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Edited Transcript of TKA.DE earnings conference call or presentation 13-Feb-20 1:00pm GMT

Q1 2020 Thyssenkrupp AG Earnings Call

Dusseldorf Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Thyssenkrupp AG earnings conference call or presentation Thursday, February 13, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Claus Ehrenbeck

thyssenkrupp AG - Head of Corporate IR

* Johannes M. Dietsch

thyssenkrupp AG - CFO & Member of Executive Board

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Conference Call Participants

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* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* Bastian Synagowitz

Deutsche Bank AG, Research Division - Research Analyst

* Carsten Riek

Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research

* Ingo-Martin Schachel

Commerzbank AG, Research Division - Head of Equity Reseach

* Luke Nelson

JP Morgan Chase & Co, Research Division - Research Analyst

* Rochus Brauneiser

Kepler Cheuvreux, Research Division - Head of Steel Research

* Sylvain Brunet

Exane BNP Paribas, Research Division - Head of Metals and Mining Equity Research

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of thyssenkrupp. At our customer's request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Claus Ehrenbeck, who will lead you through this conference. Please go ahead.

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Claus Ehrenbeck, thyssenkrupp AG - Head of Corporate IR [2]

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Thank you very much, operator. Hello, everybody. This is Claus Ehrenbeck from the IR team of thyssenkrupp speaking. Also, on behalf of the entire team, I would like to wish you a very warm welcome to our today's conference call on Q1 numbers. We released the numbers this morning, and all the relevant documents for this call and for our numbers are available on the IR section on our website.

I think with that, I can finish my opening remarks and can immediately hand over to Johannes Dietsch, who will lead you through the slides that we present in the Internet. And afterwards, we can then do the Q&A session. Johannes, please.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [3]

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Oh, how are you? Okay. Thank you for the comprehensive introductory remarks and also a warm welcome from my side for today's conference call on Q1 figures.

Before we have a look at the financials, let me start with a short update on newtk. At Elevator Technology, we are fully on scale with our transaction preparations. This decision, what we learned, do ultimately and with whom, is starting to be available at the end of this month. So we are also to speak on the finishing line.

At Plant Technology, we stringently work on the turnaround. Nevertheless, we are also evaluating our opportunities to realize best-owner concepts also for the pursuit of M&A, either for the individual businesses or for the entity, Plant Technology, as a whole. The fact books will be sent out shortly once the NDAs with potential interest parties are signed, which is currently happening, and I am happy to say we have decent interest from high-quality partners.

Irrespective of news flow, at the beginning of the week that Premal Desai, our member and speaker of the Executive Board of Steel Europe, is leaving the company, we will continue with our steel strategy 20-30. There has been no change in this regard. Not least, with Osburg, we have an experienced successor, who served as the Chief Commercial Officer under Steel Europe for -- before. Moreover, Bernhard, enable us a substantial experience manager will join and also with the experience, especially in restructuring, will support the Executive Board of Steel Europe as the CFO.

As you all know, we are facing major challenges in the steel sector as far-reaching measures are necessary following the prohibition of the joint venture with Tata Steel. And in order to return the steel business to its former strength, a concept for steel 20-30 was presented to the Supervisory Board of Steel Europe at the end of December. At the moment, constructed negotiations with codetermination are in advanced stage. Once a decision on the Elevator transaction is made, we will also announce further details on the concept of steel.

At Automotive and Plant Technology, we are well on track, number one, to restructure the management companies and to delayer the organization and thereby driving headcount reduction on this level. To counterbalance external factors such as economic strength and market headwinds, we have initiated numerous restructuring measures and capacity adjustments across all businesses and corporate, signing up to more than 500 million in measures, excluding Elevator Technology out of which, 80% are targeted for the full year and are already substantiated; and there, roughly 60% are currently being implemented. To this end, we already realized personnel restructurings of around 500 headcounts throughout the entire organization in the first quarter alone.

So let me start with the financials. Overall, order intake was down compared to previous year. While our industrial business has developed stable, our materials business faced a significant decrease, which -- specifically, materials services came in lower year-over-year due to the substantial fall in volumes and renewed decline in prices.

Steel Europe was significantly lower on the back of decreased prices. However, volumes came in stronger, rising by 16% to 2.7 million tons on order intake level driven by the demand recovery from industrial customers, steel service centers and distribution customers mainly due to restocking for seasonally stronger quarters ahead driving -- hopefully recovering going forward.

Despite cyclical headwinds, the order intake profile in our industrial business remains encouraging, supported by a strong order intake at Elevator Technology marking a new record high as well as strong order intake at Automotive Technology. Regardless of continued difficult conditions in the automotive sector, which is driven by the continued weak sales in the world's largest market, China, Automotive Technology overall was up compared to previous year due to the ramp up of production at new plants and projects, in particular, for steering, but also for dampers and camshaft modules. By contrast, System Engineering couldn't escape the overall environment coming in weaker compared to previous year.

Industrial components came in lower mainly to the cyclical downturn in the forging business, especially crankshafts for heavy-duty engines, while bearings showed an overall good order situation, in particular, for wind energy in China.

Again, to mention, order intake at Elevator Technology marked a new record high with a book-to-bill ratio well above 1 and order backlog also raising a new record level at EUR 5.7 billion. Overall, growth was driven by the positive performance in the Americas in new installations and modernization businesses, in particular, in the U.S. Moreover, there was a positive trend in service, in particular, in the U.S. and China. And we saw also some major projects across all regions. To mention a few examples here are passenger boarding bridges at the Chicago O'Hare Airport or the new Changchun rail transit project in China or also the metro in Barcelona, Spain. The largest market for new installations in China, we saw promising growth in units compared to previous year, but price pressure continues to persist in the market.

Order intake at Plant Technology was down from the prior year quarter, which benefited from a major order in the mining business last year. Nevertheless, cement was up year-over-year on the back of medium-sized order for a cement plant in U.S. and smaller orders for components and services reflecting the recent customer activity. Demand at chemical plants was stable, supported by orders for electrolysis plants and equipment, for example, in energy-saving chlorine production plant in Spain. Overall, we are looking into a promising project pipeline with several midsized projects across our businesses. Finally, Marine Systems came in at prior year level with orders in marine electronics for a German customer and subcontracts for a customer in North Africa.

Let me switch to the EBIT. EBIT adjusted for growth, as expected, came in significantly lower compared to previous year Q1. The overall positive performance of our industrial business could not offset the significant cyclical decline at our Materials Business driven by the highly negative earnings contribution of Steel Europe marking most probably the trough of the cycle.

Free cash flow before M&A came in negative on prior year level and, thus, in line with our guidance. We saw operational improvements, especially in Plant and Automotive Technology, Marine Systems as well as Steel Europe. The latter one unfortunately burdened by the payment of the cartel fine in the amount of EUR 370 million. Moreover, in line with our seasonal pattern, our Materials Business recorded high net working capital build-up in the first quarter.

Given the still limited visibility and therefore, limited planning reliability for our cyclical materials and auto business, we maintain our cautious outlook for the full year '19, '20.

Expecting an EBIT adjusted beyond the level of prior year and reflectively, free cash flow before M&A to be lower compared to previous year. Of course, we also have to keep an eye on the developing coronavirus situation, particularly in China, and the potential effects to our business from the virus.

As indicated in November, the first quarter saw an improvement across our industrial business. However, Steel Europe came in rather at the lower end of our expectations with negative volume and price effects as well as higher raw material costs, particularly in iron ore. Also, business was burdened by cost of lower capacity utilization and increased personnel costs and the temporary higher share of spot market exposure. Persisting weak trading conditions are all the reason for the material services lower EBIT adjusted. We suffered from a decline in prices in both service units, also resulting in windfall losses. Nevertheless, positive effects from derivatives cushioned the aforementioned development.

AST came in lower and slightly negative compared to prior year mainly due to the downward price trend in stainless steel. But there was also light. Automotive Technology was clearly higher year-over-year due to the higher contribution mainly from dampers and camshafts and supported by a onetime effect of remeasurement of pension liabilities outside of Germany. However, the ongoing and more negative performance of Springs & Stabilizers and from Systems Engineering remain a burden that we are addressing stringently.

Industrial components was slightly up year-over-year on the back of higher earnings from bearings for wind turbines while the forging business, despite the early interaction of systematic cost reduction measures, was down year-over-year due to cyclically lower demand for components for heavy-duty engines and construction machinery.

Elevator Technology's EBIT adjusted and margin are on track with EBIT adjusted 13% to 12% and margin expanded 0.5% points year-over-year driven by sales growth and performance programs across all regions. Plant Technology came in negative, however, improved compared to prior year, among other things, due to a slight recovery in chemical and cement plant engineering and from a real estate disposal in Mexico. EBIT adjusted at Marine Systems came in flat and breakeven and continues to be burdened by low margins on projects [failed]. Despite the continued implementation of measures and the reduced administrative costs, corporate headquarter costs were slightly higher only reflecting lower positive onetime effects compared to previous year.

Despite the muted start, we maintain our guidance for the full year and forecast sequential operational improvements in the quarters ahead, specifically, the seasonal upswing at our Materials Businesses, and we see cautious signs of recovery due to restocking. For example, at Steel Europe, order [ones] already came in significantly stronger, supporting a recovery going forward. In addition, we have initiated numerous restructuring measures and capacity adjustments across all businesses and corporates to counterbalance economic and external factors. Already 80% of the measured targets for the year are substantiated and 60% are currently in execution.

For fiscal Q2, we expect adjusted EBIT significantly below the prior year as the majority of our industrial business thus are boarded at the prior year level. The material business will show a visible sequential improvement quarter-over-quarter. However, they will be lower year-over-year with Steel Europe remaining clearly negative in the second quarter while Material Services could well double its EBIT contribution in the quarter.

Elevator Technology will continue its positive earnings and margin expansion year-over-year while Plant Technology will nearly halve its losses compared to prior year on the back of health sales from backlog projects and increasingly improved cost base with regard to SG&A.

Automotive, Technology and Marine Systems' corporate headquarters are expected to be flattish year-over-year. And at Industrial Component, the cyclical lower demand for forge component is expected to outweigh the continued good performance on bearings.

In line with our typical seasonal pattern, we expect a significant sequential quarterly improvement of our free cash flow before M&A. However, Q2 will be below the prior year figure and will come in most probably to low- to mid-3 digit negative number.

Having said and reviewed our Q1 performance and the outlook, I'm now ready to take your questions. Thank you.

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Claus Ehrenbeck, thyssenkrupp AG - Head of Corporate IR [4]

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Yes. Thank you very much, and operator, please take over for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we've already received the first question. It is from Ingo Schachel of Commerzbank.

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Ingo-Martin Schachel, Commerzbank AG, Research Division - Head of Equity Reseach [2]

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My first question would be on the European steel business. On the strategy, you were saying that despite the CEO change, you would expect continuity and should not change the strategy to the 20-30. But still, the performance in the quarter was I think quite weak and probably weaker than you would have expected and absolute as well as relative basis, and of course, the CEO departure was also I think quite a big event.

So I was just curious to understand how you're thinking about the strategy for Steel Europe within this framework have changed incrementally that during the last few weeks, you've come to the conclusion that you need more restructuring, more plant closures, more CapEx, less CapEx or more proactive approach towards seeking partnerships and joint ventures. Or whether there's anything else that has changed incrementally during the last few weeks in your thinking on the steel strategy.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [3]

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Yes. Thank you for the comprehensive question on our steel 20-30. The strategy has been developed and still continue to be developed and being discussed within our company. We presented the strategy to the Supervisory Board of Steel Europe AG at the end of December, and it includes performance programs, restructuring as well as investments for competitiveness. This strategy will remain and is currently being discussed with codetermination. And here, we are going to foresee also an increased level of investments and capacity expansion and CapEx projects as well as some additional CapEx to maintain the competitiveness and improve the high-quality grades output. This remains unchanged.

The difference with the CEO was more underway towards the goal and not on any type of the strategy. And it's also clearly to be said that the strategy needs to include restructurings and a decrease in workforce and a need really to adjust the cost base. This may also include network optimization with some adjustments of production sites. But that is all to be announced once we have reached agreement with the Workers' Council and the unions, and stay tuned on that one. Let me reiterate, at the end, the strategy as well as in order to improve the competitiveness and the profitability ultimately at Steel Europe, and this is going to be executed at the end. We clearly need to have a value creation with our steel strategy going forward. I hope it answers a bit to your question.

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Ingo-Martin Schachel, Commerzbank AG, Research Division - Head of Equity Reseach [4]

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Yes. That answers it a bit. And then, of course, for the rest, I'm happy to wait for the announcement later this year or on May. My other question would be on Industrial Solutions. And of course, it's early stage in the process, but you were saying that you saw a decent interest in the process. Just wondering whether you could specify whether you see what you would call a decent interest in all business units of industrial, of plant engineering or whether that's something where it looks slightly more heterogeneous with regards to the interest in the various units.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [5]

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Well, the process is in such that we have been successful in preparing the financial fact books and the information on OANDA. And then we are going to approach market participants and potential partners. First of all, we're signing an NDA, a nondisclosure agreement, before they receive information in OANDA. And that is currently ongoing.

And from the feedback on the NDAs, the interest looks promising, but I can't tell you anything at this point in time then about details, and especially not with nonbinding bids to come in. That takes a couple of weeks before we can give you the communication here. Again, for me, it's important that Plant Technology continuously works on the turnaround management to improve the operational performance. And on top of that, we will then explore opportunities for the best-owner concept for the interest of our customers, but also for the benefit of creating additional value for our shareholders.

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Operator [6]

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Then we go to the next question. It is from Sylvain Brunet of Exane BNP Paribas.

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Sylvain Brunet, Exane BNP Paribas, Research Division - Head of Metals and Mining Equity Research [7]

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First question on the utilization rate that you factored in, in the guidance implicitly for your new automotive plants. And a related question to that is, if you could give us -- I know visibility is poor at the moment, but the status of your plants in China, what other opportunities you are -- your teams are you going? And what are the remedies around that? And lastly, obviously, the -- you left guidance unchanged stating November '19. Is it fair to say that it's under review?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [8]

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Okay. Can you repeat the second question, Sylvain? Sorry, I didn't get it.

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Sylvain Brunet, Exane BNP Paribas, Research Division - Head of Metals and Mining Equity Research [9]

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On utilization rates or on the guidance?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [10]

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The guidance.

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Claus Ehrenbeck, thyssenkrupp AG - Head of Corporate IR [11]

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The question on guidance.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [12]

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Guidance.

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Sylvain Brunet, Exane BNP Paribas, Research Division - Head of Metals and Mining Equity Research [13]

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Guidance. Just wondering how much faith you would put in the November '19 guidance given the developments and your exposure to China and also the uncertainties around the automotive cycle.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [14]

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Yes. Good. Thank you very much for that question on Automotive Technology and our situation with regard to production in China. Actually, after the Chinese New Year's holidays, it started up, most of our plants already in China. And we are ready to produce and operational. However, a few of our customers have not yet started their production. And it cannot be excluded that we will see disruptions actually in production and supply chains. We are cautious on that one.

Currently, we cannot quantify any impact from increased spread of the coronavirus in China and what this will mean for supply chain overall. Therefore, we currently are observing carefully the situation more or less on a daily basis, but we have started up our production in China. And therefore, on the back of this current situation, we have not adjusted our guidance.

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Operator [15]

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The next question is from Carsten Riek of Crédit Suisse.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [16]

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I have two questions from my side. The first one, you still seem to be quite negative on the steel materials market, even though I believe they are in a better shape or at least with regard to improvements than the capital goods markets over the next 12 months, at least. Where do you see the main risk for your technology business in 2020? And what is currently covered in your technology business with regard to order intake for 2019, '20? That's the first one.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [17]

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Well, yes, for steel markets or for Materials market overall, we also hope on a sequential recovery. We said that sequentially quarter-on-quarter, we would see improvement in this fiscal year. And of course, we are coming off from a very low level. And Carsten, please understand that we are clearly not satisfied with the performance in Q1 where we were burdened with lower shipments, lower prices and higher raw material costs. This was a very unusual and unique situation.

Now we see some recovery. We see some light at the end of the tunnel with regards to pricing. We see also some restocking, but visibility still remains low. And I cannot give you a precise outlook for the full year. Nevertheless, we hope that we can improve here on our materials businesses compared to Q1 or it will clearly be better.

There are risks definitely with regard to the cyclical recovery. There are risks with regard to our customer, especially automotive industry. And I believe that you know even more and better about automotive sectors than we do. And it's an important customer segment for us, the automotive industry. And also European makers are somewhat dependent on the situation in China and in China, of course. So we need to be cautious also in the development for this year. That can be a risk factor for our Automotive Technology business overall. Currently, with the Q1, which also was not in a favorable market environment, we recorded a relatively strong sales increase in order intake and -- but it's very helpful and makes us very much confident in confirming our guidance.

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Carsten Riek, Crédit Suisse AG, Research Division - Director & Co-Head of the European Steel & Mining Research [18]

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Perfect. The second question I have is on the target of lowering your overhead costs. The -- obviously, you have these ambitious targets of getting I think down to EUR 200 million. The question I have -- because last time in the call, you also mentioned that some of the costs are going back to other segments.

Can you give us a little bit of color how much of the cost reduction is purely from cost cutting? And how much of the costs do you think will have to go back to several of the divisions, such as Elevator, in order to get a better understanding here, what's happening on the cost side?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [19]

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Yes. So that was of course very much helpful. And first reminder, I would like to make that our G&A costs overall are quite across our businesses and all BAs, and it's not only in the corporate center. We are talking about G&A costs up in the amount of EUR 2.4 billion, including back-office locations for elevator service engineers. And those G&A costs, EUR 2.4 billion, just EUR 400 million out of this was in the past with the corporate center. And in the corporate center, we said we want to reduce with [fewer] governance tasks. And for those tasks which are important for the Board of Management to steer the business and to execute the portfolio measures and all the service part of the corporate center should be relocated back either in the service entities or into the BAs, and in the business areas.

On the way, in restructuring the services, we have clearly also a reduction in workforce and also a reduction in headcount, whether it's at the level of services or in the business itself. And currently, we are still working on the concept and aligning all the service lines and the demand from the internal customers, but you can expect that we have significant cost reductions in this respect. For example, with our IT environment, we also are foreseeing reduction costs. That means I cannot give you a precise number here, but please expect that a majority of the reduction of the corporate center will ultimately also result in an overall cost reduction for the group.

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Operator [20]

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The next question is from Bastian Synagowitz of Deutsche Bank.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [21]

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My first question is just following up on the CapEx in steel. I guess we can separate the CapEx into 2 buckets besides maintenance, one bucket being upgrades and efficiency and then the second bucket being mostly CapEx for technological changes to improve your mission profile. Can you please talk about these 2 buckets and how they will impact your CapEx numbers? Maybe also give us some numeric guidance on the CapEx requirements for the outer year? That would be my first question.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [22]

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Yes. Thank you on this question. Actually, yes, you are correct. In the past couple of year, on average, we invested roughly EUR 470 million in Europe out of -- compared to roughly EUR 420 million in depreciation. So we are above depreciation level in the, yes, investment moat and feel we are continuously. Out of the EUR 470 million, we have a majority in maintenance CapEx, but also a good extent certainly in capacity expansion.

The EUR 470 million is foreseen to be higher in the coming years to grow above EUR 500 million. And then on top of that, we are discussing currently about additional investments in the facilities here in Germany, especially in Duisburg. This could be up to EUR 800 million to be spread over 6 years. Again, this is still to be discussed and need to be negotiated and can only come in with the restructuring at the same time as well as a business case, a solid business case behind it that those investments are reasonable on a payback period or a return on investment. But where we clearly see the necessity and the opportunity to improve our capacity is also in terms of high-grade quality for the automotive industry with additional investment in our additional plants.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [23]

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Okay. Just following up, if I understand it correctly, that does not then include any portion for the emission-related investments, which you may have to take just depending on whenever you plan to start. Is there any plan to kick off with this in the next 1, 2 or 3 years?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [24]

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Well, we are continuously, of course, exploring the possibilities to replace coking coal with hydrogen. However, this is a pretty long-term vision. We announced a target to reduce CO2 emissions by the year 2030 by 30% compared to last year's level. But it's really long term. And we need support also from politics and government, and we need a solution for the question where to get green hydrogen from at reasonable cost and competitive prices. Otherwise, it will be very difficult to execute such a program as a company alone.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [25]

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But can we infer then that those investments will not impact your CapEx budget in the next 3 years or so?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [26]

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It will be a very limited impact on this in the next 3 years. Yes, you can imagine.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [27]

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Perfect. Okay. Then I've got another question just on the materials production of your Material Services business. If I look at the business cash flow here, I was just wondering why it has been so negative in the first quarter given that we've seen a huge decline in nickel prices and obviously, all of your peers were surprised positively on working capital here. Have there been any restructuring effects or other components into these numbers we should be aware of? Or is that mostly a function of a very strong fourth quarter with no addressing what's just caused this working capital rebuild in the first quarter, nevertheless?

And maybe you could also let us know what your plans are for AST. At this stage, it's obviously not the largest asset, but I guess it's still [peripherally] noncore. So if you could just give us an update on that front?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [28]

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Yes. We see there's significant strength in Q1 in materials services and mix every year, actually. And you're absolutely right that it's due to the optimization of our balance sheet data in September 30. So we usually experience a pretty strong cash inflow in the fourth quarter and a relatively weak performance in Q1. And especially, if you look at our working capital in the supplier side, the liabilities really significantly came down. Therefore, we clearly adjusted our payment side, which means, yes, it is an effect. But because of the year-end optimization of September 30, we have not included significant amount for payouts on restructuring at a mix.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [29]

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Okay. And then just on your plans for AST?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [30]

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Well, AST, in Q1, about slightly negative, but performed relatively well than -- to peers. There is currently no news I can share with you. Overall, we optimize the plant. We do our efficiency measures here in order to stay competitive. But should there be options for partnerings or for a supply chain partnership, we will explore those options, but currently no news on that.

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Bastian Synagowitz, Deutsche Bank AG, Research Division - Research Analyst [31]

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But you are -- basically, you're not actively -- so solicitating (sic) [soliciting] this. At the moment, your focus is obviously on elevator and the industrial is positive?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [32]

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Yes. Correct. And some of the business -- under review business are also on the desk of our M&A department.

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Operator [33]

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The next question is from Boris Brawner of Kepler Cheuvreux.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [34]

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Rochus Brauneiser of Kepler Cheuvreux. A few follow-up questions. The one is on the comment you just made on the improved order situation on the steel side. I think we all know that seasonally, the Q2 is one of your strongest quarter in terms of steel shipments. And I guess, on average, this has been always up like 15% of the average.

Would you agree that this is -- this time, well, maybe more in the kind of 20% range and exceeding the usual seasonality pattern in terms -- as there might be a restocking component? That will be the first question.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [35]

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Well, I'm a bit cautious here to give you a very precise guidance on Q1. What we can say is that the quantities in order intake in Q4 are also at 16% up, which should lead them to higher sales in Q2, which is now January to March. And it is a usual pattern that we have the upswing in spring here and that we see also some restocking after Christmas. But I wouldn't say that this is more than due to the -- to this -- and that's yes, foreseeable, understandable after the pretty weak Q1. So from the 16% order intake, we can also imagine a 20% more shipments in Q2 now.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [36]

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Okay. Makes sense. Then secondly, when I'm looking at your crude steel production in the Q1, it was unusually high compared to your shipment levels. Is that -- so I would guess the steel inventories have gone up now. And what does that imply for your crude production in the second quarter? Is there any pressure to adjust the inventories? What shall we expect on this side?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [37]

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Well, you are absolutely right. If I look on my DIOs, in days, on inventories for steel at the end of December, it's higher than usual. And actually, yes, we were burdened by the lower demand and lower shipments in Q1 as of -- from end of last calendar year. And we need to have higher shipments now in order to reduce the inventory levels, which we foresee, but we have no plans to adjust the -- we're prepared to see it, to a large extent, at our forged steel production.

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Rochus Brauneiser, Kepler Cheuvreux, Research Division - Head of Steel Research [38]

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Okay. Then on your process for plant, I think you said is fact books are being sent after the signings. And then you get in a couple of weeks a first indication of what could be the kind of indicative valuation.

What I'm curious about, how should we think about potential asset impairments for the Plant Technology business? What kind of evidence you need in terms of valuation that is becoming a triggering event?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [39]

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Well, number one, we see that our turnaround is bearing fruit and that we are working towards a positive EBIT and cash flow in this business. Secondly, we don't have significant assets on our balance sheet for our PT. It's more peak business and not a CapEx-intensive business, which means that there are no need for any impairment of assets and more inventories. Of course, if we are not able to achieve a positive purchase price, then there might be an impact on our share of equity to come in negative, but I don't see impairments in this business.

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Operator [40]

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The next question is from Alan Spence of Jefferies.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [41]

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Just one quick one left from my side regarding the restructuring. If I add it up, it looks like there was about EUR 122 million in restructuring that ramped to the P&L in Q1. First, if you could just confirm if that is the right number. Second, how much of that was a cash expense?

And as we think about the difference between that EUR 122 million number and guidance for mid-3-digit million this year, how should we think about the phasing in the remaining quarter than the year?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [42]

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Yes. A quick update on the restructuring, EUR 100 million is a correct number. I think about EUR 124 million to be precise. Out of which, EUR 84 million was with systems engineering. That was our plan that we announced already in November, which included 640 positions here in Germany. Here, we set up the provision, and the cash out is to come in later.

Another bucket was with corporate center where we have also the reduction in workforce and positions. And here, we cut also more roughly EUR 20 million. And the cash out was very limited. It was just EUR 30 million to EUR 40 million in the quarter, around that number.

For the full year, we said mid-3-digit million number. I also said before that the effect on the P&L for provisioning will be higher than the cash out because there's always like on a delay with cash out, but both numbers we said in ballpark of 3 digit -- mid-3-digit million number.

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Operator [43]

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The next question is from Luke Nelson of JPMorgan.

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Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [44]

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Just a follow-up on Steel Europe. In November, you announced that you'd started trialing direct hydrogen injection at Duisburg. Is it possible to give an indication of how successful that's been? I know it's still early days, but just anything in terms of the relative cost of that process or how you see that cost evolving? And what cost of hydrogen is being used for the process? And to what extent that will play a role in the division's goal to decarbonize over the next couple of decades? That's my first question.

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [45]

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Well, with regard to the strategy of green steel, there are several technologies which we can offer. Number one, we can replace coal with hydrogen. We can replace [hardly] in the existing blast furnaces, and this is what we are currently testing. However, to be very honest and very clear, it's a very costly exercise with regard to hydrogen. The next step would then be to really build new glass furnaces on the direct reduction model with hydrogen to completely replace and not only to adjust and complement coal, that is still years out to come.

And another technology we are offering currently is that we are using CO2 as a feedstock for chemical raw materials in the so-called carbon-to-chem process. So we can offer certainly several solutions in order to arrive at green steel. But as I mentioned before, the key obstacle is currently clearly how and where to produce hydrogen with green energy or renewable energy. That is a need to be solved to some -- also by the politics and government. Does it answer your question?

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Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [46]

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Yes. It does. Just a follow-up. Do you have any indication at what cost of hydrogen direct injection would be competitive?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [47]

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Well, I have only heard that it is significantly more expensive and that certainly, it will be difficult to convince our customer to pay, in the end, a higher price for the end product. Therefore, that need to be solved. And I cannot give you any more...

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Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [48]

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No problem. And my final question is just on -- again, on Steel Europe and the thoughts on EU ETS space for -- from the start of next year. How that business is positioned? Any impact from an earnings perspective that we should be aware of? And then longer term, sort of conversations with the [AC] about carbon border adjustments as well?

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Johannes M. Dietsch, thyssenkrupp AG - CFO & Member of Executive Board [49]

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Well, yes. Now it becomes a business more tricky for me. Thank you for the question. You are challenging now the CFO, to be honest. And so my discussions with our colleagues from Steel Europe are clearly that they don't indicate any issue where their ETS in this current period where they are current. And we have not -- this as a major problem for the next period, which will start in '21, I guess. But overall, the other aspect is clearly with the level playing field with regard to imports once we are priced with a higher CO2 costs, either on EPS or CO2 taxes or whatever it might be, then, of course, we will request also a massive -- to make sure that imports are burdened in the same manner that we can stay competitive here in Europe.

It's -- I guess it will be tricky to find a scheme on import taxes or import carbon come to duties in order to manage this. For this aspect, we're also curious and to see -- we are debating with the politicians in process. We are giving our input. But at the end, we need a system where we can compete here with European production compared to the global imports.

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Operator [50]

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As there are no further questions, I would like to hand back to you.

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Claus Ehrenbeck, thyssenkrupp AG - Head of Corporate IR [51]

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Yes. Thank you very much, operator. And also, our thanks go out to all the participants in this call here. We, of course, are, as always, available for you after the call and, of course, also in the next days to come. And yes, we look forward to staying in touch with you and to continue our conversations. Thank you very much and bye-bye first of all.

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Operator [52]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.