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 first half-year results, 2526. With me in the room are our CEO, Miguel Lopez, and our CFO, Dr. Axel Hamann, 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 our analysts. We use Microsoft Teams for the call. In order to ask a question, you have to push to 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 quarter two conference call. As usual, I would like to give you a concise management summary for the second quarter of fiscal year 25-26, covering our performance, our portfolio progress under ACES 2030, and the key milestones with regard to our green transformation efforts. Let me start with some examples for our portfolio efforts under ACES 2030. At headquarters, we have started the transformation towards a financial holding structure, aiming to be finalized and fully effective by 2030 at the latest. This goes hand in hand with a declining GOST base. At Materials Services, we are fully focused on capital market readiness, including early stage marketing activities to create awareness for the value and growth potential of that segment. At Steel Europe, the restructuring is in execution and progressing very well. This will found the basis for a sustainable performance boost and ultimately an independent business in which ThyssenKrupp may retain a minority stake going forward. As you all know, Jindal International Steel and we have mutually agreed to pause talks regarding a potential transaction in light of the improved regulatory environment for the steel industry in Europe, as well as our efforts in realigning the segment. The term sheet for the new HKM shareholder structure agreed in February is just one example. At Automotive Technology, we successfully completed the sale of Automation Engineering In March, which is a clear example of disciplined portfolio management and execution. And on TK Elevator, the recent news flows, meaning the Kona announcement to combine the two businesses, is a proof point for the underlying value of our stake in TK Elevator. As you all know, we are a minority shareholder and are monitoring the upcoming developments closely.

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Thank you very much. for EBIT adjusted and free cash flow before M&A. At the same time the effects of the political and regulatory framework such as CBAM and steel tariffs are not yet fully tangible in our results but they should provide additional upside going forward. Last but not least let's look at green transformation. For me personally Launching the European Resilience Alliance was definitely a highlight in the recent quarter. European Resilience Alliance is a pan-European CEO-led initiative bringing together leading industrial companies across the clean hydrogen value chain to accelerate and scale clean hydrogen deployment in Europe. The mission of the European Resilience Alliance is to advance Europe's industrial decarbonization and resilience by producing its own low-carbon fuels, industrial input materials and products. European Resilience Alliance aims to mobilize a unified coalition for policy and vulnerability across the value chain as well as to build scalable markets, clusters and Cross-border corridors to promote scale and self-reliance. Another highlight comes from Steel Europe, which is to start supplying CO2-reduced plumin steel to BMW from 2026 for the use in serious production. In parallel, the DRI plant construction continues with full commitment as it remains central to our pathway towards green steelmaking in the future. In addition, UDA was selected for a biomass to methanol technology integration study in Canada, reinforcing the momentum and relevance of our technology portfolio in the global transition. To conclude, we are improving performance through restructuring, advancing ACES 2030 through concrete portfolio actions, and converting our green transformation strategy into real industrial progress. These three elements reinforce one another. They strengthen our foundation today while building the growth platform for tomorrow. And now, Axel, the stage is yours for the financial section.

Thanks, Miguel. And let me turn to the financial overview for the second quarter. In a continued challenging market environment, our strict performance management is once again delivering tangible results. We continue to execute our APEX measures with discipline and the impact is visible in our performance. At the same time, we saw again lower sales but were able to more than offset that pressure in terms of earnings through active performance management and cost control. We are also making strong progress on workforce reduction. Year-to-date, our headcount is down by approximately 2,000 FTEs. Let's have a look into some details. In the second quarter, sales came in at 8.4 billion euro, that's a decline of 2% year over year, leading to a six-month drop in sales of minus 5%. However, adjusting for currency effects, we even saw a plus 1% increase in the second quarter and a respective six-month decline of minus 2%. EBIT adjusted, significantly increased to 198 million euro, in Q2, which is 179 million Euro above last year's level. Six-month EBITDA adjusted consequently stands at 409 million Euro. Net income. The second quarter, net income was slightly negative with minus 11 million Euro. In light of the restructuring expenses, provisions at the Europe of approximately 400 million Euro in the first quarter, net income in the first six months is minus 345 million euro. In terms of free cash flow before M&A, we saw the typical cyclicality in the first half of the year. We are very confident that this pattern will reverse in the second half, especially in the fourth quarter, as seasonal effects unwind. The second quarter came in with minus 327 million euro, leading to a six-month figure of minus 1.8 billion euro. Consequently, the cash flow development led to a decrease in our net cash position, which now stands at 2.8 billion euro. That's still a solid level that will again increase throughout the fiscal year, especially on the back of an expected strong fourth quarter cash flow. Looking ahead, like Miguel already mentioned, there's also a realistic upside potential if conditions for the European seed industry change. Improve, including, for example, the effects of import quotas and tariffs. At the same time, I want to be clear about the challenges. The overall economic outlook remains difficult to estimate, and macro uncertainty is rising, including the continued tensions in the Middle East and the war on Iran. Demand is still weak across most customer groups and regions. However, our overall message is straightforward. We're executing strongly on performance management, preserving balance sheet strength, and positioning ourselves for potential upside, while staying realistic about the macro and demand environment. Turning to the next slide, this provides a high-level view of saved and EBIT adjusted development in the second quarter. Starting with sales, demand remained uneven across end markets. On the one hand side, we saw a pleasant increase at material services, long-range systems. On the other hand, we saw declines, especially at decarbon technologies, but also at automotive technology and steel work. Let's move to EBIT adjusted. Key message here is that performance improved across almost all segments. You can see that the year-over-year development is clearly positive. and that improvement is the result of strict performance management. In particular, our efficiency measures continue to take effect through the border and we also benefited from higher price levels, for example at material services and a lower cost base at Steel Europe. So we are proving profitability through execution and we are protecting our margins through discipline. The third row of segments, automotive technology. The performance improved year over year with restructuring and internal countermeasures clearly throwing through to earnings. On the top line, demand remained persistently soft and currency was a headwind. That said, we saw pockets of resilience with growth in camshafts and forged component businesses partly offsetting the broader weakness. With regard to earnings, profitability increased meaningfully. The key positives here were restructuring effects, lower personnel expenses, and operational measures such as volume, compensation and efficiency initiatives. These were partly offset by the sales decline, higher freight costs and negative currency effects. Business cash flow improved versus last year, mainly driven by lower networking capital and lower invest. But still a negative figure, especially in light of restructuring cash out, which are, however, below the prior year. Turning to decarbon technologies. At DT, we saw positive order development in the second quarter, particularly in our water electrolysis business. At the same time, however, we continue to experience some project postponements from customers in the chemical plant business, which still is limiting momentum in that area. Main driver of the sales decline is the water electrolysis business, with lower order intake levels in the past and some technical sales effects. Adjusted EBIT declined in the second quarter mainly due to increased project-related expenses in the water electrolysis business that were only partly offset by a positive one-time effect at the chemicals business. In addition, VT benefited from performance measures and efficiency gains, including restructuring and purchasing optimization. The last KPI on this slide is business cash flow, which declined significantly Following low earnings and adverse changes in project payment profiles. Let's take a look at material services. At material services, earnings increased significantly year over year, supported by a favorable market environment, especially in North America, with Europe also contributing. Sales increased across distribution and direct to customer businesses, as well as automotive-related service centers. However, shipments were significantly lower year-over-year, mainly in the direct-to-customer business. Even adjusted significantly increased, meaning all businesses improved earnings, with North America showing the strongest uplift due to the favorable market backdrop. Business cash flow was higher year-over-year, mainly due to higher earnings and lower investments. Let's turn to Steel Europe. Europe delivered a further improvement in earnings despite a difficult market environment characterized by low price levels and weak demand in selected end markets, but with recently increased spot prices. However, overall shipments increased by around 2% year-over-year, driven by higher volumes from automotive and industrial customers, demonstrating resilient underlying demand. This positive volume development was partly offset by ongoing challenges in packaging steel and electrical steel, which continue to be affected by global market pressures. In the second quarter, the significant EBIT adjusted improvement was mainly driven by the following. More favorable raw material prices, especially on the input side. Apex and efficiency measures, including cost discipline, productivity gains, and continuous improvement programs. These measures more than compensated for weaker pricing environments on the sales side. The business free cash flow showed a notable improvement in the second quarter. That improvement was achieved despite higher investments, supported mainly by a release of networking capital, particularly through inventory reduction. Last but not least, marine systems. As usual, I will only briefly comment on marine systems. All details have already been presented yesterday. Important is that overall we saw ongoing strong demand for defense products and the order backlog of marine systems stands now at a record level of 20 billion euro. Let's turn to the EBIT adjusted to net income bridge that again indicates that we are in a transition period. Looking at special items, we saw restructuring expenses, mainly at decarbon technologies and automotive technology, as well as disposal losses, for instance, in connection with the sale of automation engineering within our automotive group. The remaining positions are rather unspectacular and straightforward. Overall, that led to a slightly negative net income. Now let's take a look at the way from net income to free cash flow before M&A. As you can see, in the second quarter, we did not face any material net working capital effects. Also, an outcome of our discipline in terms of capital allocation. The remaining positions, meaning cash flow from invest and our M&A and these adjustments are also rather straightforward with C-Euro as usually posting the biggest shares in investments. Let's now have a closer look to our outlook for the remaining year. Miguel has already mentioned that we confirm our group guidance for EBIT adjusted and free cash flow before M&A, but also for net income. In detail, the group guidance is as follows. We expect sales in the range of minus 3% to 0% compared to the previous year. The other KPIs remain unchanged. One remark on investments that also affect free cash flow before M&A. Overall, we keep being very cautious with investments, meaning an orientation clearly towards the lower end. of our guided range of 1.4 to 1.6 billion euro. And with that, Miguel, over to you again.

Thank you, Axel. Before we come to our Q&A, I would like to remind you of our strategic outlook. The overall key message is clear. Big decisions are behind us. Now it's about discipline, execution and implementation. And today we gave you an update on where we stand. As you all know, we are in the process of developing ThyssenKrupp 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 shareholders. and by working with full steam towards the capital market readiness of material services, we make sure that the capital market is aware of the value and growth potential of that segment. As you all know, the very successful spin-off of DKMS might be a blueprint for things to come. We will keep you updated. And with that, we are at the end of today's presentation. Thank you all for your continued interest and trust. With that, we are happy to take your questions. Andreas, back to you.

Thank you, Miguel. In order to ask a question, please use the raise your hand icon on your teams. I will announce your name and then unmute yourself and we will also unmute you. The first question comes today from Boris Bordet. Please, Boris, go ahead.

Hi, everybody. Thank you for taking my question. I will have three questions. The first is on Jindal. After the discussions have been posed, do you see a potential for alternative offers? We heard about the CEO of Flax Group pointing to some interest, in the case talks with Jindal would be halted. So that's the first question. Then on TKE, all the calculations point to 1 billion cash in for the group by 2027. What would be the use of cash that you would anticipate? And then looking at the guidance was just wondering whether there is any specific reason why you don't upgrade the guidance. You're already at more than 400 million euros for each one. The guidance is for 500 to 900. So I guess you might be more comfortable with the other end of that guidance based on the achievements so far, but happy to get any remarks on that. Thank you.

Yeah, thank you, Boris, for your questions. So, first one, when talking about steel, you know, obviously, we have three major events that were to us very important. And that was the first, the agreement on the restructuring program, which we concluded with the union, IG Metall, in December. The second one was the agreement with Salzgitter on HKM, which was in March. And the third major event in front of us, this one, is that we will see the implementation of additional tariffs, increase of tariffs, and a reduction of quota for steel inputs in the European Union. All the three events, we mentioned that before, have been, of course, taking us to look at what kind of value we might expect in steel. And this, obviously, is motivating us very much to continue the restructuring effort ourselves. So this is, in general, from steel. Of course, if there would be other offers coming, we will look to each and every other offer, but the priority is very clear. We want to create value and we want to execute the measures that we have been agreeing on, defining, and implement those.

All right, Boris, your questions relating to our elevator stake and our guidance. First of all, elevator, you've mentioned 1 billion in cash. I'd say it's a little bit optimistic if you do the math on our 16% stake and the reported 5 billion share in cash. But nevertheless, we do expect some cash after the closing of the deal. That is approximately 12 to 18 months. Having said that, it does improve our liquidity. It would improve our liquidity and it would add some flexibility. But at this point in time, no concrete plans yet what we're going to do with that potential inflow of cash. Your third question, the adjusted EBIT guidance. First of all, The fact that we have left the guidance unchanged is probably owed due to the uncertainties on a macro level. Let me put it that way. However, very important to understand is that we will see ourselves at the upper end of that range. Hope that makes sense for you.

Thank you. Thank you very much.

Thank you boys. And then the next question comes from Bastian Tenagowicz. Bastian, please go ahead.

Yes, good morning. Thanks for taking my question, sir. Maybe my first question is on automotive, where you seem to be doing quite well despite, I guess, all of the challenges out there. Your EBIT and margins have improved despite the contraction on the top line. I guess now your order intake is at least up a little, which is good to see. But there's still a further significant run rate improvement which you need to hit the lower end of the guidance range. So I just wanted to follow up here. Is this step up which you're implying with your guidance pretty much driven by just cost cutting? That is my first question.

Yeah, Bastian. Well, two points. First of all, we do see, let's say, increasing levels of impact of our restructuring. You may remember that we talked a lot about our touchdown program at Automotive. So that is kicking in. and towards the second half of the year, which is usual for the industry, we would also consider one or the other change management that is also due towards the second half of the year. So that makes us confident that we will still meet our guidance also for automotive.

Okay, thank you. Then my next one is a follow-up one still where I guess you're rightly growing more confident on the market outlook and there's obviously a lot of factors supporting it. But just with the Jim Dahl deal not happening, the business is obviously becoming at least a bit more relevant to you again in the short term. Until you separate it now, I guess for the last two years the business has been draining cash and I guess it will probably also keep doing so this year with all of the restructuring and maybe some working capital needs you may have as well. But then there are the market tailwinds, there's obviously a restructuring program which is unprecedented in scale. So is the previous 100 euros per ton margin level, which I guess was the previous margin target, still what you're aiming for? Have your aspiration levels been rising against that? And then also, I guess, is there any guidance you're happy to give at this point when you do expect steel to become a net contributor of cash again?

Yeah, first of all, steel has always been relevant to us as a group. And you rightfully mentioned, we currently do see some tailwinds, also because of regulatory effects. So that makes us optimistic that we are within the next three years, as we stated previously, we are further improving our business. and would also expect to become a cash positive within that time frame.

So within the next two years, basically, is what you're planning for? Two to three years. Okay, great. Then very last question, also coming back to the elevator stake, but more actually with regards to the equity rather than the cash. I guess you will receive a more liquid version of the equity. So what are your plans here? Do you aim to keep that as a retaining stake in Kona? There's obviously a lock-up, but obviously thinking more beyond. May you use the proceeds to maybe also fund part of the pensions? Is that an option? Or would you even consider to distribute the shares to the ThyssenKrupp AG investors? I don't know if you're very similar to what you have done with TCAMS already and what you're planning for with TCAMS at next in parts.

Yeah. I do understand the curiosity, but at this point in time, we have not yet stated or formed any opinion what to do with the increased liquidity and assets. It's going to improve our, it's going to increase our flexibility and let's cross the bridge once we get there. And as I said, it's going to require 12 to 18 months until closing. and it will certainly, let's say, help us and give us more stability in our anticipated transformation.

Okay, thank you.

Thank you, Vassian. And one more time, if you want to raise a question, please use the raise your hand icon. I'll give you a couple of seconds. Yeah. There is one more question from Krishan Agarwal. Please go ahead, Krishan. Can you unmute yourself, Krishan?

Yes, can you hear me?

Yes, now we hear you.

Yeah, so quick clarification on the Jindal sort of process getting paused. So, has there been a disagreement between the parties in the sense that outlook for the steel in Europe has improved and hence any kind of price expectations in the system improved which Jindal was unwilling to move up. Can you help us give some more granularity in the where the process sort of came to a situation where you agreed to pause it and is it kind of a permanent pause in the sense that you are sort of on your own ways or you can sort of reassemble at some point of time and

Thank you for the question. Obviously, by implementing and getting also major decisions on these three topics, obviously the first two that I described before, so the agreement for restructuring, this is in our hands, so meaning that there the cost situation will be improved. Same will happen over time with what we negotiated with HKM, with Saskia on HKM. And of course the external factor is more something that we need to see how it will be effective, but the first two ones are very concrete. Thank you very much. As you know, always investors are looking for more the past performance when valuing businesses, and they adopt the show-me behavior. And in this case, with past performance, as we are implementing all the measures, this is not reflecting what the real value of the business constitutes. So, the length of the pause is not important. So, it is, of course, us implementing measures and seeing the results in the bottom line, but also in the top line.

Thanks a lot. And a follow-up on the steel business. Miguel, you came into the system group when the markets were down, steel markets were looking down and then now this cycle sort of is turning up. But then if we were to look at the steel business in the previous cycle when the prices sort of started moving up, system group somehow has lagged into those price realizations because of the context structure. Now, have you had a time to sit down with the steel marketing managers and had the had that hard conversation that, okay, look, we have lost out on the previous price appreciation under the steel business because we had good relationship with our customers. How do we rewrite those contracts in the current market so that we benefit from the rising prices compared to what we have sacrificed into the last cycle?

Well, as you can imagine, the discussion on... Operational matters and also strategic matters is ongoing. This is very clear. And I do believe that our steel management will be implementing the right things in order to get us where we belong.

I understand.

Thanks a lot.

Thank you, Gershon, and we have a follow-up question from Boris, Boris, please.

Yes, hi again. To follow up, the first is an HKM. So, do we, looking at the whole provision for restructuring your planning for the year, are we still looking at something like 700, 800 million? That's the first question. And the second is on material services, would you be able to share some early feedbacks you received so far? on the operation and maybe hint at the timing.

All right. Maybe, Boris, let me start with HKM and you've mentioned provisions. As you are aware, we have not yet closed our discussions with Dalbskitter, but are on a very, let's say, promising way In terms of provisions, the number you've mentioned I consider too high. We have guided in the past a low to mid-three-digit million-euro number, and that is still the case. That is with regard to provisions at HKM, and as said, still to come, as we have not yet closed the transaction with Salzgitter.

On the material services piece, I believe the markets are motivated to see a next step in this regard, so we get positive feedback from all around a next step thinking.

Thank you very much all. There seem to be no further questions. If there are...

For other questions, you can always reach the investor relations team. Thanks for participating. Have a wonderful day. Speak to you soon. Thank you.