Thyssenkrupp Ag S/Adr

hello and welcome to the chisholm crop interim report first half 2023 2024. throughout the call all participants will be in a listen only mode and afterwards there will be a question and answer session please note that this call is being recorded today i'm pleased to present andreas trush please begin your meeting thank you very much operator hello everyone this is andreas trush from investor relations also on behalf of my entire team i wish you a very warm

Welcome to our conference call on the Q2 results. With me in the room are our CEO, Miguel Lopez, and our CFO, Klaus Keisberg, and also my colleagues from the IR team. Before I hand over to the CEO and CFO for their presentations, some housekeeping. All the documents as usual for this call are available in the IR section on the website. The call will be recorded and the replay will be available shortly after the call. After the presentations, There will be the usual Q&A session. Please only ask two, maximum three questions at a time so that everyone has a chance to ask the questions. And with that, I would like to hand over to our CEO, Miguel Lopez.

Thank you very much, Andreas, and also a warm welcome from my side to our audience today, to today's Q2 conference call. Let me start with a recap of what we have accomplished in the past quarter. We all know about the challenges the volatile macro environment is presenting. However, we are actively managing the current situation. And again, we were able to clearly deliver on our three management priorities. Let's start with portfolio and our most recent attack release and historic step forward to Syncorp we announced. A 20% sale of Steel Europe to EPE Corporate Group. a significant first step towards our planned 50-50 joint venture. I will come to this in more detail in a minute. Apart from Steel Europe, we also made tangible improvements with regard to the standalone solution for marine systems. Here, we are in the due diligence phase that is very well progressing with both private equity and KfW Bank. In addition, we are also in elaboration about the spin-off solution. We will keep you, of course, informed as soon as there are relevant updates. Looking at decarbon technologies, after having created that promising segment at the beginning of the current fiscal year, the board is now complete and has already started to intensify their work. Also, I'm happy to add that we were able to win several female board members with long-lasting business experience from inside and outside to support for decarbon technologies, including a new female CFO for the DT board, Caroline Nabilo. Moreover, we were able to close the transaction of our remaining 55% stake in TK Industries India after the successful signing in Q1. Our second priority is performance, and today we can present a satisfying second quarter that is in line with our expectations so that we can again confirm our full year guidance for EBIT adjusted and free cash flow before M&A. We are also very well on track with our APEX program and the incremental improvements across all businesses that are contributing to our overall performance and resilience. However, throughout the company, we are all aware that our performance is not where it should be and that all segments will have to increase the efforts. One example is Steel Europe. Here, in mid of April, the segment announced first plans for structural realignment to boost competitiveness and profitability, which they will specify in the near future. Another example, material services just recently published plans for fundamental structural transformation of the business model at TK Schulte. to acknowledge the changed customer needs and proactively act to secure and expand the market position. Our third item on our priority list is green transformation. And I would like to give you some examples of what we are doing to support and benefit from it. At Decarbon Technologies, we are leveraging business opportunities as an enabler of green technologies and decarbonization for our customers. For instance, at UDE, where we have signed a pre-FEED, which stands for Front End Engineering and Design, contract to conceptually develop an integrated fertilizer complex for Genesis fertilizers. In addition, Polyseus officially started the construction of one of the world's first carbon-neutral cement plants for our customer Holzip. And last, but not least, I'm happy to announce that our efforts also pay off from an official side. ThyssenKrupp is on the CDP climate A list for the eighth time in a row. Let me emphasize again, ThyssenKrupp wants to play a proactive role in the green transformation, and this will pay off for all our stakeholders. Besides this, there are also positive news from a governance perspective. We have just been nominated as MDAX number one in Union Investments corporate governance ranking, a confirming sign that also our corporate governance efforts are positively recognized by the capital market. As indicated before, I would now like to come back to the recent deal announcement. This is really an historic milestone for ThyssenKrupp. During the conference call on the day of the deal announcement, I explained the deal rationale and some background information. Everything that can be said at this point in time is an ongoing M&A process. Therefore, I will keep it short. As you all know, we are in ongoing talks with EPCG to achieve the envisaged 50-50 joint venture. By the end of April, we could announce the first step Towards the joint venture, EPCG will buy an initial 20% stake in Steel Europe and aims for another 30%, which we are currently negotiating on. Right now, we expect the 20% deal to be closed within the current fiscal year. As usual in such transactions, the deal is subject to several approvals, for instance, merger control approval. For us, the Invisage joint venture will combine the materials capabilities of Steel Europe with the energy expertise of EPCG for capturing the potential of the decarbonization of the steel industry. Together with the updated business plan, we will create a high-performing and profitable steel company. Let's now move on to further insights on Apex. I've already mentioned that APEX is well on track with incremental improvements across all businesses. APEX is now more than six months in place, and I would like to take the chance for a quick recap, as well as a status update. On the left-hand side, you can see our APEX targets, and it goes without saying that these are confirmed. That means that APEX drives for total performance gains up to 2 billion euro until fiscal year 2425 and therefore is the key enabler to achieve our midterm targets. Throughout the company everybody is working with full effort to reach these ambitious goals and make APEX a success. As of today, meaning six months after the launch, we have already identified more than 4,600 individual measures to adding up to a value of approximately 1.8 billion euro. Please note that we had approximately 1.3 billion euro at the end of quarter one, a remarkable quarter over quarter step up. So you can see that we are making good progress and have achieved significant momentum through various initiatives and segment specific deep dives. that positive momentum gives us confidence that especially in the worsening macro environment, we will be able to reach our targets by identifying and leveraging additional measures. With that having said, I would like to hand over today for the last time to Klaus for the Q2 financial highlights. And I would also like to take this opportunity to express my gratitude to you for your efforts and dedicated work for Küssen Group in the almost last 30 years. Working with you was a great pleasure and I really appreciate it. Thank you very much, Klaus.

Thank you, Miguel, for the kind words and also a warm welcome from my side to this conference call, Q2. Please let me start our financial section with my conclusion first. We are on track to reach our full year guidance. This is, of course, important. Despite an ongoing challenging macro environment, I am happy to again present you a very solid set of numbers that fully met our expectations for both Q2 and H1. And I would also like to confirm that APEC's performance program, as Miguel mentioned before, is very well on track with incremental improvements that find their way into our P&L. Now, let us have a closer look at our financial highlights for Q2 and H1. In H1, sales came in at 17.2 billion euros, As already visible in Q1, this development is mainly driven by the materials businesses. I will come back to this later on in more detail. However, looking at Q2, we also see ongoing growth in decalm technologies and marine systems, which is both, of course, satisfying. With regard to earnings, EBIT adjusted in Q2 came in lower year-on-year at 184 million euros, however, implying a quarter-on-quarter margin improvement of one percentage point, despite persistent macro headwinds. For H1, this resulted in an EBIT adjusted of 268 million euros accordingly. Overall, the earnings development of all our businesses met our expectations. Looking at cash flow in Q2, our free cash flow before M&A improved by 20 million euros year on year and came in at a minus 197 million euros. Please note that the negative H1 figure of minus 728 million euros will reverse during the fiscal year as it is driven by our typical seasonality at the beginning of our fiscal year. As usual, let's move on to our balance sheet highlights now. the result of our negative free cash flow before M&A in H1, and I've already mentioned that this will turn positive in the quarters to come. Pension liabilities increased 0.4 billion to 5.8 billion euros from end of September, mainly on the back of the interest-driven surge in Q1. However, quarter-on-quarter pension liabilities declined by 0.2 billion euros as we experienced some tailwind from slightly increasing interest rates again. Our equity ratio stands at a very comfortable 37.6% at the end of Q2. The year-to-date decline is mainly driven by the development in Q1, including the previously mentioned increase in pension liabilities. Please note that quarter-on-quarter, or equity ratio, again increased by 1.4 percentage points. Let us now look at the Q2 performance of the group in more detail. On the top line, we saw sales at 9.1 billion euros, implying a decrease 10% year-on-year that is mainly driven by our material businesses, namely material services and steel Europe, on the back of lower prices, but also lower volumes. On the contrary, we saw stronger sales at decar technologies and also marine systems that had a compensating effect on the group sales development. Overall, it was another quarter with muted market dynamics across several industries, such as, for instance, automotive or construction. Even adjusted came in at a solid 184 million euros for the quarter, Please let me highlight the following. Considering that the prior year contained a positive one-time effect at automotive technology in the range of a mid-two-digit million euro figure from a settlement with a supplier, you can clearly see that our performance improvements are gaining momentum. In other words, on the back of ongoing efficiency measures, as well as increased resilience with our businesses, we are able to more than fully offset the top-line headwinds. Pre-cash flow before M1A came in at 20 million euros higher year-on-year at minus 197 million euros, which is fully in line with our expectations. That also implies that you will see, as said before, significant improvement in pre-cash flow before M1A in H2 in order to reach our target of an again positive figure in the low 3-digit million euro range. Let's now look at Q2 EBIT adjusted emotive. and thus considerably lower year-on-year with a decline of 60 million euros. Here you need to consider that before-mentioned positive one-time effect. Hence, from that point of view, earnings came in rather stable year-on-year with some tailwinds from lower material and transport costs, but also some headwinds, for instance declining volumes and increased personal expenses. Decal technologies is back to positive territories. extraordinary strong prior year. Overall earnings are moving in the right direction. However, weaker demand in our Chinese wind business at Rote Erde, as well as business ramp-up costs for Düsseldorf and Vienna, overshadowed our persistent performance and efficiency measures. Material services recorded an EBIT adjusted of 69 million euros, a decrease of 60 million euros year-on-year. On the one side, we saw lower prices and also lower volumes, especially in Europe. On the other side, We also had some tailwind from freight costs and further cost measures as well as further network optimization. At Sea of Europe, EBIT adjusted significantly increased by 83 million euros from a very week prior year to 68 million euros. Our colleagues could benefit from cost improvements especially with regard to energy and raw materials. That favorable development could more than offset into account EBITDA beton came in at 36 euros. Marine Systems is up by 11 million euros year-to-year to 25 million euros. The present earnings uptick follows a strong sales development and order execution with successful focus on performance improvements and initiatives to secure the present margin levels in new orders. Please also note that our order backlog billion euros at the end of Q2. Last but not least, our headquarters and others came in rather stable at a minus 42 million euros. And having said that, let us now take a look ahead on full year outlook. Let us start with the most important KPIs adjusted in frequency flow before M&A to make it short. Our guidance for these KPIs is confirmed and thus where we now expect EBIT adjusted to a largely stable year-on-year. And free cash flow before M&A is further on expected to end up in positive territory. To be more precise, we expect free cash flow before M&A to be a figure in the low three-digit million euro range. Please note that the macro environment and the payment profile in our project business, especially at Marine Systems, both have an essential impact on that development. Let's move to the top line. Here we now expect sales below the prior year level compared to at prior year level before. Again, this is mainly driven by our materials businesses and also slightly reduced sales expectations and automotive technologies. But, and this is important, that also implies that we continue to have efficient countermeasures in place to tackle those macro and top line headwinds. And with that, we are at the end of the presentation. Thank you so far. what shall I say, it was always really a fun ride with you guys for the last, I think, five or four and a half years. I really enjoyed the open and fruitful discussions with you, not only here in this course, but also in person on various occasions, roadshows over the world, in the US and Europe. Thank you for being interested in ThyssenKrupp and in our explanations on that, and thank you for challenging us. Of course, I wish all of you all the best for the future. And of course, I wish also my successor, Jens Schulte, that the 1st of June, a very good and smooth start. And with this, we are now ready for the questions.

Thank you. Thank you. If you do wish to ask an audio question, please press star 1 on your telephone keypad now. If you wish to withdraw your question, you may do so at any time by pressing star 2 to cancel. Once again, that was a star one on your telephone keypad to register for your question. And one moment, please, once we get your questions registered. And our first question comes from the line of Elaine Gabriel from Morgan Stanley. Please go ahead. Your line is now open.

Yes, thank you for taking my question. You have booked more than 400 million euros of special items in the first half of 24, which is much higher than your adjusted EBIT for the period. How do you expect this figure to evolve into year-end, and what proportion of that figure would be cash versus non-cash? That's my first question. Thank you.

Well, if you look at this 400 million you recorded, you know that we had a impairments, which is the biggest part of this. And we also have some, let's say, fluctuations of fair value of CO2 forward contracts. And I think it is, let's say, 25 to 75 percent, something like this in the range. First of all, it is important, if we look at impairments, acid impairments, which we saw in the first half here, it is for us important to really drive measures out of this. And we saw acid impairments with SteelEurope interest-driven, but not only. And we also saw asset impairments with material service, especially in Germany. And as you also noticed from the media, these are the areas where we, let's say, are really working on new business plans and improvement of the business. Therefore, let's say, we do not expect, of course, on that kind more impairments, but you never know.

So it's fair to assume that the run rate will diminish significantly into the second half, right?

Yes.

Thank you.

It's not a cash item.

Perfect. Thank you. And my second question is on your guidance. So you've brought down your revenue guidance for the year, but you've kept your profit guidance mostly unchanged. Can you help us connect the dots as to what is the real offset of your top-line decline? Is it lower costs? Is it better earnings mix? Is it anything else? You mentioned automotive technology, but if you can give us a bit more color on that, that would be much appreciated. Thank you.

Well, I mean, as we said also in the presentation here, it is, of course, lower costs because we are driving the APEX program with the cost reductions on that way. And therefore, you can see that we are very comfortable that we are able to reach our EBIT protection here. I think we

Thank you.

Thank you. And our next question comes from the line of Tom Tsang from Barclays. Please go ahead. Your line is now open.

Yes. Hi. Thanks for taking our questions. First one for me, just on APEX, of the measures that you're finding, I mean, can you give any comments on – I guess you brought it up to 1.8 billion from 1.2 or 1.3 for savings. Can you just give some color on how much might be restructuring related and how much is sort of other efficiency savings? I guess the reason I ask is if I look at the employee counts for the group, and I know there's sort of been scope changes in the last few years, you know, we're back above 100,000 FTE. We're basically back to where we were in December 2021, despite the sort of restructuring push. So just curious if, you know, that number should be coming down again in the next couple months and years. That's my first question. Thanks.

And maybe I can start on this. So you know that we defined a restructuring program in 2020. It was about laying off or make, let's say, more than 30,000 people redundant with this. I think roughly 90%, 85%, 90% is done. What you refer to that you saw an increase in headcount numbers, again, this is clearly explainable because business in the US and things like this it is more a shift of reducing in high-cost countries to let's say build up headcounts in low-cost countries where also the business is growing this is this is the story behind here and if you look at apex and maybe you can also add on this to this is of course in that phase not purely or let's strictly of things which are which are at the moment in work but of course as we said also with if you look at for instance Europe and also material service in Germany there will be also some restructuring elements in this program coming up yes indeed thank you Klaus the vast majority of the 1.8 billion is really

top line and also procurement driven, so reduction of procurement prices. This is the very large two junks of the APEX program, 1.8 billion so far. Having said this, we obviously will continue to add additional measures and for sure in Q3 we will see their another significant progress and we'll report about them to you in more detail.

Okay, that's clear. Thank you. And then just a second question, sorry. With the impairments that you made to material services, maybe any color on what forced that change? I guess material services is the one division which you've kind of consistently been hitting your targets already. Is that just similar to the view on SEAL Europe that structurally European SEAL is impaired in terms of shipments, or is it very specific to the assets that were impaired?

Thanks. If you talk about asset impairments, you are talking about so-called asset impairment tests within cash generating units. We have a very, let's say, small definition of what is a cash generating unit here, and It is infected, especially the German material services business here. And you know that an asset impairment is done that you, let's say, look at the future earnings and compare this with the asset base. And here we see, in this specific case, we saw weaker volumes and prices more on the near end, which led to this impairment here.

Understood. That makes sense. Thank you. And best of luck in the future, Klaus. Cheers.

Thank you. Our next question comes from the line of Bastian Zinagovic from Deutsche Bank. Please go ahead. Your line is now open.

Yeah, thanks and good morning all. So my first question is also just coming back on the outlook and mostly actually for the largest three business units. And maybe we can split this into materials and autos. So just on the material side, given the price pressure, which we've already seen pretty much in all of your core markets, And I guess then we obviously have another usually seasonally soft third quarter ahead of us. Is there any risk where you may still see potential windfall losses just feeding through your P&L? And do you need a price improvement to really make your guidance? I guess you seem to be very comfortable. So I trust you're probably not backing on a price tick up in the market, but just wanted to double check on that. And then maybe similarly also on autos, We are likewise seem to be very comfortable and confident, despite the fact that usually Q3 is not a write-off, but clearly seasonally softer. So what's really driving exactly the strength, particularly to the fourth fiscal year quarter? These are my first questions.

I mean, if you look at material services or if you look at... both in Europe and also in material services. With this, we come to the numbers we are leading, maybe with automotive.

Well, I think we see in automotive different developments over the geographies, as you have seen. The overall sentiment of the market is is a slow growth compared to previous year. And we are, of course, doing a lot in terms of cost reduction and efficiency improvements. And there is also an element where we have been quite working a lot on, which is having some additional pricing. And this, of course, backed on quantities that were not fully fulfilled and need now to be negotiated, so this is included.

But the dynamics for the material business are not coming from the market so much, but also from Costa Rica.

And the price renegotiation you mentioned, Miguel, Are those already locked in, or are you still in active discussions and that is still uncertain, or is this already pretty much locked in your contract framework now?

Well, as always, some things are already done and other things are ongoing. So it's, as you know, we are working every day and never everything is done and never everything is open. So it's a... It's a mix which is healthy. Got you.

Okay. And then just moving on to APEX, it seems like you made pretty good progress there with like 90% of the, I think, framework budget largely covered with measures. Have you already casted the updated business plan in steel or parts of it into the numbers here? And if so, how much?

No. As we, Bastian, as we have been communicating we we are now waiting for the the steel managing board to come up with with the updated plan with the business plan and all the measures that will be described then in this business plan are not yet in the program so this will be coming additionally into the into the program

Understood. Okay, perfect. I've got a few more, but I'll jump back into the queue.

Thank you. Our next question comes in the line of Moses Ola from JP Morgan. Please go ahead. Your line is open.

Thank you very much for taking my question. So just the first one from me is just on forward guidance into Q3. I know you don't give explicit quarterly guidance. But if you could just give your expectations broadly on volumes, raw material costs, and on pricing, especially for the steel division, if possible, please.

You're right. You wanted to have a guidance for the next quarter for the price development. So what we see is that, on the one hand, the price development regarding sales prices price development. From the momentary price, we already saw, let's say, decreasing prices. So therefore, no major dynamics on these both items. And in the meantime, we are looking at costs. So this is how we look at it.

Thank you. And I guess a follow-up to that. So just on the APEX program, I think you previously guided that Deal Europe would be 30% of the savings from APEX. Yet today, you've reduced still your adjusted EBIT guidance by, call it, around 200 million euros. So could you please just help to square that? Is the underlying result X, the apex gains, even worse than we can see? Or just trying to really wrap my head around that.

I mean... If you look at the APICS program, you have to take into consideration that it is a two-year program. So if you look at this fiscal year, it is what you said. But, of course, our estimation of what will be the next year, of course, then includes the bigger part of Stephen Grove.

Okay, understood. Thank you.

Thank you. Our next question comes from the line of Christian Obst from Baader Bank. Please go ahead. Your line is now open.

Good morning. Thank you very much. Three questions. One is, can you remind us of the current status of your portfolio measures within the automotive group? Can I take them one by one?

Well, you know, a spring of stabilizers is one of them. of the portfolio measures here. We are still in the process. We cannot confirm now the outcome yet. And as soon as we are having significant progress, of course, we will let you know. The same also for the automation engineering business as such. So you get an update next quarter, quarter three.

Okay. Do you think you've come to some kind of a solution within this business year? Yes.

Well, let's talk about this in quarter three. We will remember your question, Christian, and come back to it certainly.

Okay. Where do you see the main risk currently in the current framework to achieve your next year's margin targets, even at the low end?

Well, you know, the process in order to get into the detail of budget numbers is about to start and we will be ready by presenting this budget to the supervisory board and get it approved in the supervisory board meeting of September. So exactly, we are working on this. As mentioned before, you have heard about the business plan in steel Europe that is currently prepared. For sure, this is a bigger one, but also we are working on all the other plans. So this is something that we could really speak about then as soon as we have all the budget numbers ready, approved, and confirmed. So I have to ask for your patience on this.

And I guess this will be the answer also for my third question. It's about the CAPEX framework. Until the end of the phase one transition, 26, 27, So what is your capex plan for these years in average? I guess you will give the same answer you gave before, right?

Yes, I have to say we are looking for having exactly this kind of processes discussed and decided with the different business areas. with our segments and this is not the right time to make statements on this one. We will be ready to give some orientation on this as soon as we have the budget process completed.

Okay, then thank you very much. All the best for everything you have on plan and the Sakai stack also for you all the best and thank you for your time. Thank you.

Thank you. Our next question comes from the line of Alex Ophong from Bank of America. Please go ahead. Your line is now open.

Hey, good morning, Miguel, Klaus, and Andrea. Thank you very much for the presentation and for taking my questions. So the first one is, can you talk a bit more about the level of restructuring cost you're expecting for this year versus last year? And second one is on the marine business. I was wondering if you can provide more updates on the progress. I understand that you have reached the due diligence stage with the private equity and KSW. I was wondering if you can give more color on the spin-off solution as well.

I can start with the question on marine. I mean, of course, it's an important progress that we have been able to report a couple of weeks back with the announcement that we are stepping into this very important step in the overall process, which is the due diligence that is now being conducted by So we will see the outcome within the established time frame. And, of course, you would understand, as this is an M&A process, that I keep the timeline confidential for the moment. At the same time, we have been working on, as we also communicated on the the spin-off track so we are you're going for dual track and as soon as we are very clear about what one of the both of the two options will be then of course it will be communicated and then the timelines will be very clear for the time being both things are progressing like we wish for and also to be positively mentioned in Also, KFW and the government is having here a very good impact in terms of the progress in the whole thing. So, to cut it short, as soon as we have a clear decision, of course, we will communicate, and then the timelines will be clear.

Regarding your questions to restructuring costs, if you look at a restructuring cost of a very low three-digit number. And if you consider the restructurings we have already in place or defined or even decided, then we will look at restructuring cost this year as a two-digit midterm value. This is not including, of course, anything which is to come maybe from other business plans we just discussed.

Very good. Thank you very much.

Thank you. And once again, ladies and gentlemen, if you would like to ask a question, it is star one on your telephone keypad to register. And our next question is a follow-up question from the line of Bastian Szenagowicz from Deutsche Bank. Please go ahead. Your line is open.

Yeah, thanks. And two more for me. Just maybe on the situation in the steel unit, have you had any initial sounding with the labor representatives for the voting on the EPCG stake, which is now coming up in the next board meeting? And is your expectation that this will be accepted? And maybe also on the new business plan, is your sense that the employee side has basically been accepting the new reality and is supportive for finding a new and competitive and sustainable setup instead of just defending the status quo and pretty much running behind the market?

Well, I think in terms of the business plan, I believe that we need to give now the managing board of Steel Europe the time, as the importance is so huge of this plan, the time to have a really detailed plan in the different aspects and of course we will then look together with the employee representatives to the plan and discuss how to proceed with it. It is now too early to make any comments because we first need to see the plan and then enter into the discussions. As long as it refers to the to the current process around the 20% state. The processes around the presentation to the bodies that are to be involved has been done. And now it's a decision of the supervisory board to take the decision for it in the next week. And that's what we can say about it.

Okay, thank you. Then more, maybe a technical question, maybe one for Dr. Kaistek. I guess you do have this upcoming bond maturity. Do your plans to refinance the bond also depend on the decision on whether the government will be happy to absorb the guarantees in the marine business? Or is this an important... decision factor for whether or not you're refinancing the bond or basically do you in principle already see less need to keep as much liquidity and hence you're not really planning to go for refinancing of the bond as of now?

You mean the bond we paid back in February or you mean generally?

I thought there was, if I'm not mistaken, I thought there was another one coming up, but... There's one coming up again in the next year.

Yeah. Yes, of course. Now, you know, of course, we are in a comfortable situation that we have the freedom to decide on this. How are we going to do? Of course, we do our, let's say, we do our discussions with the banks, and it is not decided yet what we do with this. So... I only have to leave it open here. But we are already in discussions to do something. But we are not under pressure.

Okay, understood. Thanks for taking my questions. And Dr. Kalsberg, also from my side, it was a pleasure working with you. So all the best and stay well.

Thank you very much. Thank you.

Thank you. And as we do not have any more questions registered, I hand back to our speakers for any closing comments.

Thank you very much. Thanks for participating, and thanks for your questions. In case of any follow-up questions, the IR team is, of course, available. Thanks again. Have a great day, and talk to you soon. Bye-bye.

This now concludes our presentation. Thank you all for attending. You may now disconnect.