Good day, ladies and gentlemen, and welcome to the Q3 conference call of thyssenkrupp. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Andreas, Head of Investor Relations. Please go ahead, sir.
Thank you very much, operator. Hello, everyone, this is Andreas Treusch from Investor Relations. Also, on behalf of my entire team, I wish you a very warm welcome to our conference call on the Q3 results. With me in the room are our CEO, Miguel López, and for the first time, our new CFO, Jens Schulte, and also my colleagues from the IR team. Before I hand over to the CEO and CFO for their presentations, I have 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, as already heard, there will be the usual Q&A session. With that, I would like to hand over to our CEO, Miguel López.
Thank you, Andreas, and also a warm welcome from my side to our audience, to our Q3 conference call. Today, I will present our latest achievements and financials together with our new CFO, Dr. Jens Schulte, who I would like to officially welcome at thyssenkrupp. Jens, I'm very happy that you have joined the team. Before I will show you our well-known management summary, let me start with something new. Let me give you a status update on our management priorities and the related topics that keep us busy at the moment. Of course, you know all these issues. However, as they are key to thyssenkrupp's success going forward, they are worth a recap. Let me begin with our scope of duties that can be aggregated under our management priority portfolio.
As you already know, we have established our new segment, Decarbon Technologies, and are preparing it for future growth opportunities. We adjust the business models to the current market demand by concentrating more and more on the E and the EP part. That is the engineering and the procurement, while simultaneously capturing a higher share of service business. Also, we have a new management in place. During this process, we uncovered some issues regarding older projects that we are currently addressing and strictly solving. At the same time, we are continuously working on the standalone solution for Steel Europe and Marine Systems. I will give you an update in a minute. Additionally, we are streamlining our portfolio at Automotive Technology during its transition towards a high-end supplier for auto components. If we now look at the second management priority, performance, you will remember these topics.
Our performance program, APEX, which has been and still is implemented across the businesses and going forward, will be adapted to market needs. Performance should be in our DNA, and the partially pretty new management teams are permanently intensifying their efforts in achieving improvements. As you know, Steel Europe currently is updating, evaluating, and finalizing the new business plan, and restructuring is ongoing everywhere in the company where necessary. For instance, at Materials Services, we currently restructure German operations at TK Schulte, while at the same time expand our business in the profitable and growing North American market. But also for the other businesses, we are persistently monitoring the needs for further restructuring.
Last but not least, we pursue the green transformation with our first DRI plant at Steel Europe or within Decarbon Technologies, where we enable our customers with our leading technologies to reduce a large part of today's CO2 emissions. After this really short overview about what's going on at TK right now, let me go into details with some of these hot topics for the recent quarter. Again, let's start with portfolio and the two segments where we pursue standalone solutions. At Steel Europe, the planned 50/50 joint venture with EPCG is well on track. As a first significant and historic milestone, we signed and meanwhile already closed the contract for the 20% sale of Steel Europe. Right now, we are negotiating the remaining 30%. Also, at Marine Systems, we are well on track with regard to the standalone solution and our dual-track approach.
The due diligence phase for KfW as a precondition is progressing. This is also true for the due diligence phase of Carlyle, our potential private equity partner. At the same time, the spin-off is being prepared as an alternative. We will keep you, of course, informed as soon as there are relevant updates. Now, let's focus on our second priority, performance. Our third quarter showed a solid performance in light of the current difficult markets, apart from negative one-time effects at Decarbon Technologies related to aperiodic higher costs at some individual projects at our cement business, Polysius, as well as some cash flow payment shifts between the quarters. To reflect this continued challenging framework, we had to adjust our full year guidance on July 25. Jens will touch on this later on.
This is why it is even more important for us to continue with our APEX program, where we pick additional speed and see incremental improvements across all businesses. Now let's conclude with our third item, green transformation, including the latest developments, for example, in our order funnel and technology spectrum. First, it is worth mentioning that Steel Europe's climate target for 2045 have been validated by the Science-Based Targets Initiative, which underlines our efforts to actively participate in the green transformation. At Decarbon Technologies, we could announce that thyssenkrupp nucera will provide a basic engineering design package for a 300 MW electrolyzer, featuring alkaline water electrolysis technology to be integrated into Cepsa's green hydrogen project in southern Spain. And meanwhile, we were able to sign a reservation agreement.
This project is one of the largest of its kind in Europe and will use 15 of thyssenkrupp nucera's standardized scalum electrolyzer units with a capacity of 20 megawatts each. In addition, Uhde is enabling its long-standing customer, Grupo Fertiberia, to decarbonize its existing ammonia plant, which will lead to a CO2 emission reduction of up to 40%. Uhde supports Fertiberia to reach its net zero strategy by providing expertise to continuously reduce the fossil feedstock and partially convert production from gray to green ammonia by injecting green hydrogen. With having that said, I would like to hand over today for the first time, to Jens, for the financial part of today's presentation.
Miguel, thank you very much, and good morning, everyone, also from my side. Now, this is week number 11 for me as the CFO of thyssenkrupp, and it has been quite an exciting time already to work with Miguel and the whole team on transforming the company. Some of you guys I've already met through the introductory calls with Andreas and some today for the first time, so I'm thrilled to be here with you this morning. Before I start with the numbers of Q3, allow me to share a few general observations about our situation from the point of view of a CFO, getting into the company from the outside. First point is first observation, I truly believe that business substance of the company overall is very solid, still, both on strategy, on technology. We have strong market positions.
We are a highly diversified group. We have good products, strong blue-chip customer base, strong brand, loyal employee base. So I think the asset base is very, very strong. Second, financially, I think we need to clearly distinguish, from my point of view, between short-term contingency management on the one hand, and midterm structural profitability, on the other hand. On the short-term side, contingency, I think contingency management in the company is not bad. Our reaction to difficult markets has been solid, as I will argue on Q3 numbers, and APEX has been a big help here as well, as Miguel already mentioned. Structural profitability, of course, and as a consequence, cash flow generation is too low.
There is still some way to go on this front, and to address that, we would develop APEX further in the coming weeks and share with you updates through the coming calls and other communication. Third observation is, at the moment, public coverage of the steel situation is, of course, very comprehensive and basically overshadowing many of the other good things we're doing in the company. So I would say that that's clearly not a representation of what's going on in our businesses and what we are achieving, including steel itself, by the way. So one task for us will be, of course, through performance, to reduce the noise again, and focus on data, facts, and progress in what we do. So now coming to the numbers.
Building on what I just said, overall, I believe we had a solid Q3 in the challenging markets. On top line, we had ongoing headwinds with reduced demand, demand across several industries, like in previous quarters, mainly driven by the materials businesses. Q3 has been 6% below prior year. Year to date, we've been 9% below prior year, so that market situation has, of course, impacted us. On the EBIT side, EUR 149 million, adjusted EBIT. This includes significant negative one-time effects, Miguel already mentioned that, of approximately EUR 80 million at Decarbon Technologies, more specifically at the Polysius business, which is our cement plant engineering business, as you know.
What has happened here is, we are currently cleaning up the project portfolio, and Miguel and Cetin are driving this forward, you know, very consistently and consequently. As part of that exercise and project of Polysius, we have discovered incorrect cost accounting, which, as Miguel said, primarily relates to prior periods, and we've now corrected that accounting in Q3. That's basically the hits that you see here. So it's a non-recurring event. On the free cash flow side, -EUR 256 million in Q3 and -EUR 983 million year to date. On first take, this might look worse than it actually is. It's influenced inter alia by payment shifts in some of our businesses, and by EUR 170 million of government funding for the DRI plant that was coming in literally 24 hours after Q3 closing.
So these things sometimes happen, but the money is in, and so including that, we would have been significantly better in the quarter. We are below prior year, though, because of top line, of course, driving lower profits and because of inventories, particularly within the steel business. Now outlook, as you will see later, it's not unusual for us to build negative free cash flows cumulative three, through Q1 to Q3, and then reverse in Q4 to land within the guidance provided, and I will recap on that at the end of my presentation. Now, coming from P&L to balance sheet, our balance sheet still, still solid from a financial point of view, and thus gives us the freedom to pursue our transformational journey.
Net cash is down year to date by -EUR 1 billion, but that's largely the normal pattern of intra-year development of free cash flows. If you make a seasonal comparison of the net cash position with Q3 of 2023, we had exactly the same net cash at that time of EUR 3.2 billion. So on a quarter prior year comparison, we have no change in the net cash position. Pensions, slight movements driven by slight interest rate changes. Nothing particular to report on that front, and equity ratio is still continuing to be stable at a comfortable 39%. So overall, I would say balance sheet is good, good for us to continue. Few further remarks on quarterly overall performance.
Sales down versus the prior year, as I said, prior year Q3 of -6% and ± stable over the quarter. As mentioned, we face muted market dynamics, and demand across several industries, particularly from automotive, construction, and machinery. So if you look into that by business, you will see that the material side is impacted most, whereas AT and MS have a little bit of an impact, and DT is growing in pretty much all businesses Rothe Erde, where our slewing bearings business, where we face muted demand in the Chinese wind energy market at the moment. Otherwise, we're growing well in that business. EBIT adjusted is below prior year Q3 and prior quarter, however, as mentioned, includes a one-time negative effect of EUR 80 million, attributable to project cost bookings, in DT.
And, so, so that actually also looks good, and APEX is progressing and has supported performance, on that front. And on a free cash flow basis, we are below prior year quarter three, particularly because of, as I mentioned, net working capital development on the inventory side, where in the prior quarter we had a stronger reduction, and now we also have a reduction, but it's less than on the prior quarter. And, then in Q3, we had more capital expenditure than the year before. However, that's just a quarterly effect. On the full year accounts, you will see, that, that we will reduce CAPEX, versus the prior year. So, so that is that on, on the free cash flow side. Now, let's quickly go through the segments, starting with AT. On the AT side, top line is under pressure.
As described before, we are 6% versus prior year, down versus prior year and also slightly below prior quarter. That's true for most businesses of AT, with only a few exceptions. The key drivers, as I said, weakening markets, and I think that's what you note also when you look into, you know, other automotive OEM companies and how they perform at the moment. In that context, bottom line development is actually fairly stable in automotive to slightly positive, and the same holds true for cash flow performance within AT, where we are actually operating around target cash conversion level. So, that business is also making some progress on that front. Overall, we are well on our way with business development. You know, these things sometimes, as I said, are overloaded by our general public coverage.
But one good example here is, and you may have seen that, that we entered into a very interesting brake-by-wire cooperation with BWI Group of China. And we announced that in April, and it's positioning us jointly as a tier one supplier for future car architectures, including autonomous driving. So that's actually, I think, a good thing to report here. On performance management, we had a broad range of APEX measures that I also, you know, did a deep dive with all of the segments here, also, including the one of automotive. And we had things like negotiation of price conditions, you know, managing claims for call-off shortage, material cost savings, and so on and so forth. Next, our new growth segment, Decarbon Technologies. Order book is good and leading to higher sales.
Order intake is down versus a very strong prior year on a quarterly and year-to-date basis, driven by most businesses except nucera. That's, by and large from prior year level. Top line is up 10% on a quarterly basis and 8% year to date, driven by most businesses, as I said. And as mentioned, EBIT adjusted is affected negatively by this one-time effect at Polysius, which is attributable to prior periods, at some individual projects. With respect to APEX, broad range of measures, again, efficiency improvements and procurement optimization are some of the points that we're mentioning here. And maybe last but not least, on DT is also very important.
You know, we are also, you know, basically, you know, completing our management teams everywhere, and segment management team here is complete since April 1, as you know, and further personnel changes have been affected since, including our new externally hired CEO of Uhde, Nadja Håkansson, as of May 1. So we're also, bringing in additional people from the outside. Next, coming to the material side with MX. As I said, initially, top line is subdued, particularly in the materials businesses at MX. Shipments and sales are affected by ongoing low demand, especially in Europe, and lower price levels, in addition.
Nevertheless, EBIT adjusted is above prior year for the quarter and on prior year, year to date, with positive earnings contribution in all business units, especially international supply chain business, which is good, of course, because that represents one of our targeted growth areas within MX. And we are, slightly below the capital market target range of 2%-3% at the moment, but we're confident to return when markets stabilize. APEX examples in this area are positive effects from last year's, you know, renegotiated contracts with major customers in the supply chain business. So many things happening here as well. And now, to SE, which is dominating public coverage. As discussed initially, sales, as with MX, shipments and sales are down, impacted by low demand, and lower spot market price levels across all customer groups.
As a result of that, EBIT adjusted is also down versus the prior year quarter by EUR 90 million, and year to date by EUR 28 million. Cost improvements have been affected, including raw materials, productivity, and a further, few further other things, but cannot fully compensate for the top line shortage. On the positive side, I have to say, though, that the fact that we are operating structurally below our current capacity point by, as was reported publicly, a magnitude of 2,000,000 tons, since some time, and still produce positive results within SE, not cash flows yet, but results, I think is testament to ongoing contingency measures in this area, including APEX, where we had many different measures, including production, productivity, energy, procurement, logistics, and so forth.
So the plan in this area, as Miguel outlined, is now to bring about significant structural improvements along two dimensions, performance transformation and green transformation. We are additionally putting together additional steps to put, you know, TKSE on a more standalone basis with the entry of EPCG. And as Miguel said, you know, two members on our supervisory board of TKSE, Daniel and Jiří, who immediately start to make a positive contribution, I would say. So it's good that the guys are on board now and bring in external investor perspective. Then last but not least, MS. We turn to our marine systems business. Overall, we are well on track here. Top line, we've had several new service orders that supported order intake, and order backlog of EUR 11.8 billion, still on a very high level.
Sales, as you know, in this business, on a quarterly basis, is always depending on order execution and might fluctuate, so it's down quarter-over-quarter and plus minus on prior year level. But that's, that's no statement on the development of this business. It's still on a growth path, so there is no change to that. We've had a very satisfying EBIT, adjusted development with better project margins, reduced cost base, and the same is true year-to-date, where we are up significantly. Also to mention here, in terms of making progress in Q3, the business actually did achieve its capital market target range on ROS for the first time, hitting 6.9% ROS.
Now, this will not carry through to the rest of the year, but I think it shows that we are well on track here and progressing. Business development is progressing, as you can follow on our media channels. I.e., last week, for example, Oliver was in Brazil and during a naming ceremony with President Lula da Silva for a top modern frigate called Tamandaré. On the cost side, APEX helped to bring about efficiency improvements in the areas of material, personnel, and administration. So much for the segment view. If we now add all the numbers up, as the finance people like to do, and look at how this translates into free cash flows, we're at the number indicated, i.e., EUR -256 million for the quarter.
Positive drivers on a segment level had been AT and MX, while negative impacts have come primarily from SE, as you can see, where, as already mentioned, EUR 170 million are not included and came in one day too late, and respective payment was received and is booked in already. Otherwise, SE would have been also close to business cash flow breakeven. On a more general guideline, I think key to sustainably bringing in free cash flow for us is, of course, to lift our profitability to our target range, and this will actually be the differentiator.
At current profitability, you know, moving free cash flows towards breakeven, and we indicated around minus EUR 100 million for the year, requires very strict capital budgeting measures, which we are now taking at the moment with respect to CAPEX, but also net working capital. So that's the situation on free cash flows. Closing on the outlook for the fiscal year, Miguel already mentioned it. On July 25, we adjusted our full year outlook. The main reason for this is the continued challenging market environment, which is leading to a significant decline in sales in the current financial year. And as described before, we have to assume diligently that the markets will not stabilize in the short term, so we continue to contain cost base and capital expenditures for the time being.
APEX is successfully mitigating the negative developments that cannot fully compensate for these effects yet. And so we adjusted the outlook, as follows, and this is no change to July 25, exactly identical. Sales are to decline by between 6% and 8% compared to the previous year. For adjusted EBIT, we now expect a figure of more than EUR 500 million, and on free cash flow before M&A, we expect a value to be in the range of -EUR 100 million.
Wrapping all of this up with a personal interpretation, CFO coming from the outside, I think if we achieve these targets in that environment and with that level of challenges and transformations that we're pushing forward at the moment, I personally would consider this to be a solid year for the company and a step towards a sustainable future that we are all pursuing. Thank you very much for listening, and now we are open for questions.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press Star, followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Our first question comes from the line of Jason Fairclough from Bank of America. Go ahead, please.
Yep, good morning, gentlemen. Thanks for the presentation. Thanks for the, the opportunity to ask questions. Look, the question I guess is, for me is, is the big one, which is on the, on the structural changes to the business. And, I guess for a change, this seems to be taking longer, right? And, I guess the concern from investors is that as things take longer, you know, the half-life of value in Thyssen is, you know, is, is quite short, and so as things take longer, more and more value just disappears from the business. When we looked at steel, you know, I think KfW had been instructed to, to take a stake before the, the summer break, and here we are, you know, we're getting through August, so it doesn't look like that's gonna happen.
So, what can you say to us to give us more confidence about the timing of these structural changes?
Thank you, Jason. I think in terms of Marine Systems, and that was what you were referring to around the comment that the German development bank, KfW, is not right now in the process. So we are very confident that this process will continue in the next months to a successful end. So I can only transmit here, we will see there, I believe, a positive outcome. That's what we have been always saying, and I don't think that now the summer work is a reason for changing the overall mood in this.
I think this will, this will happen, and we will see a positive outcome in the next months.
Yeah, on the steel side, Jason, I think we need to differentiate two situations here, right? One is our partnership with EPCG and bringing them from 20%-50%, and the other is the business plan situation and discussion that is covered publicly. On the EPCG side, that is something that is, you know, running totally according to plan, right? I mean, we signed a few months ago. We just closed according to our schedule. Now, we are in 50/50 negotiations, and that is something that can be somewhat disconnected from the other things. That is time-wise under our control.
I don't want to state a specific date on when we are planning to finish here, but we are working full steam ahead, and I think the cooperation with Daniel and Jiří is very productive and you know should advance quickly. The other thing that we're currently working on the steel side is the business planning exercise. And that is something where we have already made great progress. Progress in the sense that the original business plans of the steel management have been upgraded since. So it's not the original plan that is currently you know under discussion. And now we have defined a process to bring it to further conclusions, and Jiří and Daniel are also bringing in their additional inputs here, yeah. But I think these two things can...
While the business plan side takes some time, I fully agree to you, it's a highly complex situation. The EPCG side, and bringing them into the company is, by and large, under our own control, and so this should advance according to our plans, as it has so far.
Just to follow up, if I could. Do you mind updating us with your thoughts on appropriate capital structures for the spin vehicles, for steel and for marine? How should these things be capitalized? What should the balance sheet look like?
Well, on the steel side, I think, you know, conceptually, I'm not, I will not, you know, issue any new numbers here because there is, of course, still discussion going on, and, any number has quite a complex background, so I think it's of no use to give numbers. But conceptually, it's actually fairly straightforward. So we are anticipating for the steel business is a combination of equity from us, from the investors being brought into the company, then shareholder loan, and then some external financing, probably on an asset basis. So that is, by and large, the plan that we have, and we've also structured and sized that and pre-assumed that with, you know, with our advisors, and that's how we are pursuing it at the moment, yeah.
But the specific number I would not mention. And on the marine side, I think this is, you know, highly subject to how finally the transaction structure will look like. As you know, we are working with private equity and the state. Private equity, likely in the majority stake and the state in a minority stake, and us as well. And so there, we should see a business that should be, you know, by and large, self-funded, so to speak. I mean, they are generating positive free cash flows, and that should be working.
Okay, thanks very much. Appreciate it.
Thank you. Our next question comes from the line of Alain Gabriel from Morgan Stanley. Go ahead, please.
Yes, thank you for taking my question. I have two of them. The first one is on Steel Europe, I guess, following on Jason's question. There were some headlines over the weekend of your discussions with the Steel Europe Supervisory Board. Do you mind giving us some color on what are the key friction points, milestones, thresholds that we need to look for to progress the discussions? So where do you stand, and where does the supervisory board stand for Steel Europe? That is my first question, and the second one is on HKM. Will it be included in the JV with Mr. Křetínský? And what are your future plans for the business? Again, there is lots of headlines. What is your latest thinking? What are you leaning most towards? Thank you.
Thank you very much.
Starting with HKM, you know, that we have been communicating that the first priority is to sell the business. I think there was enough media coverage around it, and there's a party interested, and that's something that we are pursuing. At the same time, it's also clear if this option will not work, then we are looking into the closure. This is not our responsibility as a TKAG Managing Board. That's the responsibility, of course, of the steel Managing Board, because HKM, as you know, is a joint venture, 50% owned by the steel business, 30% by Salzgitter, and 20% by Vallourec.
So this is where the decision needs to be taken, but that's what has been presented by the steel managing board to us in the supervisory board. Related to the discussions going on around the business plan, I think Jens already did some comments, so we are working on it.
Thank you.
Thank you. Our next question comes from the line of Bastian Synagowitz from Deutsche Bank. Please go ahead.
Yeah, good morning, all. I do have a couple of questions, if I may. And I'll start off on the steel business as well, and the going concern audit you're currently working on. Can you give us a bit more context on what the implications of this audit actually are? Because, if the audit comes to the conclusion that there is a material concern with regards to the going concern and investments basically don't have a robust likelihood to yield a positive return, would that not mean that you, as an owner from a thyssenkrupp group perspective, can't really justify allocating further capital to the business? And then also, maybe in terms of the timeframe here, I would have thought that this is more like a due diligence type of process or a matter of a few months rather than weeks.
Maybe you can also give us a bit of color here, and how far the outcome of this opinion is required to finalize the business plan. I'll stop here.
Yeah. No, no, happy to do so. So, as you know, it's an IDW S6, you know, I mean, typical German abbreviation, type of study. And, what that actually does is, we will feed in the current steel business plan, and then, it will be analyzed, and, the conclusion will be whether it's a sustainable basis or not, if you wish. So, it is, so, so we basically put that in. The duration of that is around three months, we would say. Sometimes it's also taking a little bit longer. That depends on the process. It's a highly individual process, right? So there is no standard template to that. It's a highly individual process.
It's not a due diligence type of exercise, so we will provide all of the required data, data very early to the party, to the consultant or auditor, and then we will see. I think one thing is very important, though, that this is not a binding result by whatever measure. Yeah, so what we get is an opinion, and it's an independent opinion, and it's good that we get that, so we are - we were in favor of that. And we actually, you know, we are actually ordering this exercise together with the steel guys. It's one important impact factor, but it's not the only one, and it's by no way binding for us, yeah?
So whatever the result is, we will take that into consideration, you know, in developing the steel business further, but we don't, we are not bound by that, and it's not something that is legally binding in any case, yeah.
Okay. And just in terms of how this actually works, maybe you can help us there, because, I mean, there's a whole lot of assumptions which have to be taken in that, I guess in that analysis. There's decarbonization. You're spending EUR 2.5 billion, obviously, on the first phase of decarbonization with funding support. There's no funding support at this point for the second phase, yet there is a need for decarbonization. We don't know the CO2 price. It's lots of moving parts, right? So this could be skewed in any direction. But, I mean, how does this work? It's gonna be like probability weighted, or how are the, how is your partner there looking at the situation?
Now, first of all, we are just in the process of selecting the partner, but the way that this works is they take a business plan, a full business plan as a basis. That is the current business plan of steel, including all of the assumptions, including assumptions on green transformation, on, on any price tickets, on CO2 emission certificates, all these kinds of things. So it's a full set of assumptions. And then what they do is they, they don't develop, alternative business plans, but they do sensitivity analyses, basically. Yeah, so they, they take one factor, say, CO2 price, and say, that goes up or down by 10% or 20%. That changes the picture as such.
If we, if we adjust for, you know, SG&A restructuring and go up by 100 headcounts or down by 100 headcounts, what would this mean? And so forth. Very practically speaking, it's a highly collaborative and interactive process. Yeah, so it's not something where we feed something in, and then the guys are coming back after three months or whatever it takes, but it's it's an ongoing process with steering board type of meetings where they sit down with us, so with me, with my finance team and with the finance team of steel, and we, we jointly, decide, you know, what other parameters we want to vary. But the basis is, one complete business plan as currently developed.
And just to be 100% precise there, the business plan, which is being fed in, is the one which has been suggested to this by the steel board just a week ago or so? Or is it the previous one?
No, no, it's the latest one. Yeah, the one that has just been presented. \
Yeah, got you. Okay. Then moving over to HKM, could you please confirm whether the book value of HKM is still around the EUR 600 million level, which you reported end of last year? And then secondly, also, what is the balance sheet on an HKM level looking like at the moment? And would you have to inject cash, just in case of any wind down scenario, or is that pretty much ring-fenced on an entity level?
So, I mean, as I said, as Miguel said, HKM is a subsidiary of Steel, right? And on this level, as you know, we're not officially, to my understanding, disclosing figures, so I would not confirm or comment on any of the numbers there. Of course, I mean, as was reported publicly, when we sell it, the likelihood that the sales price is not positive is, of course, very high. So in other words, we will need to give money with it. I mean, that's no question. But the amount and all of these kinds of things are under discussion.
Okay. Okay, understood. Then, just moving on to your target. So I guess with the lowered guidance, now the gap to achieve next year's midterm targets has probably become even larger. I saw the 2025 timeframe has been removed from the slides, and I guess the stock shows that the market probably has very little faith that that was realistic in any case. But have you officially pulled the timeline, and are you planning to come back with review targets and a new timeline by maybe the end of this year? Maybe you can share some color on that and what you're planning for, and maybe also how that process looks like at your end.
I can indeed give a process update. The process is, quite frankly, as every year. Currently, we're going through our internal planning process. We will close the year and the books, we'll review the year, and then we will make up our mind as to the planning for the next years, and then we will update markets on that. Yeah, currently there is nothing to report on that front, but the process is really as every year, planning, closing, update, guidance. That's basically how we do it.
But has the 2025 target, or timeframe been officially pulled now?
I wanna repeat of, you know, what I just said. So, we have a process and, there is actually nothing to further comment on that for the time being.
Yeah. Okay. Okay, fair enough. Okay, I'll jump back into the queue then. Thank you.
Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Our next question comes from the line of Christian Obst from Baader Bank. Go ahead, please.
Yes, hello, and thanks for taking the question. I have a question concerning the EUR 900 million free cash flow delta you have to achieve in the fourth quarter. So how much of any kind of possible restructuring charges are included?
So, you know, in terms of... I mean, first of all, we are not disclosing individual, you know, numbers here yet. So, first of all, basically, you know, completing the year and then adding up all of the different numbers. But in terms of, you know, restructuring cash outs, you know, the EUR 900 million free cash flows do not include
Yeah
a significant amount, I would say. So compared to that amount, it's that probably is negligible.
Okay. So where do you think the main delta should come from? Just from stop paying, something or, acquiring less of raw material or whatsoever, and then we have the swing in the first quarter, like we have several years before, swing of EUR 1 billion again, in the negative side in the first quarter of the next year? Or will you smoothen that a little bit? Because, EUR 1 million and EUR 1 billion delta in fourth quarter is quite a lot.
So, there is, there are several components to this. The first one, as I said, or as we said earlier, is, of those EUR 900 million, EUR 170 million is already in, right? Because that is-
Yeah
the payment that we've received a day late. Then second, what you should not forget is that we have very large advanced payment swings in our construction and also in our shipbuilding businesses. And so a number of payments which would have been expected in Q3 are now due to follow in Q4. So that also makes up a significant component of that. And as you know, that can basically impact our cash flow significantly in the one or the other direction. Apart from that, what we do every year, of course, is, you know, optimizing Net Working Capital, and we're also gonna do this this year to some degree, very far away from the degrees that we've done in the past.
But of course, you know, at the end of the fiscal year, so we make sure that we collect all of our receivables as always, and we look at, you know, bringing stock down to the extent that is possible. Now, what do I expect with respect to Q1? That's something that we're gonna guide you on, you know, basically once the fiscal year is closed. But I think the important part of this is, EUR 900 million is not out of question. It's strongly influenced by the public funding and by movements in our advance payments, among other things.
Okay. And then I have a question concerning how much of the cash is, or it's related to the prepayments you achieved from Marine Systems. So how much of this cash currently on the balance sheet will go out when you separate Marine Systems?
When we separate Marine Systems, and now that that's something, I mean, as Miguel said, the process is still ongoing, so for the time being, we don't disclose any individual figures. I mean, it's also still in negotiations, right? So, there is nothing to say here.
But in the end, you, you can directly say what are the pre-maints, prepayments directly linked to Marine Systems or not?
So, may I have to admit that I'm not fully understanding the question. So, can you repeat your question, please?
So normally, for the big orders, do you get some prepayments for big orders, for submarines, for frigates or something like that? And this is on, of course, included in your balance sheet and in your cash position. And I just asked how much is linked to the Marine Systems area. For you.
Yeah. Good. Got it. I understood the question, but we're not disclosing these figures, at least not intra year. So, please bear with us until the year has closed.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Ephrem Ravi from Citigroup. Go ahead, please.
Thank you. Two non-steel questions and one steel question. Firstly, on the Decarb Technologies, which is supposed to be your growth engine, your order intake to sales has been less than one for the last two quarters. Is this because of the end market weakness, or is it that you're prioritizing a higher mix of higher value projects in this business? That's the first question. Secondly, can you give us a bit more detail on the EUR 80 million one-off due to incorrect cost accounting at Polysius? Was this related to something like warranties that had not been accounted for or something, or higher costs in construction? The reason I'm asking is EUR 80 million, you could build 500,000 to 1 million tons of steel cement capacity, so it seems like a big number.
So are you also comfortable that there's nothing similar across the group going forward? And finally, on the steel, I mean, of the EUR 5.4 billion pension liabilities, you had indicated earlier that, like, Steel Europe is about EUR 3.4 billion or EUR 3 billion. Is that number still correct given the decline in pension liabilities by about EUR 400 million since the beginning of the year? And finally, the HKM transaction, is that precedent or preconditional on the 30% sale of the rest of the Steel Europe business? Thank you.
Good. So I start on the Polysius. So I take the second and the third question. On the Polysius EUR 80 million, so what has happened here is, and I think I tried to allude to that, is that we are cleaning up the project portfolios in our plant engineering businesses. Yeah, so we go project to project to project, and just make sure that everything is transparent, accounted properly, and so forth. And in a few, but specifically one project, we have discovered incorrect cost accounting. So very practically, costs have not been booked in the past properly. And so that is what we have basically corrected. It doesn't have anything specifically to do with guarantees or anything. It's not liability, it's just incorrect cost accounting. Very straightforward.
And so of course, we have taken many measures on that front, to say that, and we have exchanged management, we have put in audit, we have strengthened our internal control systems, everything that you typically do. But that is just the, you know, the outflow of cleaning up the project portfolio. I think you also had a sub-question on, do we expect something somewhere else across the group? This is something that is particularly relevant for plant engineering project businesses, and that's basically Polysius and Uhde, where, as I said, we are going through these projects. On the steel side, I think the first part of your question was related to pensions. I think the assumptions you can take for modeling is 50% of group pensions, is steel, plus, minus.
That's not exactly right, but it's coming close enough to that. And then you had a second question related to the sale of a further 30%, which went a bit down here in noise. Can you repeat that part, please?
The HKM transaction that you're considering, is that dependent or precedent to the other 30% that is sale? So does Křetínský want a conclusion on HKM before he kind of, you know, does the deal on the remaining 30%?
Yeah. No, these things are independent. So we are pushing forward on HKM sale, while at the same time negotiating with Daniel, you know, the additional 30% entry. So these things are time-wise disconnected.
Thank you. And on the Decarb,
Yes. Around DT, I would reemphasize here that we have a solid pipeline of projects to come. However, the related decisions on the customer end are being postponed, as we have seen in the last quarters. So, the best thing that we should do in this business is to look at the continuous development of the sales, because of the volatility of the order intake because of this kind of factor. So if you look consistently, quarter by quarter, to the sales development, I think that's the more proper view on the real growth momentum of the business.
Thank you.
Thank you. There seems to be no further questions at this time. I'd now like to turn the call back over to Andreas for any final closing comments.
Well, thank you very much to everyone for participating and for your questions. Have a wonderful day today. Thank you, and speak to you soon.
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines. Have a lovely day.