be the right time to really give you information what do we do with the liquidity in our mind.

Just a follow-up, if I could. Is there anything in your corporate charter, are there any rules, are there any regulations that stop you from buying back shares? No. No. So you could tomorrow, hypothetically, launch a 1 billion euro share buyback. You have lots of money, and that would be a quarter of your market cap, but no possibility to do that, even though the shares are obviously cheap. Yes. No. Okay.

Okay.

Okay, thank you very much, then.

Okay, you're welcome. Thank you. And one moment for our next question, please. And the next question comes on the line of Bastian Senugovic from Deutsche Bank. Please go ahead. Your line is now open for your question.

Yeah, thanks. Good afternoon, all, and also thanks for taking my questions. My first question is on APEX, and Mr. Lopez, I have to say that you deserve credit for making a very strong commitment here with a, I would say, pretty ambitious timeline, which I guess has been mostly kept vague so far. So on the other side, I guess, and what you're doing different here, and maybe also give a bit more color even on how much of the benefits will already support and benefit the current business year? That is my first question.

Thank you for the question. First of all, the logic is along the chapters and we are defining measures along the chapters as described in the presentation. I can anticipate We expect for the $2 billion overall, something around between $700 and $800 in the year 2023-2024, and also then in consequence 1.2 to 1.3 for the year 2024-2025. So we are filling right now the chapters with measures. For the time being, we have already $1.2 billion in defined measures, so 800 to go, but as the ramp-up of the program has been since, I would think, 17 weeks now, I think this is a pretty remarkable result already. In order to give you a proper framework I believe there were some measures already defined before the program, but the vast majority are new measures that are now defined by the teams. Important to understand, although we monitor the program obviously from managing board perspective the program is run at the segment level so they have the segment group transformation boards where they are steering all the measures on segment level and we keep the drumbeat at managing board level as well.

Thank you. Then my second question is actually on your guidance here and the guidance framework in steel, which at least from an outsider's perspective seems very confident. Of course, you get probably about 100 million relief on the DNA line from the impairment which you took, but can you maybe let us know how far you require a spot margin improvement via higher prices or maybe also lower raw material costs to make the target for the year-over-year improvement in steel in 2024?

This is always the question, what is going on with the raw material prices and of course the spot prices. You all know that actually we are in a situation, if you look at the overall market conditions, that we are still in a very volatile situation. That's the reason why we are also guiding certain ranges here, because we cannot be sure on a certain point on this. I mean, what we now have in this range, we have in this guidance, we are pretty confident that we can get there. But, of course, with this we took into account what we see actually in what is going on in the market conditions. So, I mean, we are not talking now here in this, let's say, community about prices or something like this. And, therefore, I think I cannot talk too much about further, let's say, assumptions on this. but it is not the way that we need for this guidance, to fulfill this guidance, a major decrease in raw material prices. This is not the assumption by this. So we are more or less talking about stable assumptions.

Okay, all right. Thank you. Then last question maybe on marines, obviously up to the limits, which we can basically comment on it, but... I guess in terms of the timing, is this something we could possibly expect for the next year? And have you also made any progress on the possible government guarantees which were debated earlier on?

Well, of course, we cannot comment on any timing. As you heard already, the talks with with government are positive. Still, the confirmation for the next steps are not yet visible. So far, we are positive that this will happen in the next months, but we can give no timeline for further transactions or transaction options.

Okay, great. Thank you.

Thank you and one moment please whilst we take our next question. And our next question comes from the line of Christian Ost from Baader Bank. Please go ahead. Your line is now open.

Thank you very much and good afternoon also from my side. Two questions concerning two segments. First is on the new decarbon technology. So as I understand, on the one hand, the idea behind that new segment, but in the end, these activities you are combining in there, in my view, have not very much in common. So do you see any kind of synergies when it comes to customers, supply, or any kind of development do you see with these subsegments or should these subsegments go on their own under one roof? So I do not really understand the idea behind the segment.

Well, thank you for the question. I believe during now many conversations with customers that I have been doing myself over the last months the huge interest is of course taking into consideration always this supply chain and the value chain and around hydrogen and and ammonia so hydrogen and and ammonia as a transport medium is closely connected so customers are obviously interested you know because you need to transport the the hydrogen in a way and you can do that by pipeline or you can do that by um by um converting it to ammonia and then cracking it back to uh to to hydrogen so there's a close link that customer see um and when looking to uh decarbonization for example of the cement industries you um you know that we have been talking about oxyfuel as a as a technology to capture co2 and then as a next step you need to take the co2 and convert it back to whatever you would like to convert it to. And there again, that's what we have in Oude, is playing an important role. And you can go on and on with these examples. Probably this is something that we need to get more explicit on in the next weeks and months to come. But there is much, much more, and that's my message, only somehow a common denomination of a segment it's it's about a strong ties in customer value chains of the distinct areas and you can also go on for wind as well so we will make sure that we make this more transparent thank you okay

Do you see any kind of, nevertheless, do you see any kind of synergies within between the sub-regiments you are putting into decarbon technologies?

I'm pretty sure that we see most of the common work in the close cooperation with customers. Besides this, there is, of course, something to be done and NOSERA already started to do so on standardization and modularization of the machines or products specifically, but not limited to in OODA. But this is not necessarily something that we would call like synergy, it would be rather define a consistent value chain for it and that needs to be implemented at the level of the different business units.

Okay, thank you for that explanation and I have another question concerning the automotive strategy going forward. So we have now again some kind of an enlarged company If I understood you right, you cannot give some kind of a timeframe when you might divest springs and stabilizers or automate engineering. Nevertheless, the remaining part is also some kind of a patchwork. So what is the going forward strategy for automotive technology and what kind of role will you see in any kind of future combination with partners?

You know for us the most important next step in the automotive technology environment is beside what we just described in the M&A field to get our margins up. That's the most burning thing in the automotive technology environment before thinking about further strategic moves, we believe that we need to get the margins up to the levels that we have been defining for 2024-2025.

The interesting part here is, in the end, that management tried to bring these margins up for more than five years almost over the last, of course, a lot of influence from the outside, but nevertheless, they never reached these kind of margin targets.

will be the main trigger to bring up these margins in automotive technology two things first further define cost reduction measures you know without now going into details that this this has been influenced pretty much negative negatively influenced pretty much through market market situations like the semiconductor situation and so on. This is one. And the second is, of course, expanding wherever it's possible our aftermarket activities. This is also a pretty interesting lever that we will further explore.

Okay. Thank you very much for your description here and all the best for the future. And Mr. Kaisberg, also, thank you very much for everything. Thank you, Mr. Olsen.

Thank you. And one moment, please, for our next question. And our next question comes from the line of Alain Gabriel from Morgan Stanley. Please go ahead. Your line is now open.

Thank you for taking my question. I have two of them, and I'll ask them one at a time. Firstly, following up on Bastian's question, the swing in earnings from APEX is quite significant. How much of this target is self-help, and how much is an assumption that the commodity price environment and the macro environment would improve? And as a follow-on on this one, what are the costs associated with the implementation of APEX? That's my first question.

So the cost, which, let's say, Of course, we are running this program also with some, let's say, support, and we do think that this will be a small two-digit number. This will be the cost of this program. Regarding the implementation of measures here, let's say it this way. So, I mean, if you run a program like this, you are talking about let's say, improvements which will pay in the current fiscal year, but especially also in the next fiscal year, because this is more or less a pipeline which is going to be filled up again and again and again. And if we, let's say, take into account the actual market situation, what we think, what we said that we are able to, let's say, create $2 billion in measures, something like this, of course, this would bring us to the level we need. So every other thing which is coming from the market could go in favor, but also in disfavor. Of course, we could also have market conditions, which then are more difficult than now. But this is not where we're looking at. We are simply looking at measures, and we keep on filling up this pipeline. This is what is our target.

Thank you. That's very clear. And my second question is around the strategic review and the portfolio review. I guess the presentation has not focused much on it. You mentioned it in a few of the prior questions on M&A for springs and stabilizers and your inability to comment further on marine systems, which I understand. However, one of your major reviews is pertaining to Steel Europe. Is there any progress being made in the background on that front that you can comment on, obviously? And what are the realistic options that you're exploring that are on the table available to you? Thank you.

Well, thank you for the question. It's known that we are that these conversations are to our benefit in the long term because we believe that being an assumption for the future that the cost of steel will be up to 50% of the total cost, it is imperative for managing the steel business to have a strategic alliance with an energy partner. Having said this, we can give no timing about the conclusion of this kind of conversations. but we were still positive that we will get to a positive outcome. You know that we are talking right now about the 50-50 GV and of course the conversations are obviously influenced by the current market situation and some weaknesses here in the German and European environment around the development of steel as we have been commenting before. We are continuing these conversations and we'll let you know as soon as something has to be reported.

Thank you.

Thank you. And one moment for our next question. And our next question is a follow-up question from the line of Christian Obst from Baader Bank. Please go ahead. Your line is open.

Thank you for taking me again. I have a question on the possible steely joint venture with UPH. So why are you talking to a company which is mainly some kind of a coal-related conglomerate, not to someone who is more involved in renewables, which should be the source of energy going forward? So companies like Ørsted, despite the fact that I know that they are not interested in steel. So what is the rationale behind that, talking to a company like ETH? Thank you.

Well, there are several reasons here. First of all, we, of course, know the pipeline of green energy or renewable energy that EPH has. Of course, we cannot disclose it here. That is something that EPH needs to do. This is one. Second, for us, it's also very important that EPH is believing in the steel businesses as such. So they consider that European and specifically German steel business is an important industry specifically for the industry set up in Germany and as you know specifically for automotive. So there's a specific interest also on EPH side for the steel business as such and What is also very important for us is that we are getting a very experienced team on energy trading. And we believe that this is an advantage going forward to have this knowledge also on site.

Okay.

Thank you. Thank you. And one moment for our next question. And our next question comes from the line of Moses Ola from JP Morgan. Please go ahead. Your line is open.

Hi, everyone. Thank you very much for taking my question. The question I have is just concerning the green transformation for Steel Europe. What are your expectations for continued government participation in providing subsidies towards that decarbonization. Last week, we saw the ruling from the Federal Constitutional Court that put at risk the potential funding for the hydrogen economy. And obviously, the partner within Steel Europe that you're looking at as well is likely also dependent on some of the hydrogen um subsidies from from the german government could you know these sort of constitutional rulings put at risk the second stage of uh the still europe transformation or what what are your thoughts on that currently so for the time being um i think the the positive uh note is uh we got the the two billion um of um

of, well, subsidy probably is the wrong wording, but we got the $2 billion support from the German government for exactly introducing this hydrogen into our DRI plant as of 2027. So, in that sense, I think we can feel very comfortable so far. But if we look to the larger scope of what you mentioned, the hydrogen infrastructure and industry in Germany, of course you are right, we need to get there into conversations with possible suppliers of hydrogen and then get answers from from them. This will happen in the course of next early 2024, and we will see how far hydrogen is available. But from our own perspective, we are secured with the two buildings that we already have.

Thank you. a potential divestment of Steel Europe. Do you currently know how much of a capital injection that might currently need, Steel Europe might currently need in a 50% JV scenario? Just would like a reminder again of just the current business cash flow needs of the business and the free cash flow drag currently of the business as well. That would be

Well, at this point in time, we cannot comment on that. I hope you understand. But as soon as we are able to communicate, we will let you know.

Thank you. Thank you. And one moment, please, for our next question. And our next question comes from the line of Jason Fairclough from Bank of America. Please go ahead. The line is open.

So it's me again. Thanks again for the follow-up. Just to come back on Marine, I'm wondering if you could give us any more color on where we are here. Specifically as well, I was wondering about where we are with contract guarantees for this business. So if we look at... There's a company in the market called Siemens Energy, which I think had some problems because they didn't have access to government guarantees. And is this something that is part of the equation for the marine business?

You know, the interest that we have in developing and making the marine business independent is, as you know, that the German government is taking some stake exactly because of the guarantees. In order to get this correctly described, you have to understand most of our competitors in Europe have government stakes. results in that they have no need for issuing guarantees to their customers. As we have no government stake in marine systems, we need to issue guarantees to our customers. And that's exactly what we want to achieve, that we are getting on the same competitive level than our competitors in Europe and with even small government stake we would be able to not be forced in the future to issue additional guarantees and that's exactly the support that we want to get from the German government and they are for several reasons interested in and analyze whether a stake is possible in marine systems. I hope that this gives a little bit of clarification around our

look if I could just follow up and in a way this relates to my earlier question Mr. Lopez the so to the extent that you have to give guarantees today is that one of the reason why one of the reasons why you appear to have so much surplus cash and surplus liquidity is it because of the guarantees in the marine business or are there other reasons to have all this surplus cash and surplus liquidity

No, no, this is not because of the guarantee. So our software in the balance sheet, of course, many know the history, so we sort all our elevator business, and this is, of course, the main reason why our balance sheet has this liquidity position. It's very clear. Now, we always said that we want to give you a proof point that coming from this strong balance sheet, we are coming to the point that we, let's say, achieve a positive frequency flow situation and stay on this And if once we achieve this, then of course it is the right time to think about what will be, let's say, the strategy with a strong balance sheet. I mean, with a liquid position and things like this. And as I said before, we first look at our strategic things we have to solve, and then, of course, then we look at the balance sheet. But this is a storyline.

So give me that little... bait there, Dr. Kaisberg. How many quarters of positive free cash flow, how many years of positive free cash flow would we need to see before you start looking at much larger capital returns?

This is something we have to see, but from my point of view, we would have to deliver two years in a row.

Okay. I'm writing that down. Thank you. Thank you.

And as there are no more questions registered, I now hand back to our speakers for any closing comments.

Stay tuned and thank you all for your participation and your questions. Please be assured I will maintain the intensity, activity and pace of the first month's since I took over as CEO of ThyssenKrupp in June to take ThyssenKrupp's performance and transformation to a new level. This is not only necessary, but also very gratifying and motivating for everyone inside and outside the company with every successful step. Before we close the call, let me take the opportunity to add one more thing. Klaus Ehrenbeck, head of investor relations is leaving ThyssenKrupp effective December 31st to pursue new career paths outside the group. Klaus has headed the investor relations function at ThyssenKrupp for 17 years. He was a close partner of yours and our face on the capital market. Personally and on behalf of my executive board colleagues, I would like to thank Klaus for his outstanding commitment and long-term engagement. We wish him all the best for the future, both professionally and privately. I'm happy to announce that with Andreas Strösch, we have found someone with proven IR expertise to succeed the investor relations responsibility at ThyssenKrupp. Andreas comes to ThyssenKrupp from the Joining and Food Handling Technology Manufacturing Normal Group, SE, He can look back on 20 years of capital market experience before taking over a set of investor relations at Norma in 2011 as part of the IPO. He was head of investor relations at Heidelberger Druckmaschinen and previously investor relations manager at Heidelberg Cement. With this, Paul, thank you very much, and you take over to close the call.

Yeah, thank you, Miguel. Well, before I close the call, I would like to take this moment to say goodbye after 17 years as head of industrial relations at ThyssenKrupp. It was an eventful time with ups and downs and the permanent goal of meeting the information requirements of the capital market in the best possible way. And above all, to establish and consolidate the trust in the company. I was very lucky to work for a great company in a very professional environment. I got to know some very esteemed colleagues, some of whom have even become friends. The same applies to the analysts and investors, as well as the representatives of the investment banks with whom I have a trusting dialogue. During my time at ThyssenKrupp, I adapted to and worked closely with different board members. Even the one who hired me, the CFO who hired me in 2006 was not there anymore when I arrived. I was also able to experience how business history was written. This has led to a strong bond with ThyssenKrupp. This time fills me with gratitude and I look back on it with pleasure. And I would like to take this opportunity to thank my team for their outstanding work and always constructive working atmosphere and the great sense of humor. The same thanks go to the many colleagues in the specialist departments and the segments, as well as the players in the capital market with whom I have worked over 17 years. At the same time, I am keeping my fingers crossed for a successful future for Miguel Lopez and the entire management board. My successor, Andreas Trösch, and all the decision-makers in this group, and of course, the entire company. I will get back to you as soon as I can comment on my new role. Thank you all for this special moment, and as they say in the Ruhr region, Glück auf!

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