Thyssenkrupp Ag S/Adr

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 24-25. With me in the room, our CEO, Miguel Lopez, and our CFO, Axel Hamann, plus my colleagues from the Investor Relations team. I have some housekeeping before I hand over to the CEO and CFO for their presentations. All the documents 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. We again used 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. We estimate that this call will take no longer than 45 minutes. And with that, I would like to hand over to our CEO, Miguel Lopez.

Thank you, Andreas. And hello, everyone. Welcome to our conference call for fiscal year 24-25. Please let me start with a recap from our key strategic milestones in the recent year. At last year's conference call, we proclaimed the year of decisions, and we have taken many decisions. The presentation of our new strategic future model, ACES 2030, was one decisive step ahead. ACES 2030 provides the operating framework for our transformation, which we are already implementing with determination and at high speed. We also successfully listed TK&S via spin-off on the stock exchange. Other businesses will follow as soon as we have put them online. in a profitable position, that means ready for the capital market. We are, moreover, negotiating with General Steel about the potential sale of our steel business. This is based on the industrial future concept developed by the Executive Board of Steel Europe, the roadmap for modern, competitive and sustainable steel production. The collective restructuring agreement entered into with IG Metall in the past week is creating the required framework to implement this concept step by step. The milestones reached so far demonstrate that we are already in the middle of the year of execution and are driving the transformation with all our energy. Let's now take a look ahead. We have a clear vision for the future. We are realigning the group. The long-term goal is the gradual transition towards standalone businesses that are also open to third parties. We are jointly transforming ThyssenKrupp into a financial holding company with strong independent entities under the umbrella of ThyssenKrupp. The standalone solutions for the segments will significantly strengthen their entrepreneurial freedom and offer them new growth prospects, more decision-making power, greater flexibility to make investment and marketing decisions, and individual access to the capital market. At the same time, the new structure offers increased accountability and more transparency for the businesses. These are both significant levers for improving performance. Overall, we build standalone structures for our segments subject to their capital market readiness. This comprises not only a forward-looking strategy, but also a convincing performance. In those businesses, whereas that alone solution is not yet possible, we will continue to focus on performance and competitiveness. In this process, we are also realigning the corporate functions. In the future, headquarters will focus on the financial management of the entire portfolio. This realignment would probably take several years, and we approach it with determination and clear objectives as well as with sound judgment. Let's now look a little closer at DKMS, our actual first standalone business, and what we already have achieved there in terms of value crystallization. We have completed the spin-off, unlocking significant value for our just-in-quote shareholders. Please let me remind you about some details of the spin-off. 49% of the TKMS shares were distributed to existing TKAGE shareholders, while 51% remain with us as fully consolidated segment. Shareholders of ThyssenKrupp received one TKMS share for every 20 TKAGE shares. TKMS is now, from October 20th, listed on the Frankfurt Stock Exchange, posting capital market visibility in excess. And there are also good news from the last week. TKMS will be listed in the MDAX. Within just a few weeks, TKMS has managed to establish itself among the top 90 listed companies on the German Stock Exchange. Overall, this transaction delivered over 14%. value creation for Tussle Group shareholders on the first day of TKMS trading. On top of the preceding TKG share price increase of approximately 240% in fiscal year 24-25. On our way towards the financial holding company, the TKMS spinoff might serve as a blueprint for the other segments. And now, Axel, please go ahead with your financial section.

Thanks, Michael. So, overall picture up front, persistent market headwinds, more than offsets by straight performance management. We basically saw pretty weak demand across most customer groups and regions throughout the year. In addition, geopolitical uncertainties persisted, for example, from global tariff developments. With regard to sales, we saw further market-induced declines in the fourth quarter, minus 6%, and consequently over the entire fiscal year around minus 6%, meaning 2.2 billion euro sales decreased. On top of the minus 7% in the financial year 2023-2024, that's even more proof of a solid performance considering a top-line drop of almost €5 billion in two years while keeping our EBIT adjusted stable. Let's talk about EBIT adjusted. Despite the mentioned top line development, we saw a strong fourth quarter with €274 million, leading to a financial year figure of €640 million, an increase of €72 million year over year. So the earning increase is also an outcome of our rigid restructuring efforts. For example, FTE reduction of €4,800 year-to-date, and thereof you can attribute more or less €1,500 to SEED Europe. Regarding net income, we've ended in positive territory. Fourth quarter benefited significantly from the elevator valuation effects as expected and anticipated. That was €902 million in the fourth quarter, therefore leading to a quarterly net income of €653 million. As a reminder, we also saw negative tax effects of more or less 150 million euros in the third quarter, resulting from the marine spin-off, in addition to the unfortunately usual overall detainments of approximately 800 million euros in our financial year 2024-2025. Of that 800 million euros, approximately 600 million are attributed to Steel Europe. Let's talk about free cash flow before M&A, third year in a row positive with 363 million euro. That's an increase of 253 million euro year over year, supported by a strong fourth quarter with, let's say, the usual networking capital seasonality pattern and also benefiting from a marine systems prepayment that already happened in the first quarter. So please keep also in mind the financial year 2024-2025 free cash flow before M&A also includes the cash out for restructuring of approximately €250 million. Talking about our net cash position, that's almost €5 billion following the positive cash flow development and, for example, the proceeds from the sale of our electrical steel India business. So that's a sound basis for all the portfolio topics to achieve the target picture of a financial holding company in the future. So overall, we've met our updated guidance for sales and even adjusted and net income and free cash flow before M&A came in even slightly better. So let's talk about sales and EBIT adjusted development. As already mentioned, sales decline of more than €2 billion have been offset in EBIT adjusted. This is again a pretty clear proof of our increasing underlying resilience. That means we tackle what can be tackled by ourselves. With regard to sales, we saw a decline across almost all segments, except marine systems. I'm sure you've heard about that yesterday in the investor call. Lower demand, especially from the automotive sector, weighed in on automotive technology, but also on steel and materials, in addition to some unfavorable pricing. Even adjusted, lower part of the chart, it's a mixed picture for the different segments, some declines, but also some increases. For example, decarbon technologies, that's up by 126 million euro, also considering negative one-time effects in the prior year. Ski Europe also benefited from a mix of, for example, lower DNA, but also decreased raw materials prices, as well as some additional restructuring efforts. Let's come to automotive technology. Overall, soft demand, pretty tough market environment that led to declining sales, down by 7% year over year. Highlight, obviously, we saw growth at Bilstein, fueled by aftermarket activities. Even adjusted, market headwinds mitigated to a large extent on the back of internal performance efforts, such as restructuring and efficiency initiatives. Even adjusted came in at 187 million euro, down by minus 58 million euro year-over-year. So, also here, we saw a decline in personnel expenses following our restructuring efforts. That was outweighed, unfortunately, by lower volumes, underutilization in project businesses, as well as some negative one-time effects. Cash flow ended in positive territory at automotive. Year-over-year decline, however, in the financing the entire year, mainly driven by our restructuring cash outs. Let's talk about the carbon technologies. Overall, there we saw an ongoing hesitant market environment with some project deferrals or postponements from our customers. So that translated into a weak order intake and therefore also declining sales of minus 10% over the entire year, especially that's the case in the new-built business and at chemicals and cement plants. So considering the sale of TK Industries India in the previous year, the organic sales decline was only down by minus 4%. Having to even adjust it, Strong increase of 126 million euro to 71 million euro over the entire year, 24-25. Almost all businesses with increased contributions, for example, also supported by performance measures and efficiency gains. In addition, prior year was negatively affected by significant a priori higher costs in the range of a high two-digit million euro amount at the cement business. Business cash flow, we saw a pleasant increase of €192 million over the entire financial year. That's due to higher earnings as well as positive cash profiles in the project businesses. Let's continue with materials. Also there, we saw challenging market conditions in Europe. Demand and price levels remained pretty weak across our key product groups, and as a result, sales held by 6%. with shipment volume significantly lower, primarily due to weakness in the direct-to-customer business. However, North America shows some resilience. That's why we saw some slight growth in the North American distribution business. That helped partially offset the downturn in Europe. Talking about EBIT adjusted, all business units remained profitable despite market headwinds. and supply chain solutions contributing here the highest share of our earnings. Overall, EBIT adjusted came in as materials at €132 million, down by €71 million year-over-year. Business cash flow also down year-over-year, and that's mainly due to the lower networking capital release compared to the previous year. So let's continue with Steel Europe. Market conditions in Europe remained challenging with both demand and pricing. Consequently, sales decreased at steel by 9% and shipments fell by 6%. Especially the European automotive industry and the industrial businesses remained quite weak. Higher volumes were seen at packaging and electrical steel, but those could only partly compensate the decrease. EBIT adjusted, so actually due to the lower top line and despite the lower top line, EBIT adjusted increased to €330 million. That was mainly driven by several positive effects, including restructuring efforts and also some more favorable raw materials prices. With regard to business cash flow, business cash flow was increased year over year, and that's mainly driven by a higher earnings base, as mentioned, the 330,000 million euro EBIT adjusted, as well as a higher networking capital release at the end of the year. Marine systems, global markets show unchanged strong demand for defense products, including submarines and surface vessels, as well as electronics, all three of our business units. As a consequence, the backlog of our marine systems business stands at a record level of €18.2 billion, including new equipment orders, as well as a very new service contract. So let me also briefly comment on marine systems as a segment of ThyssenKrupp. As mentioned, I hope you've all been part of the investor call and the reporting of TKMS yesterday. All relevant KPIs, including sales, EBIT adjusted, business cash flow, are up and developing in the right direction. One highlight for sure, the strong increase in business cash flow on the back of the new submarine orders from Germany in the first quarter. So let's talk about our loan EBIT adjusted bridge to net income bridge. Here you can see... that we are also in a transition period, especially in terms of special items. That's quite obvious. We see a mix of several effects, such as impairments, mainly in steel, some necessary restructuring, mainly automotive, but also some positive effects resulting, for example, from the sale of our electrical steel in their businesses. Looking at our equity results, as of end of the fiscal year 25, we've changed the valuation approach of our elevator stake from equity towards a fair value approach. And that led to a positive valuation effect of around about 900 million euro, which is included also in finance and others. With regard to taxes, we talked about that in Q3. That provision includes a devaluation of deferred tax assets resulting from our marine system spin-off of more or less 150 million euros. Overall, we're coming in at a positive net income of 532 million euros. Next chart is the reconciliation from net income to free cash flow before M&A. That means basically from the sale of electrical C-linear that is not included and therefore adjusted, we see the usual reconciliation elements to the operating cash flow, mainly including D&A, reverse the effects from the mentioned elevator valuation. and some positive net working capital effects, also on the back of our known efficiency improvements as part of APEX. Let me make one general comment on the investments. Approximately 50% referred to as the Europe. That is also in connection with the construction of the DRAI plant in Duisburg. Overall, we saw a positive free cash flow before M&A, at the amount of €363 million. Let me now come to the outlook for the running financial year 2025-2026. Overall, that year will be a year of implementation with continued focus on performance and restructuring while markets remain quite uncertain. We see an ongoing tough market environment, especially in auto, with some slight hopes of first-order intake coming from defense and infrastructure governmental programs, but not yet really certain or visible at the moment. Therefore, we do see a slight sales increase of roundabout 1%, up to 1%. With regard to EBIT adjusted, depending on the top-line development, as mentioned before, we see EBIT adjusted of up to 900 million euros. Like in the past year, ongoing restructuring efforts will be quite visible in free cash flow before M&A. And considering that our planned restructuring cash outs amount to €350 million, we expect free cash flow before M&A to come out in the range of minus €600 to €300 million after three positive years that we just reported today. So as a reminder, driven by the typical cash flow pattern you've also seen in the last years and from today's perspective, Q1 is to be expected significantly negative from a free cash flow perspective. Might even be a negative four-digit figure, but that would, as in the last years, then reverse in the course of the flow following quarters. The recently agreed-upon restructuring program at Steele and the corresponding restructuring provisions are obviously visible in our net income guidance for the actual financial year, and we estimate that in a range of minus 800 to minus 400 million euros for the entire group. On a performer basis, considering the restructuring effects mainly at Europe, the net income would end up around break-even. Let's also take a look beyond the financial year 2025-2026. Our midterm targets are clear and confirmed and remain valid. We're striving for an EBIT adjusted margin of 4% to 6%. It would also lead to a significant positive free cash flow before M&A, as well as reliable dividend payments. We will, step by step, bring the performance up by executing our agenda. One recent example that I also want to highlight against this background, at the end of November 25, we initiated the sale of Automation Engineering, a part of automotive technology. That's one of the three business units that are no longer part of our core automotive business. And with the signing of this agreement, our segment automotive has taken an important step in its transformation process that will ultimately also boost performance. And with that, Miguel, back to you.

Thank you, Axel. Before we come to our Q&A, I would like to share a few reflections and outline the way forward. A year of decisions is behind us, a year in which we bravely embark on new paths and set the course for the future. We are developing to scope into a financial holding company and thus strengthening the independence of all segments. This will then increase their accountability, entrepreneurial freedom, encourage innovation, and unlock new growth prospects. In the current fiscal year, we are already in the middle of the execution phase, having reached first milestones by the successful stock market listing of TKMS and the signing of the Collective Restructuring Agreement at Steel Europe. For the transformation of ThyssenKrupp, we are pursuing an individual approach for each segment and ensure that we create the conditions for sustainable success, either by finding a standalone solution or initially by boosting competitiveness. Moreover, leveraging opportunities from the green transformation and making necessary restructuring investments will be crucial for positioning this group for future success. And with that, we wrap up today's presentation. Thank you all for your continued interest and trust. We are now ready to take your questions. Andreas, over to you.

Thank you very much for your presentations. We're now coming to the question and answer session of this fall. For the analysts, if you want to raise a question, please raise your hand. I can on your teams. I will announce your name, and then we will open your line. The first question today comes from Boris Bode. Please go ahead, Boris. Can you hear us, Boris?

Sorry, the mute was locked. So thank you for taking my question. I have three questions. The first is on the guidance and especially on the steel Europe business. You are guiding for an EBIT adjusted that should be between 225 and 325, which compares to 337 this year. So I'm curious to know the reasons for this cautiousness. Can you tell us how much is a positive one-off that won't recur next year? And what's the scenario in steel, having in mind that there will be a support from the European Commission and CBAM? That's the first question.

Okay. Thank you, Boris. So, the guidance still for the next year, and you've mentioned... Positive effects for this year. First of all, the somewhat higher EBIT adjusted in the previous year was also on the back of some positive effects that we're not going to see in this year. That is why you see in terms of the 337, you see the 325 to 325. And you've mentioned CBAM. that is something we will see as an opportunity beyond what we've got.

And can you quantify the one-offs last year?

The one-offs last year, I'd quantify them between 100 and 150 million.

Okay, thank you. And my second question would be on the negotiations with Jindal. What would you say are the key topics of negotiations and the main obstacles you might be having to face in the negotiations? And how confident are you and what would be the timeframe for an agreement with General?

Yes, thank you very much, Boris. Of course, you know, during M&A processes, It is always very difficult to really get a timing precisely. The only thing that I can now state here is we are in the due diligence phase. The due diligence is running as expected. And we need to take it from here. So everything is positive, no major roadblocks. So we take it from here.

Thank you. And then my last question is on HKM. There have been some headlines recently mentioning that Southgate was ready to operate HKM on its own with a reduced scope, and that decent group, yourself and Balreg, might be required to provide some funds to help them address the business. So is this pure fantasy, or is it likely a scenario in your view?

Well, you know, the statement we made is that in future we don't need the capacity of HKM. And we are very positive about the fact that Salzgitter is looking at the future of HKM production on its own. And, of course, we are prepared for positive and constructive results. talks and also negotiations so we are happy that they see the future for HCAM and we are looking forward to their further offerings Would that be already included in your provision for restructuring that you booked?

That's correct

Okay. So there is no risk from negotiations with South Gita of you having to add new provisions or new investments in the future of HKM?

Not at this time.

Okay. Thank you.

Thank you very much. And the next question comes from Bastian Sunagowitz. Bastian, please go ahead. If you're still on mute, Bastian, please unmute yourself.

Right. Hopefully you can hear me now. Good afternoon. Yes. Thanks for taking my question. So just cutting off maybe on the portfolio side and actually with automotive engineering, and that's been a business which, from memory, I think, really struggled to... handle and basically sell over almost like probably more than 10 years. So it's really good to see that you're basically making progress here. Could you maybe give us any color on how far this business has been contributing any losses to your 2025 numbers? And then also maybe related to this and also related to, I guess, all of the other moving parts. Are there any other one-off items we should be keeping in mind for the first quarter that quarter already across the different businesses. This is my first question.

So with regard to your first question, AE Automation Engineering, the fact that this is part of the three business units that we kind of separated or do not... account for our core business, any mortgage and indication that this may not have been the most profitable business in the past. And that is why we may be divesting now a substantial part of automation engineering. With regard to one-offs in the first quarter for the entire, let's say, financial year, I think we've touched upon in our presentation that we are foreseeing some provisions for restructuring. And that is basically the reason why you also would see in our guidance the negative net income. And if you ask me for one, that is probably the one you should pay attention to most. We're going to see, due to the fact that we're entering into a year of implementation, we're going to see quite a lot of restructuring provisions.

Okay, understood. I was also referring, so first of all, I wanted to check whether there's maybe even like a loss contribution number you could give us for automotive, because I guess if you're selling it, that's actually very positive, because you can basically cut off those losses. So just if you have that number, and then maybe in terms of one of, I guess there were also a couple of articles suggesting that there were some issues around, for example, the hot rolling line. So is there anything on the operational side maybe we should be keeping in mind for the first quarter as a starting point.

Yeah. As I've mentioned, the fact that we are divesting the business is an indicator that this may have not been the greatest, let's say, performance contributor. And with regard to steel, we need to take that quarter by quarter, whether we would need to account for additional impairments or not, Let's see once we get there.

Okay. Sounds good. Fair enough. Then my next question is on BTEC. And I was wondering whether you could maybe give us an update on the trends you're currently seeing. In your different subunits, do you see maybe any signs of demand picking up in either road to Erde or the plant engineering units where last year has been obviously a little bit more difficult? I guess quite frankly, it's not been a great year to take big investment decisions. But do you see whether anything is changing or do you think 2026 will be mostly driven by your big efforts here on cost cutting?

In general, we still see that FID decisions on customer side are taken with great analysis and resilience. And so, you know, the pipeline is really... quite full of projects that need to be then decided on. So my expectation really is here that we will see some realization of FIDs in the next 12 to 24 months. So it is still, again, many, many regulations to be still decided upon, fixed by many governments out there, and that's the reason why, again, the pipeline is full, and we are preparing ourselves for being, as mentioned many times, for being really competitive, and as soon as FIDs are coming, to be there and execute in the best manner. So,

this is my summary from today's perspective okay great thanks for the color on that uh and then maybe my last question coming back also to the to the general transaction within the scope of what you can say versus what you can't say. But could you maybe give us an update here? As it stands, would you lean to possibly retain a minority stake in the business? I guess there were a couple of headlines from your press conference earlier suggesting that. And has the targeted shareholder structure changed versus, I guess, the earlier starting point of the indicative bit? And then also here related to that and on the financing of the steel unit, which you announced together, I guess, with the successful finalization of the restructuring agreement with the unions, how is the financing structured? Have you basically, have you injected a certain amount of capital, which the business now needs to run with, or have you guaranteed any financing requirements until, I guess, the 2030 timeline, which was mentioned in there? How is the financing structured, basically? That would be my question.

Thank you. So the... the discussions with Jindal are clearly focused on them taking a majority. And let's see how the majority will finally look like. This is a topic that obviously will be regarded at the end of the negotiations in a much more detail, but the clear orientation is to get them a majority. Around the financing discussions, you know that we have been agreeing with the unions around the collective procurement agreement that the financing is secured, and we won't provide any further detail around that Hope you understand it.

Okay. Well, sounds good. Thanks so much, and thanks for taking my questions.

Thank you very much. As a reminder, if you want to ask a question, please use the raise your hand icon. And the next question right now comes from Tommaso Cartello. Tommaso, please go ahead.

Good afternoon, everyone, and thanks for taking my questions. I have two questions. The first one is on your free cash flow generation before M&A. You're guiding for negative values despite all the small increase in investments and $350 million from restructuring, but you had $250 this year. So if you could spend some words, give us some color on what are the other tracks there. Thanks. Sure.

Thanks so much. You're right. Our negative free cash flow is mainly burdened by restructuring cash outs. And the question in terms of difference year over year, maybe two aspects. We saw a significant milestone payment from Marine last year that we would not foresee to the extent this year.

Thanks for that. And then maybe if I can go back to your Steel Europe division, do you expect any further impairments next year?

Yeah, cannot be excluded. Let's see how the restructuring efforts kick in. But you're probably aware that we need first some data points on the improvements before we can exclude potential impairments. So at this point, I'm sure the answer is cannot be excluded.

Thank you. Sure.

Thank you very much for your question. There seems to be no more questions at this time.