Thyssenkrupp AG

Hello everyone, this is Andreas Tosch from Investor Relations ThyssenKrupp. Also on behalf of my entire team, I wish you a very warm welcome to our conference call on the first quarter results 2526. With me on the call are our CEO Miguel Lopez and our CFO Axel Amann. Before I hand over to the CEO and CFO for their presentations, I have some housekeeping. 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 our 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, Andreas, and hello, everyone. Welcome to our first conference call in the current fiscal year. Let me start with an overview of our management priorities. First of all, portfolio. In terms of our strategic transformation, we continue to execute ACES 2030 with full focus, also in order to establish ThyssenKrupp as a lean financial holding company. With its successful spin-off of TKMS in October, a major milestone on our path towards this target picture, we created significant value for our shareholders. That is our clear ambition also for any portfolio actions ahead. For material services, we push ahead for capital market readiness and their respective standalone setup. At automotive technology, we defined and implemented a new structure with clear focus on the core businesses. Moreover, we also initiated the sale of the non-core business unit Automation Engineering in November. At Steel Europe, negotiations with Jindal about the majority holding are ongoing and the respective due diligence is on its way. And let me remind you that we have reached the collective restructuring agreement with E-Metal Union in December, an historic milestone for Tissot Group. And in addition, actually another very important historical milestone, just from last week, we have agreed on a term sheet on the new shareholder structure of HKM. So Skidder plans to continue to operate HKM as the sole shareholder from June 1st, 2026 onwards. That also means that the slab supply to ThyssenKrupp Steel will already end in 2028. Regarding performance, Q1 marks a confirming start into the new financial year, even though our markets remain challenging across many of our customers' industries. Therefore, we confirm our group guidance for fiscal year 2025-2026. On a relevant note, the likely positive implications from current political initiatives in Europe, such as CBAM or steel tariffs, have not yet translated into measurable tangible effects, but they do present upside potential for our businesses going forward. On the green transformation side, we continue to build momentum. Let's start with a recent announcement. Uniper and Ude have signed a framework agreement on ammonia cracking technology. The agreement covers up to six large-scale plants with a total capacity of seven 6,200 metric tons of ammonia per day. In addition, construction of the ERI plant at Steel Europe is moving ahead with full commitment. And more from an ESG perspective, CDP, so Carbon Disclosure Project, again honoured ThyssenKrupp for transparency and climate protection for the 10th consecutive year. With this result, ThyssenKrupp has once again secured a place on the annual Climate A-List, making it one of only 877 companies internationally with this distinction, including 34 companies from Germany. To summarize, a difficult market environment persists, but we are executing our strategy with discipline, reshaping our portfolio and improving our operational performance. Plus, where we are confirming our full year guidance. And now, Axel, the stage is yours for the financial section.

Thanks, Miguel. Hello everyone, this is Axel. Let me turn now to the financial overview for the first quarter. Despite the macro environment you just have heard about, we achieved a promising and confirming start into the new fiscal year. We've increased our EBIT adjusted despite the top line headwinds, which continues to serve as a proof point that our internal efforts and the respective performance management are paying off. While sales decreased to 7.2 billion euro, that means a 8% decline year over year, our EBIT adjusted increased to 211 million euro, which is 20 million above last year's level. That income came in at minus 334 million euro mainly

Mm-hmm. Go on then again.

Okay, wonderful. All right. We have experienced some technical issues here. Apologies for that. I believe that I was talking about the net income, which came in at minus 334 million euro. Can I explain that this was on the back of the expected restructuring expenses at Steel Europe? Now, let me now turn to free cash flow. And as already reflected in our last conference call, you see a typical seasonal pattern here at the beginning of the fiscal year. And that's what you see at the minus 1.5 billion euro free cash flow before M&A. And this is important to get it right, and I want to highlight it right here. our free cash flow before M&A guidance for the entire year remains unchanged, as we expect a reversal of this Q1 pattern in the course of the fiscal year, particularly in the second half. So that cash flow development led to a decrease in our net cash position. It's now at 3.2 billion euro. That is still a very solid level that will also recover throughout the fiscal year as free cash flow before M&A is improving. Also some operational comments. We see tangible results from our restructuring and performance initiatives. Workforce reduction is progressing as planned, with FTE down by around 1,100 year-to-date, first quarter, one quarter. And a bit more from a broader perspective, the future economic development remains challenging overall from our point of view. And we do continue to face weak customer demand, particularly in Europe, but also uncertain upside potential that is related to the political framework in Europe. Now, first quarter, sales in EBIT adjusted development, which you see here in that chart. Most segments managed to improve or at least stabilize their performance despite weak demand conditions. I've already mentioned that the sales decline of more than 600 million euro is more than offset in our EBIT adjusted. This is again a pretty key proof point for our increased underlying resilience. With regard to sales, we saw declines or stagnation across all segments, with the decline mainly driven by three segments. First, the carbon technologies, still facing hesitant markets and some project postponements on the customer side. Then, material services and Steel Europe, they both showed lower demand that, for example, you can see also at the trading business at our material services segment. In terms of EBIT adjusted, we saw a number of improvements across the group, with Steel Europe posting the biggest increase, which was also due to lower raw materials prices and some efficiency gains. Looking at DT, the carbon technologies, the negative first quarter resulted from lower sales and project-related additional costs at the salmon business. Let's now talk a little bit about automotive technology. Overall, challenging market environment, soft demand levels also in Q1. Total, we had a sales decline of around about 3% year over year. However, if you adjust for the negative currency effects, sales were roundabout on prior year's level. Here we experienced a growth in the serial business that was overshadowed by the declines in the project business, as well as from our business unit, Springs and Stabilizers. Let's take a look at earnings. We saw a performance increase. EBIT adjusted came in at €20 million. That's up by €8 million year over year. So what we can see is here that our internal countermeasures, such as volume compensation from customers, savings from restructuring, and efficiency initiatives are in place and are working. Ultimately, these efforts could more than offset the top line and currency headwinds. Let's look at business cash flow. Came in again in negative territory at around about minus 70 million euro. That's mainly driven by restructuring cash outs and networking capital changes as expected. Let's turn to decarbon technologies. Overall, we continue to see an ongoing hesitant market environment with a number of project deferrals on the customer side. That translated into weak order intake and therefore declining sales of minus 19% in our first quarter, especially in the water electrolysis business at ThyssenKoop Nusera and in the new-build businesses at Chemicals. These lower sales led to the decrease of EBIT adjusted by minus €33 million to minus €16 million. In addition, some project-related additional costs at Polyseos impacted that result. Performance measures and efficiency gains supported earnings, however, could not compensate the decrease. Also, the cash flow was hit by missing sales. The drop in business cash flow to minus €162 million was driven by the lower top line, as well as negative cash profiles in our project business at DT. Let's turn to material services. Material services delivered higher earnings despite a challenging market environment, particularly in Europe. Sales declined here by minus 6% year-over-year, mainly due to weaker performance in the direct-to-customer business, which also led to significantly lower shipments. At the same time, distribution and processing businesses in North America showed some solid growth. EBIT adjusted, came in at 50 million euro, with a strong performance of our processing business, especially in North America, more than offsetting the decline in European distribution, and also supported by APEX cost reduction and efficiency measures. Business cash flow. Business cash flow was down year over year. reflecting the before-mentioned typical seasonality with a net working capital build-up at the start of the fiscal year, also influenced by higher price levels that we particularly see at some commodities. Steel Europe. So, for steel, the market conditions in Europe remain challenging, with, for example, demand being still quite reluctant. Consequently, sales decreased by minus 10% and shipments fell by 4%. However, we also saw some higher volumes from our automotive customers and from skilled service centers. Let's take a look at EBIT adjusted. Despite the lower top line, EBIT adjusted at steel increased to €216 million. That is due to more favorable raw materials prices and also efficiency measures that was supporting the positive earnings development. Business cash flow at steel decreased year over year. Also, I mentioned driven by a seasonal buildup of networking capital and here mainly receivables and payables. Last but not least, Marine Systems, TKMS. Overall, we see ongoing strong demand for defense products across the product range. All their backlog continues to be impressive, stands now at the record level of €18.7 billion. And so only a couple of brief comments on Marine as a segment of ThyssenKrupp. because all operational details are available in the reporting of TKMS as of yesterday, as they already conducted their earnings call. Important to mention is here, for marine systems, all relevant will develop in line with our outlook, including the updated sales guidance. Now let's take a look at our EBIT adjusted to net income bridge. You can see here that we are also in a transition period. Let's take a special look at the special items. The first and largest portion of restructuring expenses of 400, more specifically 401 million euro at Steel Europe is now included in our first quarter. and the remainder will be booked in the course of the financial year 2025-2026. In addition, we faced some impairment losses at automotive technology in connection with the signing of the sale of our business unit Automation Engineering. The remaining positions are rather straightforward. Overall, we saw a negative net income of 334 million euros. Now, what do we get from net income to our free cash flow before M&A? In essence, the delta between net income and free cash flow before M&A is the aforementioned seasonal network and capital swing, particularly within our materials businesses that will, as mentioned, reverse over the course of the fiscal year, particularly in the second half. Remaining positions, meaning cash flow from invest and M&A, and these adjustments are also straightforward. So it's really the seasonal net working capital pattern. Again, also very important for me to highlight, we do confirm our free cash flow before M&A guidance for the entire year, which is a good segue to the next chart. So, guidance. Miguel and also myself have already stressed that we confirm our group guidance. And that means, in particular, we expect sales in the range of minus 2 to plus 1% compared to prior years or unchanged. EBIT adjusted, as previously guided, will end in the range between 500 and 900 million euros. Free cash flow before M&A is expected to come in between minus 600 and minus 300 million euro, despite our Q1, as explained, including expected cash outflows from restructuring of up to 350 million euro. So the 350 million euro cash outflows from restructuring are already included in our guidance of minus 600 to minus 300 million euro. Looking at investments, obviously also a driver of free cash flow before M&A. Overall, we're pretty cautious with investments, and that means that we're orientating ourselves rather to the lower end of our guidance of 1.4 to 1.6 billion euro. Here, similar to the last financial year, there might be a possible revisit over the remainder of the year as we see clearer towards the end of the year. Last but not least, net income. Here, our unchanged guidance, minus 800 to minus 400 million euro, including restructuring expenses, mainly at Steel Europe. So if you look at the segments, there are a couple of smaller changes, but those do balance out on a new perspective. For example, on sales automotive, the guidance now takes into account the initiated sale of automation engineering, the business unit, and we have now better or higher sales expectations. for marine system. But overall, group guidance is confirmed for all KPIs. And with that, Miguel, I'd say it's up to you again.

Thank you very much, Axel. Before we come to our Q&A, I would like to highlight some reflections and outline the way forward. That slide looks familiar to you. That's why I will keep it short. The overall key message is big decisions are behind us. Now it's about discipline, execution, and implementation. As you all know, we are developing Choosing Group into a lean financial holding company. By doing so, we will strengthen the independence of our segments and increase their accountability as well as entrepreneurial freedom. I'm convinced that this will also encourage innovation and unlock additional growth prospects. I'm also convinced that this approach will ultimately translate into additional value for our shareholder. And by working with full steam towards the capital market readiness of material services, we make sure that this may become an option to further develop this group towards our strategic goal of a financial holding. And with that, we are at the end of today's presentation. Thank you all for your continued interest and trust. We are now ready to take your questions. Andreas, back to you.

Thank you very much, Miguel and Axel. As mentioned, we are now ready to take your questions, and we are opening the Q&A session for our analysts. The first one in line is Boris Vlade. Please, Boris, go ahead.

One second.

Thank you for taking my questions. I have three. So the first one is on the general discussions. There were recent rumors that Stacks might be interested also in the steel business. So I would be interested to get an update on the process. Where are you and what's, according to your knowledge, the most likely timeline for a decision? And maybe the second one that would be on the political support you mentioned during the presentation, CBAM and TRQ and others. You pointed out the fact that there could be some upside going forward. So does your current guidance include those supports? And if not, what could be the potential uplift? And the last one is on Steel Europe. Pretty decent margin over the period in Q1. So I would be interested to know how much is the contribution from the energy compensation in Germany this quarter. Thank you.

Okay. Thank you, Boris, for your questions. I start with the first one. So we are in the due diligence process with Jindal Group. um intense intense conversations of course you you always understand that we cannot do any kind of statements around timing um and of course it's also important to understand you know that um the the highlight of last week has been um has been hkm so the the um agreement that that um saskita will continue the company on its own and of course all this um all this influences of course also the the the the the due diligence process because that's a new factor coming now in uh certainly positive so um discussions ongoing and we will let you know as soon as something is more concrete to be reported. Yes, it is expected, your second question, it is expected that we will see improved pricing after the tariffs will be introduced in Europe. and also the concrete CBAM actions will, I believe, also help. We will not see anything this fiscal year around it, because we expect the European Union to decide on the tariffs around May, June, and until then everything is really getting into the orders. We will see an impact for sure next fiscal year, but the likelihood that we see this fiscal year some positive effects already, in our view, is for the time being very limited. And for the third question I hand over to Axel.

Sure. Thanks, Daniel. Yeah, Boris, you've asked for the electric compensation and what the share is for the, let's say, increase also in EBIT. It's basically three components that help us increasing the EBIT. It's raw material prices, it's efficiency gains, and as you said, it's the electrical price compensation, and that is a bit higher than last year. Hope that gives you an indication.

Can you just remind us how much that was last year?

That was a low three-digit mineral number.

Very good. Thank you.

Thanks, Boris. And now the next question comes from Jason Fairclough.

Jason, go ahead. One second. Can you unmute yourself, Jason? Jason, can you hear us?

If not, then we try the next in line and come back to Jason in a second. Next in line is Ellen Capril. Please, Ellen, go ahead.

Hi. Thank you for taking my question, and good morning, everyone. A couple of questions. On HKM, how do you see the cash outflows relating to the sale potentially being phased over the course of this year and beyond? That's the first question. And the second one is still on HKM. Can you give us some indication of the performance till Europe EBITDA without HKM, potentially for 2025 or even Q1-26, just to help us quantify the impact of HKM? Or even if it's easier, if you can give us what would your guidance have been ex-HKM for 2025-26? Thank you.

All right, thanks. First of all, cash outflow, or I should say potential cash outflow for HKM. A term sheet has been signed. And as we stated, it's going to be a low to mid three-digit million number. And the cash outflow pattern, what I can already provide you with as of now, it's going to be a minor part of this year. And we're going to stretch that out over at least three years. So you would see a sequential cash out. And we're going to start with the smaller parts in this year in case we're going to close the deal. And that is expected for June of this year. With regard to guidance for HKM, we do not disclose, let's say, individual guidance for that business as part of our steel segment.

But can you give us some indication if it's a positive EBITDA or negative EBITDA if we were to strip it out, or even that you cannot give any color?

Oh, there's still a couple of variables also to be negotiated in terms of supply from HKM. So it's really too early to tell.

Okay, understood. Thank you.

Thanks. And now let's try Jason again, Jason Fairclough.

Unmute yourself.

All right. Well, then, yeah, let's try again later. Now we're switching over to Bastian. Bastian, please go ahead.

Can you unmute yourself, Bastian?

I think, no, the button has been cleared. Sorry.

Excellent.

Good morning and thanks for taking my questions as well. Maybe firstly starting off on the strategic plans you have for the steel business. I guess maybe looking at the broader market, I guess the equity market has significantly re-rated the valuation of any European steel asset, given the very supportive policy backdrop. And if we overlay this with the toxic currency having on the possible sale of the unit, This must be a very different conversation today versus the talks which you probably had at the very early stage of that process. So can you confirm that you're basically seeing a positive momentum here in these talks? Or is there also a scenario where at least you may potentially crystallize the value of the steel unit in a different way? And has this become more likely? That's my first question.

Thank you, Bastian. Obviously, a very relevant strategic question you raise. I mean, it is quite clear that The sentiment, and we have seen that, you have seen that also in all the steel companies that are publicly listed. So the sentiment has turned into a positive one for the last four months. We have seen increases in the share prices of around 50% and more. So basically a positive sentiment. It is also clear that this is due to the tariff situation as mentioned before. and the limitation also of the import quota for Europe. And of course the idea of resilience and I've been reporting, you remember, about the steel summit with Chancellor Merz and also talks that we had directly with Ursula von der Leyen and her team. So yes, there is a clear positive sentiment here and of course that will have for sure to get into an input for the conversations with our colleagues from Tyndall, no doubt about that.

Okay, understood. And maybe just looking also at the recent news around the possible plans to delay the phase-out under the European ETS scheme, I would think that that must be quite positive news for you as well in terms of like the CapEx perspective of the business and in that sense probably in the overall context probably is another de-risking factor for the unit. Would you agree with this?

Yes, there are really good things happening and this will have quite a different shape in terms of steel for the future.

Okay, great. And maybe lastly, one more technical question just on the restructuring cost you're expecting. I think you're now going for 700 to 800 million of restructuring costs in total. Is this only related to steel, or does this already include something for the other units as well, or maybe even for HKM, or is this just steel?

Yeah, let me take that question, Bastian. The vast majority is steel related. And we've also, let's say, provisioned, not technically, but planned for some at HKM. And what is also included is a minor part for automotive. So vast majority is steel.

Okay. And the HKM portion, however, that does not include the low to mid three-digit number you were referring to earlier, I suppose, or does it include that one as well?

It's not too far away. Let me put it that way.

Got you. Okay. Thanks. All right.

Thank you, Bastian. And now, again, trying JSON.

Hello. Three times lucky.

There it is.

Yes, good morning, guys. Thanks for the presentation. Hey, look, a couple quick ones from me. First, I was wondering if you could just give us an update on elevators. How are you thinking about the value of that stake, and what's the path to releasing that value? On material services, we've talked about this one before. Huge working capital in this business. Do you think it's performing the way it needs to? And, again, how do you think about releasing value? And steel, is the vision to sell completely now, or would you just be looking to sell a 51% stake?

Let me maybe start with elevator adjacent. You've probably seen currently booked at around about 2 billion euro. I think there's a certain expectation in the market around, let's say, further developing TKE. So as of now, we're super happy with our share and we're looking forward to what the developments around TKE will be. Obviously, there are some, let's say, talk in the market around IPO. Let's see. We're happy with our share and we're looking forward to how this is going to develop. With regard to working capital, I think that's something we've touched upon also in the past for material services. Are we happy with the performance? I think we're working towards capital market readiness. Let me put it that way. And working capital efficiency is a part of it. And so let's see when that business is going to be capital market ready. And so we will let you know once we're there. And with regard to steel, that's maybe a question for you, Miguel. If I record it correctly, we'll round whether we're going to sell or whether we intend to sell 100% or whether we can think of any 50% structure. Can you hear me?

Yes. Okay, thank you. I was having technical problems for 30 seconds. Well, Jason, on your question around what portion of the business is, of the steel business is in discussion for selling, we continue to go the direction of to sell the majority of it. That's what is in the discussions with Jim Dyer right now.

Let's follow up on the material services. So it's an interesting phrase you use there, working towards capital market readiness. So should we read from that that you're considering a potential IPO or sale of that business?

No, I mean, it's part of our overall strategy that we want to enable our businesses and then ultimately become a financial holding company. and that would encompass that the segments would eventually be also listed. That's something we've communicated, and materials may be one of them. But as I said, no final decision not yet taken, but we're working hard on, let's say, getting all ducks in a row.

Thanks very much. Glad we could make it work for the third time. Thank you.

Good morning and welcome. Thanks, Jason. As a reminder, if you want to ask a question, please push the raise your hand icon on your teams. And next follow-up question is coming from Ella Gabriel. Ella, please go ahead.

thank you for taking my follow-ups a couple of follow-ups on steel europe you are not too far from the bottom end of your guidance range just with the q1 numbers should we see your full year number as conservative or are there any items that you expect to develop over the course of the year that would drag down the margins um that's one and the second question is on steel europe can you remind us um what are the pension provisions allocated to steel europe and On top of that, what are the other restructuring provisions that are booked as liabilities on your balance sheet for Steel Europe? Thank you.

Sure. Thank you, Elm. First of all, you've touched upon the guidance for Steel after their promising start. As I said, the reasons are threefold. It's efficiency gains. It's lower raw material prices and it's also the electrical price compensation. So I would not rule out at this point in time that we continue to see efficiency gains. And with regard to prices, let's see. But you see me rather, let's say, on the comfortable side, if I look at our guidance range for steel, let me put it that way. Then pension provisions for steel should be around 2.4 billion euro. And with regard to, I think you also asked around for restructuring provisions. That is something we have guided around a mid to high three digit million euro numbers for this year.

Thank you.

Thank you, Alan, for your questions. There seems to be no more questions currently in the call. If you have more questions, please contact the investor relations team, including myself. So thank you very much for participating in that call, and have a great day. Thanks. Thanks, everyone. Bye-bye.

Bye-bye.