Thyssenkrupp AG

Hello, everyone. This is Andreas Trosch from Investor Relations, also on behalf of my entire team. I wish you a very warm welcome to our conference call on the first half year results of the 2425. 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, are available in the IR section on the website. The call will be recorded and a replay will be available shortly after the call. After the presentations, there will be the usual Q&A session for our cell site analysts. We use Microsoft 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 Q2 conference call. As usual, first I will provide you with an overview of our latest achievements with regard to our strategic initiatives in the second quarter. to you the financials in detail. Let's start with the first item, portfolio. The planned spin-off of Marine Systems in calendar year 2025 will be a significant move for the business and TUSC Group as a whole. The next step will be the invitation for the extraordinary general meeting that is required for the targeted spin-off. As mentioned in Q1, we have received the cash, approximately 400 million euro, for the sale of TK electrical steel India, which has bolstered our financials. At Steel Europe, we are in the process to finalize the business plan, including the necessary restructuring. Here, actually last week, we achieved an agreement in principle with IG Metall on the implementation of the industrial concept. The subsequent negotiations on the collective bargaining agreement should be concluded by the summer. You can see we are delivering proof points. And now on to performance. Overall, our Q2 financials have been impacted by tough market conditions. That's a fact. However, despite facing tough market conditions, our APEX 2.0 program is proven effective in maintaining resilience and thus safeguards our group guidance for fiscal year 2024-2025. With our necessary restructuring efforts, we continue to pave the way for future profitability. For instance, at Automotive Technology, here we will respond to ongoing challenging market conditions with additional cost-cutting measures to save cost of approximately €150 million, as well as a gradual phase-out of the production site in Hagen. At Marine Systems, the positive momentum continues. Just last week, TKMS received an order extension for two additional submarines from Singapore. And last but not least, I will give you some examples and proof points for our efforts to prepare this group for the future, the green transformation. First of all, Trusinko Bude has been awarded a landmark contract by Gujarat Namada Valley Fertilizers and Chemicals for the construction of a weak nitric acid plant in India that will enhance the production capacity by more than 50%. The new plant will be equipped with UDES's highly effective and proven NVENOX technology to reduce greenhouse gas emissions by eliminating nitrogen oxides from nitric acid production. Secondly, at Steel Europe, we are committed to and remain on track with the DRI plant construction in Duisburg. The progress is becoming more and more intense. visible at sight. Thirdly, ThyssenKrupp has been awarded the highest rating in the prestigious CDP climate rating for the ninth time in a row. This award underscores the company's ongoing commitment to climate protection as well as its transparent approach to disclosing its own CO2 emissions and its strategy for the transition to a climate-friendly economy. Jens, we'll now present to you the financial section of this conference call. Jens, please go ahead.

Yeah, thank you very much, Miguel, and good morning, everybody, also from my side. Let's start, as always, with the key highlights and challenges of the quarter. So as Miguel said, markets remain weak overall. And so the first point to highlight is that despite that environment, we keep group guidance on all parameters for this year against the background of the impact of all measures that we have already initiated, plus some market and price stabilization still expected for the second half of the year. APEX. We are satisfied with the progress. Miguel already mentioned that. I will go through that by segment to highlight to you the individual and specific measures that we're taking. Contingency programs work. I think important to note that we are down by 2,600 FTE versus Q4 of last fiscal year. of which 600 are portfolio-related, particularly electricity in India, and then the rest is operational, of which approximately half was AT-related. The other half is spreading across the segment. So we're actually seeing the impact of our programs in our FTE capacity. Marine systems are green here. I will comment on that further later on. And then on the balance sheet side and financial side, balance sheet is still solid, $4 billion in net cash unchanged. And we also repaid our last bond, which basically makes the group debt-free as of today. On the challenger side, as noted, we do face market weaknesses, particularly driven by the sector trends in automotive, and also some general uncertainty based on all of the factors that you're very much aware of, geopolitical resorting, tariff politics, negotiations, and so forth. We do have some exceptions in our portfolio. So, for example, on the marine system side, of course, defense is a strong tailwind at the moment. Material services in the U.S. is developing nicely. It's growing business. And, for example, within the AT portfolio, Bielstein is also growing on the back of aftermarket services. But it's fair to say that overall markets are weak at the moment. And that has an impact on our top line, as I will take you through in a minute. Let me make a few comments on the tariff situation at the moment because that is also highly volatile, as you know. As I explained in Q1 already, we do have three businesses in the U.S., ATSE and MX. On the AT side, we do have tariffs that we are subject to right now as we are through that 90 days period that was announced by the U.S. government. We're facing the 10% minimum tariffs plus some additional things for special deliveries. So far, we are able to pass that through to customers fully, so we don't have an impact yet. Of course, we need to review that when those 90 days are over, beginning of July, to see what the negotiated scheme between the U.S. and the EU will be. On the Steel Europe side, as I can confirm what I said in Q1, we are particularly selling tin plate into the U.S., and so we can also pass that one through. And then on the material services side, which is our biggest business in the U.S., as I explained to you, that's a local-for-local business, so we don't have any tariff impacts at all. To the contrary, we could see potential for upsides driven by price measures of other competitors that have a different value chain set up. So long story short, no negative impact net for us at the moment. Of course, something to be continuously reviewed. And then last point, cash flow volatility. The good thing is we have a strongly growing marine systems business. Of course, that does bring additional volatility by a quarter. Because, for example, in the first quarter, we received the large advance payment, as you're aware of. In the second quarter, we needed to pay taxes on that advance payment plus the first supplier payments. And so between Q1 and Q2, we have a huge swing. The first half consolidated gives a better picture. Coming to the top financials, on the sales side, we are down by 5% on the quarter and half year. As I said, continued market headwinds across most businesses. I will analyze that further on the next page later. EBIT adjusted, we are down versus the prior year, both on a quarterly as well as on a half-year basis. That's driven by, on the one hand, the volumes, particularly steel, AT, and material services. I will also explain that more on the next page. And the second effect I want to highlight to you is the flip side of our extraordinary share price development since the beginning of the year. So share price was up, and that is driving a review of the LTI accruals, long-term incentive accruals, because those are, of course, linked to share price performance. And so as of Q2, we needed to book an accrual increase on the LTI above 30 million euros across the group. If you would back that effect out from first half figures, then first half would be approximately within striking distance of the prior year, where the story is pretty much the same as last year. So last year down minus 7%, we kept the prior year profits. This year so far down minus 5%, and we are also in striking distance of prior year, thanks to our contingency and FX measures. And on the net income side, we are positive for the quarter. Actually, the first time since seven quarters. And for friends of statistics, it's actually the highest net income since 10 quarters. That is, of course, supported by our electric steel India sale, plus a higher valuation of our elevator stake that I will explain to you also throughout the presentation. All of that is a wash with a regular impairment as steel that we had again, hopefully the last one. And so that income development is actually significantly positive. And as you can see, for half year, one, you know, half billion above the prior year. Pre-cash flow before M&A, it's negative as expected, following first our normal seasonal patterns, you know, with cash outs for all of our bonuses and year-end investments towards the first half of the year. Second thing was, as already mentioned, our payouts at MS. We needed to pay out 160 million euros in taxes on the advance payment of Q1. And we also, of course, have first supplier payouts. And the third one, which I think is positive confirmation of our progress on transformation, is that we, of course, have restructuring payouts. I shared with you at the beginning of the year that we're expecting 200 to 250 million euros in restructuring payouts for the year. We are approaching half of that now with the first half of the year. And that, of course, also has an impact on that number. But I think it's a good sign that we're actually pulling through and making progress. Right. One just last additional note on free cash flows. Of course, it does not include the proceeds from our India sale because it's by definition before M&A. If you would back it in, so free cash flow after M&A, then this would be up versus the prior year. So that I think is also something to note. Balance sheet, I think nothing specifically to highlight. Everything solid, equity ratio up 37% now, rounded, driven by the positive net income. From there to top and bottom line analysis. On the top line side, as I mentioned, we are down by 5%, and this is particularly driven by the steel business, by AT and MX, following the market situation that I mentioned. DT actually is positive. If you adjust it for the sale of our ThyssenKrupp Industries India business that we sold last year, so operationally DT is growing. MS was plus minus neutral for the quarter, but positive year to date. But the other three businesses were below the prior year for the first half and also for the quarter. On the EBIT adjusted side, compared to the prior year quarter, you see again, you know, in sync with the volumes that this is basically driven by those three segments plus headquarters where we also booked a significant part of the LTI accrual increases. You also see that the biggest impact is coming from SE, and that is true for both quarter versus prior quarter as well as quarter over quarter analysis. And let me provide a little bit of more transparency to you, particularly on the SE run rate, so that you have a good feeling how that is developing. So it was quarter over quarter down significantly from 169 in Q1 to minus 23 in Q2. What were the drivers of this swing? The first one is the electricity price compensation that we had in the first quarter of 125 mils. That's an annual booking, so it doesn't repeat in the second quarter. Second important aspect is that I think I highlighted that to you also in Q1. We had production standstills at SE in the second quarter driven by huge investments. So after our DRI plant, the next second biggest investment that we're doing is a new continuous casting plant and hot strip mill in Duisburg. This is one of the largest industrial construction sites in Germany. And we took the predecessor plants out in November. So within the first quarter and now second quarter was completely production stands for that part of our production, which means that we had basically the highest cost from that without sales benefits. And in addition, we ramped up another investment, the so-called annealing and isolating line, or GIL, that also caused additional costs there. And that is something that also impacted SE in Q2, and we expected that. The third element was prices, spot prices in Q2. Now, why are we positive that this should improve for the rest of the year? So why should the run rate for SE go up? It's the corresponding three elements. The first one is positive utilization effects from the end of those dense tilts. We expect the new equipment going live now towards the end of the month of May. Second element is actually better prices based on also some contract renewals we have in front of us. And the third one is what we also see, lower cost for raw materials and energy going into the second half of the year. So that is basically explaining the largest part of our adjusted EBIT swings, Q1, Q2, and why we expect that the following should become better. Quickly browsing through the segments, starting with automotive technology, strong hard market headwinds. I think I don't have to comment too much on that one. You see that top line is down 6% in the quarter and 8% year-to-date, and that's in most businesses with the exception of Bielstein. Correspondingly, EBIT adjusted is down, driven by lower volumes and underutilization, and also a bit by supplier claims for lower volumes, which, of course, we on the customer side also try to get back. And then we are compensating for that with APEX measures. I comment on that in a minute in restructuring. BCF business cash flows also correspondingly down driven by the lower earnings. A bit higher network capital that is following the lower top line and then payments for restructuring. So AT is a significant part of our overall restructuring programs. And so that is hitting business cash flows as well. What are we doing specifically on the APEX front? AT is a lot of restructuring. You will have seen that we announced an additional larger restructuring scheme here, a new indirect cost reduction program targeting 1,800 FTEs. which should become fully impacting next year. Miguel already mentioned that we expect cost benefits of magnitude 150 million euros run rates for the next fiscal year. And also, in addition to what we're already doing, which is quite a lot, we also decided to close another site, the Hagen site, approximately 300 FTEs, as previously published. In addition, we do work on commodity procurement. So we do see a number of purchasing synergies. For the first time, we have bundled purchasing across all of the business units within the segments. That's also generating a nice additional run rate improvement. And then we have another topic, a more special topic for Bielstein, where we ramp up a Mexican plan for specific customer growth. So we make good progress here. From there to decarbon technologies, actually, decarbon technologies growth reported is negative. But as I said, if you back out the sale of ThyssenKrupp Industries India from last year, it's positive, 3% for the quarter and 7% for the six-month period. And all of the other KPIs follow through, profits up, BCF up significantly. So that's actually developing well. On the APEC side, we have programs per business within DT. So on the WaterAire side, we have an operation excellence and restructuring program going on currently. At OODA, we are working on standardizing and modularizing our production. This will have an impact from next year onwards, not this year yet. On the Polysia side, we try to increase the portfolio share of services. And for Nucera, we're working on ramping up sales. And with that also, further expanding gross margin. Material services, also top-line impact, minus 4% below the prior year. Within material services, as I said earlier, North America actually looks good. We're growing in that area, and that's a good message because that is the more profitable business, and we're also strategically targeting more growth in North America. Nevertheless, it's overshadowed by Europe, which is also why we restructure more in Europe. And so EBIT adjusted has been going down in most businesses. Nevertheless, important to say that all businesses are positive, and particularly the supply chain solutions business, which is also a strategic focus for MX, where we grow, where actually profit is significantly overproportional to the portfolio. BCF is down. I explained the huge swing in Q1 already to you in Q1. So that was driven by a strong release of networking capital towards the end of the last fiscal year. That is explaining part of that swing. And then the rest is lower earnings and also payouts for restructuring that we're doing in this segment. And so correspondingly, APEX key initiatives restructuring, particularly in Germany. So we've taken out APEX. several hundred employees here, which also gives a good benefit. We want to invest further in the U.S. and then, as I said, increase our contribution from solutions with impact also from next year onwards. From there to steel Europe. So we do have persistently weak demand here. As you know, steel Europe is also significantly selling into the automotive space. And you see that on the top line side here, which is down minus eight or nine percent for quarter and half year. And also we had some headwinds from the price levels in Q2, as I already explained to you. That has impacted EBIT with lower volumes and price levels and underutilization. And it has also impacted the BCF for the half year. For the quarter, actually, as you can see, BCF was positive. That is driven by networking capital release. So the segment is working strongly on better inventories, steering, and that's starting to leave its impact, as you can see here. APEX key initiatives, the most important thing is to translate what, you know, Miguel already said, the industry concept into negotiated terms and then, of course, into implementation plans. That's the biggest topic here. And the second one is that we still optimize based on strategy 2030 with some of the investments now becoming live end of May and beginning of June. And then last but not least, marine systems. I mean, that business, of course, is having a great time, as you can imagine. We have significant positive market dynamics here. As you may have seen, we just secured another order from Singapore of two submarines, and we still even have further demand in this business. So that is developing very nicely. We translated into the bottom line, as you can see, some marine systems, Always set a target range of 6% or 7% ORS. We are approaching that right now. And on the BCF side, don't look at Q2 because that doesn't make any sense. You need to see Q1 and Q2 together, the advance payment plus corresponding payouts. So, of course, up by 850 million euros. Some APEX initiatives going on here as well. We're optimizing the way that we actually manage production with a new target operating model. But much of the other energy is actually focused on fully ramping up capacities here. We are ramping up Visma, our new production site, and look for further capacities. So from that, coming back to the aggregated group side and going from operational profits to net income, I already highlighted the most important elements. So we've had positive disposal gains from the Electric You Steal India sale that have impacted this. And the other positive impact was Elevator. Let me quickly comment on Elevator because that's, of course, also of interest. So as you know, we've had the signing, not yet the closing of the Allard investment announced at the end of February. And that led to a reversal of historical impairment losses for our ordinary shares part. Without going into too much detail, we have three different securities going on here that constitute our share in Elevator's ordinary preference shares and non-interest bearing liabilities. And the ordinary shares part can be revalued. We took it up by 105 million euros. That's, as I said, a reversal of historical losses. And the total book value has consequently increased to 1.1 billion euros now. Fair value, of course, can be assumed. to be significantly higher. You can make the math what your best assumptions are on this one. Our current, we are accounting for this at equity, so we will not fully reflect the fair value in our current share. So it's, if you wish, a hidden value currently in the balance sheet, but assume that the actual value is probably significantly higher. And then from there to free cash flow before M&A, I also mentioned the most important elements here. Once again, if we start from net income, we need to back out, of course, the accounting effect of the disposal gains of electrical steel in India. In addition, we need to take down restructuring here. We've had approximately 70 million euros of restructuring cash outs hitting Q2. That goes to OCF, and then we back in and back out again electrical steel, depending on whether we look at free cash flow after or before M&A. And then after M&A would be minus 170 million euros above prior year and before M&A, the minus 569 as reported. And then closing with my part with a look into the rest of the fiscal year. As I said, we do keep group guidance unchanged on all parameters. Of course, we continuously review markets and tariffs and so on and so forth, also after the 90 days period in July. But so far, we keep it. And yes, of course, that requires an improvement in our second half run rates. But as I tried to explain with the example of SteelEurope, we are positive for the moment that we can actually still achieve that. And on the individual target ranges, we are phasing in the segments step-by-step now, as I said. So the marine system segment has a good chance of achieving its target range of 6% to 7% this year. The MX segment can also achieve its target range or the lower end of the 2% to 3%. However, that requires some market support in the second half of the year, and then the others will follow through the next years. And free cash flow, as I said, we do keep the guidance of a positive free cash flow, 0 to 300 million. To repeat, it's the third year in a row and first time since 20 years that we achieved that. And with that, I give back to Miguel.