Thyssenkrupp AG

Hello, everyone. This is Andreas Trösch from Investor Relations. Also, on behalf of my entire team, I wish you a very warm welcome to our conference call on the full year results 23-24 of ThyssenKrupp. With me in the room are our CEO, Miguel Lopez, and our CFO, Jens Schulte, 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 for analysts. This time we use Teams for the call. In order to ask a question, you have to push the raise your hand icon and we will announce your name and open your line. If you are on mute, you must unmute yourself in addition. 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 fiscal year 23-24 conference call. Today, I will present our latest achievements and financials together with our CFO, Dr. Jens Schulte. Please let me start with some general observations. The world is changing at a breathtaking speed. We are seeing geopolitical tensions, armed conflicts, uncertainty regarding the role and course of the US, and many unanswered questions also with regard to the German government. I want to confirm, in this challenging environment, we want to transform ThyssenKrupp and make it successful again. We want to rebuild the company to what it was for decades, a German industry icon, a world class technology group and a symbol of German and internal inventiveness. I strongly believe in the opportunities that arise from global challenges, such as the green transformation, and we are in a position to benefit from the associated growth opportunities. How will we make this happen? Firstly, we know how to do it. ThyssenKrupp has world-leading technologies that can be used to reduce a large proportion of today's CO2 emissions. And we are already applying these technologies on a large scale for our customers. It is our clear ambition to leverage and scale those technologies going forward. Secondly, we have the right people, forward thinkers who want to shape the green transformation. And thirdly, there is no way around the green transformation. If we want to keep the planet habitable for future generations, we must act now. The years until 2050 are a very manageable timeframe. I'm firmly convinced that the green markets will come and we at ThyssenKrupp are already there. We are systematically aligning ThyssenKrupp to this future. We want to shape the green transformation with our businesses and use it to create a profound basis for our company and its employees. Please let me give you one important example. In the past financial year, we invested around 690 million euro in research and development. However, competitive cost structures are also needed. On the one hand, this results from the political framework, but on the other hand, it's also on us. That's why performance is right at the top of our agenda. On portfolio, we want every business to develop in the best possible way, regardless of the ownership structure. where businesses can develop better in different constellations, we are not shying away from portfolio decisions. These three strategic priorities, portfolio, performance, and green transformation, define the guidelines for our transformation. We made important progress in the past financial year, and we have set ourselves ambitious targets in all three areas for the current financial year and beyond. Jens will now present to you the financial section, including our outlook, as well as some insights on our performance program. Jens, please go ahead.

Yeah, thank you very much, Miguel. And hello, everybody also from my side. Good to see you back, at least virtually. Let me start with a focus summary of some of the positive highlights of the last fiscal year, as well as some of the challenges that we have been facing, starting with the highlighting side. First of all, I think it's worth noting that we actually did achieve our adjusted guidance, both on sales, on EBIT, and also on free cash flow in an environment where I think not too many companies actually do that at the moment. In that context, we had another year of positive free cash flows, positive 110 million euros, as I will explain to you in a minute, that has also been benefiting from payments in the marine system side that we had originally expected in Q1. But be it as it is, cash flow is positive for the second consecutive year. And I think that's a good one as well. We've had a good start with Apex. And Apex has actually helped, you know, basically driving our underlying performance. I will come to that later with specific examples. We had started further restructuring initiatives, totaling cost of 270 million euros. Balance sheet is relatively strong with 4.4 billion net cash position, slightly up from the previous year. dividend payment proposed, so we target dividend continuity with 15 cents per share, as in the previous years. And last but not least, we also had a few home runs on the non-financial target side for diversity, for example, innovation and energy efficiency. On the other side, of course, we've also had challenges And the biggest one is, and still remaining, is the Steel Europe situation. And symbolizing that, we had further impairments booked at Steel Europe at a magnitude of 800 million euros in Q4 and 1 billion overall for the full fiscal year. That is reflecting macro-advance, sector trends, but also our own necessity to develop a better business plan. And basically, it's our start, if you wish, into the final phase of business plan development. We are seeing muted demand across the industries, particularly automotive, which, as you know, is our largest customer group across all segments, but also in most of the other customer groups at the moment. And we do face geopolitical uncertainties, also with the latest elections around us that, of course, affect us as well. In decarbon technologies, I think we've made great progress on many of our business units. Having said that, as you know, and as we already reported in Q3, we had to do a project cleanup work there, particularly at Polyseus, our cement plant engineering business, where we had to book one-time cost of 80 million euros for past legacy projects. Cash flows within the project and shipbuilding businesses remain volatile as always, so that's not a change, but it, of course, makes forecasting of cash flows a bit more challenging. And last but not least, as long as we are where we are with our profitability to achieve free cash flows that are coming close to zero, we need to do very tight capital budgeting, both on the capital expenditure front as well as on networking capital management towards the end of the year. And that's what we have been doing, I think, successfully. But we always need to balance that, of course, with growth investment requirements. Going to an overview of the key financials, starting with sales, Q4 was stable over prior year. The whole fiscal year was 7% below the prior year, and with that exactly on the midpoint of our guidance of minus 6% to minus 8%. And I will analyze that for you in a second. EBIT adjusted coming out at 567 million. That is above our guidance of above 500 million euros. And if you would back out that special effect, cost booking from Polyseus would be by and large stable almost versus the prior year. Net income was expected negatively. 1.4 billion euros is more negative than we had planned for. Now, that KPI is, of course, directly reflecting our transformation efforts and is impacted by, in total, 1.6 billion euros in special effects. And of that, 1 billion euros are impairments at steel that we had to take again. And the other parts of these special effects are impairments in other businesses, restructuring efforts and some other smaller special effects. Pre-cash flow before M&A, as I said, positive overall for the year. That included early payments at marine systems of 200 million euros. Early payments in that case just means that we have been faster with actually completing our work. So we could actually complete some projects earlier than anticipated. And with that, we received customer payments slightly earlier. And so that is basically moving from Q1 of this fiscal year to Q4 of the last fiscal year. And balance sheet, you know, net cash is 4.4 billion euros, slightly updriven by positive free cash flows. Pensions plus minus on prior year, a bit up on the back of decreasing interest rates. And equity ratio now, while equity as an absolute figure has been hit by the impairments, of course, equity ratio is still at a healthy level of 35%. So solid balance sheet. Now, putting these 23, 24 figures a bit into the context of our journey over the last years, you see that on the net cash side, we are now up for the third consecutive year on our net cash position. Of course, that development has also been supported by transactions through that period. So, for example, that step from 22 to 23 was also driven by the new Sarah IPO and proceeds coming in. But it's also helped by our stabilizing free cash flow. And so I think that's a good development. And on the free cash flow before M&A side, second year positive. And so overall, I would say we tentatively see some early signs of track record building up here that we can show to the outside world. Let's take a quick closer look at top and bottom line analysis. On the top line, as I said, 7% below prior year is 2.5 billion euros less sales. That has been particularly driven by the materials businesses, as you can see in the middle part, and that also in turn driven by both price and volume developments. In each of these buckets, we also have positive developments. So material services, for example, has had a strong year for its solutions business, which is a key strategic direction that we want to take there. Solutions was above prior year. And on the SE side, for example, the packaging business was positive. But overall, these two basically brought sales down by two and a half billion overall. And that then also translated into EBIT adjusted, but much less than you would expect. So overall, we are down by 130 million euros to come to an EBIT of 567 million. And that does include, as I said initially, those 80 million in cost bookings in Q3 that we already communicated. If you would back that out, then, as I said, we would be relatively in striking distance. of the prior year, which was also testament to the contingency measures that we took and all of the things that we did in the APEX program. Quickly running through the segments, so starting with automotive technology, the environment in automotive is challenging and it still is as we speak. You can see that not only the full fiscal year was below prior year, but also the fourth quarter was below prior year by 7%. That is a reflection of where markets are, soft automotive markets at the moment. In that environment, I think the segment has had relatively resilient performance. ROS is down only by, you know, basically 10 basis points from 3.4 to 3.3%. And so that shows that we have actually worked strongly against that. And if you do benchmark work of the segment or parts of the segment against other German Tier 1 suppliers, then actually we're not doing so bad here. So while we struggled with the environment, contingency management was actually pretty good here. And BCF, so our business cash flow up to 277 million euros. So cash conversion rate is above one in that segment or has been above one in that segment in the prior year, thanks to networking capital improvements and some cuts on the investment side. And to the bottom, we also now show some examples of our APEX program, both with a view to the back mirror as well as a view to upcoming initiatives. And we will do that in a more structured fashion in the future to allow you to follow that a bit more clearly. So things in the past have been pricing and claims management initiatives around lower volume, basically lower volumes coming in from our customer contracts. We've worked on procurement initiatives. as well as an increasing share of aftermarket services in some of the businesses. And upcoming with a view to this fiscal year and beyond, we work on restructuring topics in several of the business units within AT. Then we further work on more centralized commodity teams to bundle procurement efficiencies. And we also have a specific initiative in Bielstein, Germany, know for one of our mexican plants where we ramp up further businesses that we also track through this program moving to decarbon technologies um the carbon technologies has had a good year on the top line driven by a strong order book of the previous year um so we grew by 12 percent and last quarter by 22 percent as you can see bottom line however is down and that 80 million versus the prior is very much that special effect that we've had that I already explained to the Q3 cost bookings. Apart from that, if you look into the respective businesses, Orte Erda, which is our bearings business supplying into the wind industry, it's a good business and it also is a profitable business. It is under a bit of pressure from market side at the moment, particularly in China, and hence is doing more restructuring work, but strategically very well positioned. UDA actually has had a good year. That's our ammonia plant engineering business. Very good year, turning into the positive territory again. And Nucera is basically our growth case on the electrolyzer front, where we basically work on capacity buildup and standardization and productization of our so far plant engineering business. Pre-cash flows hit correspondingly, both by profits as well as lower prepayments. On the APEX side to the lower end, You see on the left-hand side with a view to the back, growth initiatives, operational excellence, restructuring measures, so the whole spectrum. And going forward, we have defined initiatives in every business unit of the segment in Rote Erde, improving aftermarket services to expand margins here. Ude, further standardization and modularization of our so far very individualized and customized plant engineering businesses. Polyseus services boosts and New Sierra, you know, basically a growing sales and gross margin and so forth. On the material services side, flipping to the next page, on sales, we've had a challenging year, 7% down last quarter, 11% overall. Within that, as I said, I mean, what's the strategic direction of the segment is basically to increase its share of solutions and North American business to expand margins here. And it's good to see that supply chain business has been actually positive versus the prior year, despite the very difficult market environment. On EBIT, we have been stable, so a very resilient business working against basically the top-line development. And cash flows, you see cash conversion of more than two times. That is, of course, not a sustainable level going forward, but it has been a very, very strong year here. And so with that, we also... as I said, counter the negative effects. APEX backward-looking restructuring measures in Europe, investments in North America, as I said, and also growth, particularly on the solution side that we're tracking internally and coming up as restructuring at ThyssenKrupp Schulte, which is the large German material handling business that we have, further investments in North America and further expanding the share of services and solutions. Moving to steel Europe, which we are, of course, most famous for in the press. So on that side, we are also dealing with tight markets at the moment. As you can see, 13% below prior year, you know, within that 5% volume driven, and then the rest is basically price driven. Also here, we've had pockets of relative stability, such as the packaging business, for example, but overall the business, the segment has been down. And against that, we were also down on profits a little bit less than you maybe would expect given the top line, but we are down on profits at the moment. with everything that comes with underutilization. On the cash flow side, we are even more strongly down. As you can see, that is not only driven by basically two reasons for that. The first one is that profits are down and particularly cash profits are down. And the second reason is that we've had less network and capital release than in the prior year. APEX looking backwards, sales initiatives, efficiency improvements on the production and logistics front and Yeah, just general cost-cutting measures that have also found their way into the German press again. Upcoming, I think the key thing about steel is that we are working on a new industry concept, a new business plan coming up, and this will be the determining factor for the future of this business. And that's basically what we're internally fully focused on at the moment. And then closing with marine systems overall, that business is good. Yeah. So it's very nicely developing at the moment. Finally, the German site and vendor. So basically the increase in defense spending is making its way into the ship building businesses. And so we develop nicely here, as you can see, sales is significantly up a very good progress here. EBIT is strong, and if you just recollect that our capital market target for this segment is 6% to 7% ROAS, we finished at 5.9%, so almost made it in the last year. And that's testament to the good work of this team here. And cash flow is also very nice here, also cash conversion above 2%. And, of course, all of the customer payments do help a lot here. Apex looking backwards, you know, basically optimization of our legacy order backlog. That has been the biggest thing that we've been working on to improve margins. Looking into the future, we're working on a new target operating model to make project execution even more efficient. Also, you know, in line with the volume ramp up that we have right now. And then we also develop new businesses, the next-gen businesses, where we try to grow civil maritime and offshore businesses, basically. And then we have some synergies on the procurement side. Summing up the bottom line from EBIT adjusted to net income, as I said, this bridge is very much driven by the special effects, 1.6 billion, 1 billion of which is SE impairment. And then, as I said, 200 million impairments in other segments, 200 million restructuring, and then a little bit more for other factors. And the other thing that I just want to briefly comment on in this bridge is TKE. So our elevator stake, that accounting result is negative, but this is no reflection of the operational performance of this business. So elevator, as you know, has been bought by a private equity consortium a while ago. It's developing nicely. And so we are looking forward to the future of our stake here. And the fact that the accounting is negative is simply a reflection of the user PE financing structure with corresponding interest rates. And we need to mirror that in our equity accounting. That's why it's negative. But underlying performance of this business is really fun. And then from there, you know, finally moving to free cash flows. I guess the thing that I want to say here is, you know, of course, our target is to achieve sustainably positive free cash flows. We have been positive now for the second year. You know, on a midterm horizon to achieve sustainably positive free cash flows and maybe even invest a bit more requires us to achieve the bottom end of the range of our capital market profitability target, which is 4% ROS. When we achieve that, then basically free cash flows turn into the sustainable positive side, even if we want to invest more and even if we have less networking capital releases. But yeah, I'm happy to have achieved this result in the past fiscal year. Okay, turning to this fiscal year outlook now is one change that I want to comment on. So we just one note on our guidance structure. We are changing now, as you can see, to a more specific guidance. So we're coming from prior qualitative guidance indications along the lines of, you know, higher and lower three digit millions and things like that. We are now turning to specific quantitative guidance. Naturally, at the beginning of a fiscal year, this guidance is very, very broad, right? Because we're at the beginning of the year and the environment is also very uncertain. And we expect to narrow this down throughout the year with further business being booked in. Taking you quickly through our logic here. So on the top line, you see that we are guiding zero to three percent, so a slight growth. The market scenario, market model that we have behind that is that we expect in the first half of our fiscal year still a difficult environment. And then in the second half of the year, some stabilization and some parts turning into the positive. If you look at our trend or if we look at our trend, sales trend run rates at the moment, we see a little bit of support for at least that the worst is behind us. But of course, we are not yet in the positive fully. Q4 was good. It was stable, but We still need to see whether that scenario is working out. That is basically what we have defined as our market scenario for this year. On the EBIT adjusted side, we are guiding 600 million to 1 billion. So basically, from slightly above the prior year to significantly above the prior year, driven by both top line, but also strongly by efficiency measures and our structure profitability measures within APEX. And then free cash flow before M&A, minus 400 to minus 200. Now, very important to comment on this one here. This is not, I repeat, it's not a fallback into historical behavioral patterns or something like that. It's simply a reflection of the fact that we have quite significant restructuring activities going on at the moment. I commented on the cost that we booked last year, and now the payouts are coming here. And that even does not yet include anything that may be coming out of the steel business plan. We anticipate already right now 250 million euros in restructuring payments. And that is basically bringing out free cash flows before M&A that otherwise would be or could be again close to zero. And the second remark on that one, why we, of course, this is our key KPI that we measured against free cash flow before M&A. If you would just for one second look at after M&A. As you know, we just completed the signing of the divestiture of our Indian electrical steel business, which will book in 440 million euros purchase price. And then, you know, after some taxes that we need to pay, still a significant amount will come in. If you would model that against this free cash flow before, I mean, to look at free cash flow all in, this would be, you know, a round of positive results. And so we're still without any change committed to delivering sustainably positive free cash flows. On the segment side, I mean, I don't want to go through each and every detail here. You see different growth assumptions here, building on individual market models and all of these different things. DT is negative because of a muted order book this year, but we still believe in the growth case of the segment. And maybe what I would like to highlight again is, as I said, last fiscal year, one of our segments almost achieved its capital market guidance. For this fiscal year, as you can see with the two yellow bubbles on the right-hand side, we see a good chance that two of our segments achieved their capital market targets, material services and also marine systems. And so with that, step by step by step, we are committed to taking our segments to our capital market targets that we defined. Closing my part with a word on APEX, or Performance Management Program. We're coming from APEX 1.0, if you wish, that we pretty much used to mobilize the whole organization and refocus everybody on capital market targets. It was a central top-down approach, or it started top-down and then transferred to the segments. And we built a significant amount of contingency and other measures throughout this first program. of 2.1 billion euros for the two fiscal years, 23.4 and 24.5, of which 1.2 billion have been actually used in the last fiscal year to counter those negative effects coming out of the top line degradation. If you just think that we lost 2.5 billion in top line and then make your mind of what contribution margin this could mean, this has basically helped us stabilize the profit to where it has come out. So that was basically APEX 1.0. I think it was a good success. And now we switch into the second gear. We go to a more decentral approach, even more segment driven. We focus more on the top structural performance improvement projects that are required for us to achieve structural profitability. you know step ups and I mentioned some of those to you in the individual segment charts and in the future we will give you updates as to where we stand with these initiatives and overall whether we are on track or whether things haven't really worked out to you know move you a bit closer to that. We will accompany this with additional things a playbook process as you know from very much know from private equity or other investment situations just to you know drive this thinking of continuous improvement to the organization, and we also have a focused small culture process attached to that to drive performance culture more into the organization. We will not communicate any more additional new APEX targets on top of the ones that we had put out last year. The goal that we basically have with these measures is to secure the achievement of our guidance, and that's what we're here for. And with that, handing back to Miguel to close on midterm guidance and a strategic summary.