Dear ladies and gentlemen, welcome to the webcast of thyssenkrupp. At our customer's request, this conference will be recorded. After presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Claus Ehrenbeck, who will lead you through this conference. Please go ahead.
Yeah. Thank you very much, operator. Yeah. Hello, everybody. This is Claus Ehrenbeck. Also on behalf of the entire team, I would like to wish you a very warm welcome to our conference call, which is today on the Q4 numbers and the fiscal year. The presenters today will be Martina Merz, our CEO, and Klaus Keysberg, the CFO. Before we start with the presentations, please allow me to make just a few housekeeping remarks. I wanna say that all the documents here used for this call and for this release are available on the industrial relations section on our website. As always, there will be a replay after the call later in the day. With that, I can say we are finished.
Now with the housekeeping, of course only, and I want to hand over to Martina for the presentation.
Hello, everybody. A warm welcome from Essen. From my colleague, Klaus Keysberg, our IR colleagues here in the room, and myself to our conference call on our Q4 and the 2021-2022 figures. Let me start with a brief step up of what we are aiming at with our ongoing transformation at thyssenkrupp before we come to what we have achieved with regards to performance and transformation so far. Our primary goals are, first, to achieve a step up in operational and financial performance at all of our segments to benchmark levels. Further build up of resilience to limit the impact of external disruptions and cope with ongoing uncertainties. Let me say that when I refer to operational performance, I mean productivity and efficiency, even on the shop floor and the indirect areas. Second, streamline and develop our portfolio, crystallize value, and evolve our businesses.
Third, exploit opportunities from driving and enabling the twin transformation by utilizing our technologies to pave the way for the hydrogen economy and carbon neutrality. Of course, fourth is to reward the trust of our shareholders, and thus return money to shareholders and pay dividends. I'm pleased to say, sorry, that thyssenkrupp has changed and developed significantly also in the last fiscal year. Three years ago, we decided to transform the company from a diversified and integrated industrial group to a group of largely independent, high-performance companies. At the beginning of this transformation, we presented a roadmap to you. We said that the process would take at least three years. This was before the COVID-19 pandemic, was before the semiconductor crisis, and was especially before the terrible Russian war against the Ukraine.
Three external shocks in a short period of time, and all of these had a significant impact on the economy, society, and also on our businesses. This has slowed down our transformation, but it has not stopped us. Despite the more challenging environment, we have been able to improve our financial KPIs and further strengthen our balance sheet with a clear focus on performance. By doing so, we significantly gained in resilience. Three years ago, the company was in an extremely difficult situation. We had a big balance sheet. We had a large net financial debt. Also the operational performance of the businesses was unsatisfactory. Since then, we have cleared the way. We have identified our problems, initiated and also implemented overdue restructuring measures on an immense scale. The consequence, we have significantly reduced debt.
We have scaled back the disproportionate year-end working capital measures and significantly strengthened the balance sheet overall. Instead of a net debt position, we now have a net cash position in the amount of EUR 3.7 billion, which is, by the way, slightly more than at the end of last fiscal year, 2020-2021, and positively impacted by proceeds from M&A transactions in the amount of more than EUR 800 million. Our equity ratio is almost 40%, which is a remarkable value, especially in these challenging times. Overall, we can say that we are slowly leaving the necessary restructuring phase behind us. A very large part of the restructuring is already finalized. Headcount reduction is close to 10,000.
It is becoming visible that our clear focus on performance is paying off, and our productivity and efficiency really helped us to achieve the results that you can see on the right-hand side of the slide. Overall, the group achieved an adjusted EBIT of more than EUR 2 billion in the last fiscal year, and it is the highest operating profit since 2008. For sure, also supported by market tailwinds, especially at Materials Services and Steel Europe. We have not only improved our performance, we have always also invested enormously into the future of our operations. In the past three years, we have always invested above depreciation, even in difficult times. Let me please give you some illustrative examples. For example, at Steel Europe, for the implementation of the Steel Strategy 20-30, we built in Dortmund a new EUR 250 million hot-dip coating line.
In Bochum, we are investing EUR 100 million in a new double reversing stand. A new walking beam furnace has just gone into operation in our hot-strip mill in Duisburg, and this all will ensure optimized surface quality for the auto industry. Those targeted investments will strengthen our position as a technology and quality leader, particularly in the downstream area, and that means processing and finishing. In addition, at Bearings, we invested around EUR 60 million in new blade bearing production facilities in India and Lippstadt here in Germany for the next generation of large wind turbines. The forging business, we invested EUR 80 million in a new 60,000 ton forging line in Homburg, and this will not only make us faster and more flexible, but also allow us to manufacture more ICE independent components.
At Marine Systems, we are investing around EUR 250 million in a new shipyard concept, including a new shipbuilding facility in Kiel and the acquisition of the MV Werften Wismar. Both steps provide Marine Systems with the chance to grow in a promising market segment. At Materials Services, we built a fully digitized service center in Rotenburg Wümme and invested more than EUR 100 million in the expansion of our service business in North America, among others, for the automotive and aerospace industries. Moreover, we drove digitalization of the entire network in order to create efficiency gains and value for customers. At Uhde, part of our Multi Tracks segment , we currently invest in ammonia cracking technologies to enable green hydrogen import. Uhde is constantly improving its designs and technologies and working towards improved efficiency, energy efficiencies, and higher capacities.
Furthermore, Uhde has a long track record of building ammonia and even green ammonia plants. We could continue this list for a long time, and let me clearly state, thyssenkrupp has leading in technology and first-class solutions, and we continue to strengthen them. After three years of transformation, we can say today we have achieved a lot despite of the earlier-mentioned disruptions and challenges. Our more than 96,000 employees and business partners worldwide have good reason to be proud of this, and I would like to take this opportunity to thank all of them, and of course, you as our business partners too, to thank you once again. However, an honest overall picture also includes the fact that due to the external impacts, we have not made as much progress on some issues as we had planned.
Currently, our day-to-day business is marked by new, additional and capacity-consuming tasks arising, for example, from ongoing supply chain constraints or preparations to bring forward our planned DRI investment at Steel Europe, in addition to modernizing the downstream network in order to implement the Steel Strategy 20-30. However, in the case of Steel Europe, we remain convinced that an independent positioning offers good future prospects for the business. As long as we have low visibility on how the framework conditions are developing, we cannot make any reliable decisions on the concrete design. Here we need more certainty about the future development of energy and raw material prices, but also about the development of the economy, the governmental support for green steel, and as a prerequisite, the infrastructure for hydrogen supply, which at the end, of course, determines the price for hydrogen also.
Nonetheless, we have a detailed and substantiated decarbonization plan with DRI technology in place. For the further development at thyssenkrupp nucera, we are also dependent on external factors as an IPO remains our preferred option to be the best positioned for the growth opportunities in green electrolysis plants, and thus be best positioned to enable and benefit from the upcoming hydrogen economy. A decision on a potential transaction depends primarily on the situation of the capital markets. Moreover, we consider a potential stand-alone solution and/or partnership at Marine Systems. However, also the environment has changed in such way that we can continue this project with great composure from a strong position. Last but not least, we would like to be one step further towards our target of a sustainably free cash flow before M&A.
Thus achieving a positive free cash flow before M&A of at least breakeven is now our clear target for the current fiscal year. However, I would like to emphasize that taking more than EUR 800 million proceeds from M&A into account, we already had a positive free cash flow in the fiscal year 2021-2022. We will do everything to achieve it, even in an environment where economic expectations are further deteriorating. In spite of this, there are also opportunities arising in the current environment. The formerly mentioned progress in restructuring in the past fiscal year is reflected not only in the figures, but also in the way thyssenkrupp is perceived. We observe this regarding our customers, employees, and also on the capital market.
As an earlier performance indicator, our expanding order funnel reflects tangible increase in interest from existing and new customers from old and new regions, focusing on our world-class technologies and know-how. This is also driven by great opportunities arising from the green transformation. In the next few years, we expect the world's largest industrial renewal program since the Industrial Revolution. Within a few years, we want to make our fossil fuel-based . With our hydrogen technologies, we are one of the pioneers of this green transformation because we, thyssenkrupp, cover the entire value chain. Let me start with demand. By converting our steel production, we will be a large and reliable consumer of renewable energies and hydrogen.
The decarbonization of the steel industry is a very big lever to quickly achieve significant progress towards climate neutrality and consequently also achieve the national and international climate targets. In addition, of course, simply the volume demand by the steel industry plays a very important role to the overall scaling, and by that, the price changes and the lowering of the prices with hydrogen being bought by Germany. Now coming to the second crucial point of the green transformation, supply. With our hydrogen business, nucera, we are one of the few suppliers in the world being able to offer already today technology for the production of hydrogen on a gigawatt capacity scale. Last but not least, we're also active on the Infrastructure side.
Our plant engineers at Uhde are experts in the construction of ammonia and methanol plants, most likely the future transport media for importing green hydrogen from other regions of the world to Europe. As mentioned earlier, they have the know-how and technology to engineer and build state-of-the-art ammonia crackers. Moreover, with our innovative bearings, we are enabling the further expansion of wind energy in the first place. Even beyond these three decisive factors of the green transformation, thyssenkrupp businesses are full of opportunities. In all our segments, we focus on future trends that are opportunities for more value-creating development. Before we go to the next slide, let me please briefly give you an idea what I'm referring to.
Materials Services, digital offerings for a resilient supply chain solution, Automotive Technology supporting e-mobility and automated driving with leading positions in rotor shaft or electrical steering and Marine Systems changing the environment with increasing need for national security. These are just some selected examples. Sustainability has become an integral part of our strategy in the last three years, and we are constantly working on further improvements. Sustainability at thyssenkrupp is in the responsibility of the CEO and the CEOs in the businesses, of course, and that shows the importance of the topic for us. We are not only seeing ourselves as being responsible for becoming CO₂ neutral for thyssenkrupp, but as said, we see ourselves as an enabler for the entire industry. As you can see on the chart, we managed to improve our KPIs in all three dimensions.
Regarding environment, our CO₂ emission intensity decreased in the last three fiscal years by 28%, of course, also supported by the Bruckhausen expansion phase. The same is true for the waste disposal, which we are able to reduce by 56%. On the social side, we further increased our share of women in management positions, which has been slightly above 13% in fiscal year 2021-2022. Honestly speaking, I would rather see this trend progressing even faster, and I will personally commit that it actually does going forward. Nevertheless, we are well on track to achieve our target of 17% by 2025-2026.
Furthermore, the accident frequency rate decreased by 23% in the last three fiscal years and amounted to 2.3, which means that the target for fiscal year 2023-2024 was already achieved ahead of schedule. Regarding the governance topics, we further expanded our internal compliance department and increased the number of employees by 7% in the last three years. Last but not least, we have integrated four sustainability targets in our long-term incentives, which demonstrate the high relevance of ESG topics within our company. For the past fiscal year, we had already forecasted a significant increase of the free cash flow before M&A to break even. The war started. Today, we are basically providing you with the same guidance, but now with a potential recession in sight.
We have therefore agreed on concrete measures to ensure that we can meet our cash flow targets even in the event of deterioration in the overall economic situation. The plan is based on three pillars. First, measures to preserve earnings and cash flow. This includes programs within the businesses to cushion headwinds and to achieve their targets, even in case of a recessionary environment. Second, improvement in capital productivity, in other words, achieving more with less. The main aim here is to reduce net working capital, which has been inflated by price increases. Third, a flexible approach with regard to capital expenditure. We are planning to invest well above depreciation in the current fiscal year as well, which improves and widens the range of our high-quality offerings in product technologies and services.
However, the release of funds will be restrictive and gradual, depending on how the overall economic situation develops and what progress the businesses make in preserving respective returns and capital productivity. We are taking a classic portfolio approach here. The businesses have to earn their investment by themselves. Klaus will come back to our cash flow guidance later in more detail. However, the fact that we are releasing investments restrictively for the time being should not prevent the businesses from continuing to work on their plans for the best possible future development. This is kind of an ambiguity that we have to manage in the most efficient way. Every business should be prepared to seize opportunities as they arise. This includes, for example, partnerships, as in the potential joint venture with NSK in the steering business.
What we always have said about the transformation of thyssenkrupp applies here too. The best possible development of the businesses is more important to us than the ownership structure. Coming now to the summary and outlook. Now today, after three years of transformation, we are taking a positive but also a self-critical interim summary. We have not achieved everything we have set ourselves as a target, but we have made progress in transforming thyssenkrupp into a group of largely independent, high-performance businesses with a strong tech footprint in the respective business areas. This has enabled us to successfully cope with the external impacts I have mentioned before. We assume that the intensity of competition will continue to increase in the current environment, and that is why performance and productivity will remain our top priorities.
That is why we must resolutely continue on the path of transformation we have embarked upon. We will continue to consistently position our businesses as enablers of the green transformation and prepare for growth opportunities. We will continue to improve the operating performance of the businesses, for example, by further implementing the Steel Strategy 20-30. We will continue to drive the portfolio streamlining and the developments within the portfolio with full commitment. If you ask me, "Is it now the right time to do M&A transactions?" the answer is quite clearly no. There is currently very few activity in M&A market, so not much is happening in the uncertain environment at the moment. We are making the best possible preparations and keep our options open.
And we will also continue to develop the organization, further adapt our structures to the decentralized setup of the company. Sorry, uh, and thank for the long speech and intro, and thank you very much for your attention, for your support. Uh, and with that, I'd like to hand over to Klaus, uh, who will present our financials to you in detail. Thank you very much.
Thank you, Martina. As outlined by you, Martina, our operational improvements and our performance have our full commitment. Despite of all the progress we have made, it's clear we are still not where we want to be. However, it is absolutely fair to say that our segments and thus thyssenkrupp have substantially gained in resilience. I would like to back this up with figures at this point and provide an overview on further visible improvements on the financial KPI side. This slide summarizes the key highlights in the past fiscal year and Q4, thus provides some context to the numbers that Martina already referred to in her presentation. I'm pleased to report that our performance is significantly up year-on-year on the back of strong earnings, particularly from Materials Services and Steel Europe.
We recorded fiscal year sales of EUR 41.1 billion, a plus of 21% year-on-year. In Q4, we've been able also to increase our sales by 12% to EUR 10.6 billion. Simultaneously, we have been able to generate a significant increase in earnings for fiscal year. An EBITDA adjusted of roughly EUR 3 billion with an increase of 73% year-on-year, and an EBIT adjusted of roughly EUR 2 billion with an increase of 159% year-on-year. In Q4, we see a decrease in EBITDA adjusted and EBIT adjusted, mainly driven by price normalizations and one-timer from inventory valuation at Materials Services. The positive overall development of our company is also reflected in the free cash flow before M&A, which was improved substantially year-on-year to EUR -476 million with a plus of EUR 800 million year-on-year.
I will explain the free cash flow before M&A, particularly the strong positive free cash flow in Q4 in more detail during the course of the presentation. To summarize our performance highlights, we achieved our latest guidance, which was adjusted in course of the last fiscal year. We generated about EUR 0.5 billion efficiency and productivity gains from performance measures in addition to cost pass-through to the customers. We will propose a dividend of EUR 0.15 a share at our annual general assembly in early February. In the context of our greater resilience, the next slide highlights the strength of our balance sheet. Our net cash position benefited with more than EUR 800 million from an M&A transaction and stood at EUR 3.7 billion.
Our equity ratio is up by 9.8 percentage points year-over-year to 39% on the back of significantly increased net income year-over-year, and moreover, pension liability significantly decreased by roughly EUR 2 billion year-over-year to EUR 5.6 billion. Those figures are based upon our strong operational performance, successful portfolio management, including the sale of Mining and ASD, and of course, some tailwinds from external conditions such as higher interest rates regarding the valuation of pension liability. Last but not least, to mention in the context of balance sheet highlights, our valuable shareholdings, such as, for example, our stake in TK Elevator and in the growth company, nucera. Let us now jointly take a look at the performance from the past fiscal year at a glance and by segment, reflecting our year-over-year upswing in EBIT adjusted of EUR 1.3 billion.
These figures includes about EUR 4.5 billion of productivity and efficiency gains, as I said before, from stringent performance programs in addition to cost pass on of significantly increased factor cost and was offset by energy costs that had significantly increased. Materials Services was able to register record earnings with significant higher margins due to higher prices despite lower volumes. This resulted in a significant increase of EUR 250 million year-over-year. Industrial Components reported an overall decline in earnings of EUR 88 million. The Bearings business was impacted by higher factor cost and the temporary decline in demand in China in the wind energy sector. In the Forging business, adjusted EBIT was slightly above the prior year level. This was helped in particular by passing on of higher factor costs.
Efficiency gains and cost-cutting measures introduced in both business units also had a positive impact. At Automotive Technology, earnings in the fiscal year were impacted by a volatile capacity utilization due to continuing disruptions in the transport and supply chain at our customers, which caused the fluctuating demand, as well as the sharp rise in factor costs that resulted in a decrease of EUR 156 million year-on-year. The negotiation of new price conditions and performance measures partly offset this development, and it is important to state that in performance benchmarking as a piece, Automotive Technology ranks in the upper end of the range. At Steel Europe, newly concluded long-term contract in the course of the fiscal year led to significant increase in earnings of EUR 1.1 billion year-on-year. Here, the favorable price development was reflected accordingly. In addition, restructuring effects had a positive impact.
This was partly offset by lower volumes from auto customers, higher energy and raw material costs. Marine Systems maintains a positive trend with a plus of EUR 6 million year-on-year, mainly through a continuous focus on performance improvement and stabilized margins in the order backlog. Multi Tracks reported a significantly reduced loss in EBIT adjusted with an increase of EUR 125 million year-on-year. Moreover, we have continued the stringent execution of our headcount reduction and have reached over 80% of our overall reduction target. Despite a more than challenging external environment and market conditions, we have been able to achieve important milestones regarding our portfolio and our performance in the last fiscal year.
Looking on our portfolio milestones, sales of ASD, Infrastructure, and Mining were completed at the MT segment with positive effects on our net cash position, as we said before, of more than EUR 800 million. At nucera, we reached IPO readiness, and it goes without saying, further decisions of a potential IPO depends on developments of the capital markets. At Marine Systems, we acquired the shipyard in Wismar, and therewith could capitalize on a growing project funnel and expand their strategic option room for possible standalone solution or consolidation. On the performance side, I already pointed out the highlights in the previous course of the presentation. We reached our performance milestones, these sequentially progress in our defined restructuring measures and significantly stepped up in earnings and free cash flow before M&A and further strengthened our balance sheet.
In the last fiscal year, there were exceptionally many and strong external influences. The post-pandemic situation, and particularly the war in Ukraine, including its consequences, were major factors influencing businesses and markets as a whole. The short-term economic consequences are, above all, sharply increased energy and material costs and the threat of further supply bottlenecks in the already tight global supply chain. However, with the transformation of thyssenkrupp, we have created the conditions for our businesses to withstand such external disruptions comparatively well so far. Stringent management actions at all businesses were taken early on to tackle challenges and also capture opportunities where possible. For example, as a direct impact of the war, we also are confronted with uncertainty for natural gas supply.
Though only accounting for 10% of the energy consumed in the Group, gas is clearly a crucial topic also for our Steel segment. The management teams took early action and have defined action plans for different scenarios of potential gas shortages to ensure that their operations can be maintained most efficiently and damages of our aggregates avoided. The development of energy prices clearly has an impact on the momentum of our performance progress, in particular, if we consider that related costs dramatically increased year-over-year. In the medium and long term, we also see opportunities for an accelerated shift in industry towards green technologies, in which thyssenkrupp can make an important contribution with its technologies and products, the areas of hydrogen, green chemicals, renewable energies, and e-mobility. At the same time, we ourselves are pursuing ambitious climate protection targets and optimizing our own energy and climate efficiency.
Another example for stringent actions is that we as a group were able to pass on the mentioned increased factor costs to the customers to a large extent. Summarizing all of above, I can only highlight once again what Martina said earlier. Our transformation process has made thyssenkrupp more resilient. Also with regards to the risk of further external shocks, our businesses will counter potential challenges with targeted measures to minimize the effect on operating performance. Moving on, let us now jointly take a brief at the performance in Q4, more specifically. Across all segments, sales have grown overall by 12% year-on-year, mainly driven by Steel Europe, benefiting, of course, from favorable longer term contract structure. For EBITDA adjusted, we recorded a slight decrease of EUR 77 million year-on-year to EUR 391 million in Q4.
Similar for EBIT adjusted, which is down EUR 72 million year-on-year to EUR 161 million. I will explain our earnings in more detail in a second, but with regards to the free cash flow before M&A, we announced with Q3 figures that there will be a release of the strong net working capital build-up of at least EUR 1 billion and also a prepayment at Marine Systems. This has been delivered, of course, now. As expected, free cash flow before M&A is significantly up and positive with a year-on-year increase of EUR 1.9 billion, resulting in a EUR 1.6 billion free cash flow before M&A for Q4. Let me now walk you through each of our business segments and briefly highlight some major developments regarding EBIT adjusted in Q4.
Overall, our group earnings in Q4 included improved contribution from Automotive Technology and the automotive components-related business, also on the back of higher call-offs from OEM. On the flip side, Materials Services came in with a negative EUR 104 million in EBIT adjusted. Year-on-year, EUR 309 million lower, given effects from a pronounced price correction, including a negative one-timer from inventory valuation of roughly EUR 100 million, just in Q4. Industrial Components reported an EBIT adjusted of EUR 64 million, a slight increase of EUR 8 million year-on-year. Bearings developed flattish, whereas Forged Technologies benefited from increases in volumes as well as cost passed on to customers. Automotive Technology with EUR 61 million, significantly higher year-on-year by EUR 32 million, mainly due to catch-up effects in auto production, especially in China, driving higher volume. Additionally, price and efficiency measures effectively tackled cost increases.
Steel Europe generated an EBIT adjusted of EUR 221 million with a plus of EUR 192 million, significantly higher year-on-year, mainly due to longer-term contract prices. This, of course, was partly offset by higher costs, particularly on the energy and raw material side. Marine Systems came in with EUR 20 million in Q4. This is EUR 8 million lower year-on-year, but EUR 17 million higher quarter-on-quarter. Focus at Marine Systems is on performance improvement also by stabilizing the management of older orders in the backlog and driving the execution of the newer and higher-quality ones. Multi Tracks with -EUR 77 million in EBIT adjusted. Losses are higher year-on-year, driven by lower contribution due to sale of ASD and higher non-conformity costs at Plant Engineering. With that having said, now let's have a view on our outlook for the fiscal year 2022-2023.
However, I would like to point out, given the prevailing economic and geopolitical uncertainties, at the current time being, the operational developments cannot be reliably assessed yet. Our outlook for the upcoming fiscal year is another underlying assumption that fossil fuels, especially natural gas and other raw materials, remain available. We still expect ongoing volatile market environment, especially with regard to price levels for raw materials, energy, and other factor costs, and await a slight decline in GDP in Western markets that are of relevance to us. For our sales, we expect a significant decrease, mainly due to normalized price developments at Material Services and Steel Europe. On the earnings side, we project EBIT adjusted in the range of a mid-to-high EUR three-digit million figure.
This is in particular driven by the absence of dynamic price effects, which provided strong tailwinds in the prior year and are the main reason for declines at Materials Services and Steel Europe, as well as higher factor costs such as energy. Improvement in earnings, among others, we see at Automotive Technology and Multi Tracks. Of course, this is counteracting this trend. Overall, if you just consider an expected depreciation of EUR 1 billion, you can conclude a sizable EBIT adjusted figure for fiscal year 2022-2023. For free cash flow before M&A, as mentioned on the previous slide, we are striving for an increase to at least break even. This development already takes into account the planned higher investments than in the previous year, including extraordinary and mainly non-cash-out IFRS 16 effects with regard to long-term leasing liability in a low-to-mid three-digit EUR million range.
Let me shortly provide you with some granularity for our outlook for free cash flow before M&A.Coming from EBIT adjusted expectations of a mid to high three-digit million range, we plan with higher investment year- on- year, mainly related to steel strategy 2030 , but also the green transformation. In addition, and as mentioned before, extraordinary and again, mainly non-cash IFRS sixteen effects, particularly in connection with the long-term service contract and Material Services, which are referring to long-term leasing liabilities that will increase the value of capital spending. Investments are also planned for targeted growth initiatives in our business. Of course, release of investments will be restrictive overall and dependent on the development of the businesses on the group. Furthermore, we expect continuous and significant releases in the networking capital.
Lastly, inflows from order intake and the payment profile in the project businesses as well as further payments for restructuring will have an impact. Overall, we are aiming for an increase to at least break even in free cash flow performance, including the extraordinary IFRS 16 effects, which I was talking before. Let me conclude our presentation today with our investment highlights. We deliver today further results of our comprehensive transformation plan for our group of companies approach with execution track record, thereby having full commitment to both performance and benchmark level for each segment and sustainable free cash flow. thyssenkrupp stands for strong materials engineering expertise as well as digital competence as base for profitable growth.
At the same time, with our long-standing engineering expertise, we are an enabler of and benefiting from the global energy transition and at the same time are in a position to really move the needle when it comes to decarbonization and green transformation. As Martina pointed out earlier, we made ESG a CEO priority and an integrated part in all of our businesses. Last but not least, rewarding the trust of our shareholder is of high importance to us. Therefore, the resumption of a reliable dividend payment is the clear target. This commitment is clearly reflected in our dividend proposal of EUR 0.15 for the past fiscal year. Having said that, first of all, thank you for attention and of course, we are now happy to take your questions.
We will now begin our Q&A session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter queue. Once your name has been announced, you can ask a question. Please only ask a maximum of two questions. If your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift your handset before making your selection. One moment please for the first question.
Before we take your questions, we would like to briefly draw your attention to our Capital Market Update that will take place next week, Friday. It will be a virtual event, and it will start on 1:00 P.M. Central European Time and will take about two and a half hours. The registration is still open, and we really encourage you to register, and we look very much forward to seeing you there next Friday. Well, at least virtually. Now, I would like to hand over back to the operator for the first questions.
The first questions come from Bastian Synagowitz at Deutsche Bank.
Yes. Good afternoon all. Um, thanks for taking my questions. Um, my first one is, um, on free cash flow and, um, I think you're very confident on your free cash flow guidance. Um, and I guess that's also backed by the working capital release of all of the working capital, at least some which you have been building in the course of 2022. Um, I'm wondering, will we start seeing some of that working capital reduction already coming through in the course of the first and the second quarter, or will that, effect be more back-end loaded like it usually has been in most of your business years? And, um, I'm also wondering is your guidance on that front sufficiently robust also in a scenario where iron, oil, and coal prices may potentially continue to rebound? That is my first question.
Yeah, I think I'm going to take this question here. As you said in your question, the normal development in our business. If you look at the whole fiscal year, of course, we are expecting a release in working capital overall. You know our normal seasonal patterns and you know that in our first quarter we see lower volumes, but of course, we also see some kind of restocking to be able to deliver higher demands with coming through the year in Q2 and Q3. We will see of course, as we also indicated in our Q1 guidance here, we will see not this development already in the first quarter, but it's starting then with the second quarter.
If you say how robust is our guidance, I mean, as we said, so, you know, at the moment we can only make adjustments.
There seems to be a small technical difficulty. We go into a quick break and come back to you when everything is fixed.
We are back after a small technical difficulty. Thanks for your patience. We're back in the Q&A session, starting with Bastian Synagowitz. I think we cut off in the answer to your questions.
Yeah, that's right. I think we left one part open.
Yeah, which one is open? I don't know where to get on what.
No problems. Actually the one on I think the robustness of this working capital component in your free cash flow guidance. In a scenario where iron ore and coal prices are rebounding, that was the open part of the question.
Also of course.
There seem to again be issues in the conference room. Okay. I'm sorry for the inconvenience. It seems like we have not found the problem yet. We will go back to a break and come back to you with your answers.
We are back to the Q&A session. Sorry for the inconveniences and I'm back to answer your questions.
Mr. Synagowitz, I don't know what you got from the answering of the question.
Not much yet.
Not much yet. As I said before, the robustness of our free cash flow guidance is, you know, as Martina said, we defined several measures to react against potential issues which could arise from further increases of raw materials. This has something to do with, of course, raw material management. This has something to do with workloads. This has something to do with CapEx and things like this. We are able and we are ready to react. This is the only thing I can say. You know, that we are quite willing to deliver.
Okay, thanks. My second question is actually also on the CapEx part of your guidance. I guess you clearly state some flexibility with your approach of managing the budget basically as the year develops pretty much in line of what you have been doing this year as well. Could you still be a little bit more precise and give us the actual number you're aiming to spend and what you see as your base case scenario?
I mean, what we were telling is that we are doing more than the last fiscal year. Right? The last fiscal year was EUR 1.4 something, including a portion of IFRS of roughly EUR 100. It's EUR 1.3. In our base case scenario, which excludes the IFRS number this year, it would be a mid to high three-digit number. Yeah. Of course our original plan is to invest, let's say some percentage more, let's say 20% more, something like this.
I said.
As we said before, we are definitely looking what's going on over this year and we'll react, and we'll approve accordingly.
Um, apologies, I did not understand, uh, what you wanted to tell us. So basically the 1.4 base load you did last year before IFRS, um, that will go up by 20% and then the IFRS part will go up as well. Is that what you're saying?
Yes. In the last fiscal year, the IFRS part was EUR 100.
Mm-hmm.
In this fiscal year, because of one special service contract we have with Materials Services, you know, this IFRS is something which is looking for, you know, that a long-term lease liability in IFRS 16 says that you have to consider it a net debt. This is the reason why in our, let's say, in our guidelines, it goes into the cash flow relevant. Therefore, in the current fiscal year, this IFRS effect is higher than the previous year. If you exclude all the effects from the CapEx we showed, then it could be 20% higher, something like this. It's also including some CapEx also for reinvestments for in quarter.
Okay, perfect. Thank you.
Mr. Synagowitz, Martina Merz speaking. Can you hear me?
I can hear you well, yeah.
I allow myself, I hope you agree, to add a perspective beyond the view on the already ongoing fiscal year. What we try to describe in today's presentation is that one aspect of an improving free cash flow in an intensifying competition is pricing power. Pricing power has a component which is described and determined by relative market position. The strengthening of our technical capabilities in our operations and with the product offerings and the coverage of market is also increasing and improving our strategic resilience. As mentioned, I think there is an aspect which should not be overseen.
While, as Klaus described, I would say, while we keep our powder dry, we of course at the same time prepare, and this is embedded in the investment as described, but it's also embedded in the product development, technology development, and the portfolio moves to step-by-step improve our relative market position in order to drive pricing power as said at the beginning. This will not pay off short term, but we see already a strengthening in the relative market positioning in early performance indicators, and I think it's visible already in the perception of thyssenkrupp in the market becoming more relevant for green transformation.
Okay, thanks so much. Very clear.
It was not your question, but allow myself to think beyond one year. Thank you.
Yeah. No, absolutely. I think that makes sense. Obviously, if those are investments you want to take, you better take them now than later.
Yeah.
Yeah, I'll jump back into the queue then to make some room for the others first.
Exactly. We have to think in resilience, in a longer term and just next year.
Thank you very much, Martina Merz. Operator, please take over for the next one in the queue.
The next question has come from Jason Fairclough at the Bank of America.
Yep, good afternoon, everybody, and thanks for the access. Just a couple questions. First one is following up on working capital. We've released EUR 1 billion and a half so far. Klaus, I think we've spoken about this previously. You know, it feels like there should be about another EUR 1 billion and a half at least of surplus working capital in the business. Half your market cap still to come out in terms of surplus working capital. Just wondering what your thoughts are on a number like that. Then secondly, just on inventory. We've seen some of your European steel peers taking write-downs on the carrying value of steel inventory in their steel business. Is that a risk for you?
Yeah. To the first question, yeah, your question was that there should be EUR 1.6 billion potential for working capital. I don't want to be that precise, but I would not contradict so much of this number here. I can follow what you're telling. We are coming out a bit in a different number, but I would say I understand what you're saying, and you're not totally wrong. Regarding the inventory, the valuation in the inventory, if you look at our steel business, we don't see a risk here. Yeah. To be very clear, I mean, we went through this in our year-end procedures here in the steel business, in the Materials business.
I think you wrote this, that we had in the Q4 a lower cost of market issue in the inventories of roughly EUR 100 million, which is already digested in the numbers. We do not, at the moment, see further risks for the ongoing quarters to come.
Okay. Thank you very much.
The next questions come from Alain Gabriel at Morgan Stanley.
Yes. Good afternoon, everyone. I have two questions. My first question is a follow-up on Jason and Bastian's questions on working capital. Given that none of your peers is able to guide one quarter ahead, what makes you confident in almost EUR half a billion working capital release that you are forecasting for the next 12 months, I would say? That's my first question.
Yeah. It's not only about working capital release. I think we did not really give a number on how much working capital we are going to release. We just gave you an indication of the free cash flow development. Of course, it also consists of a working capital release. I mean, we are, of course, kind of look at the situation, what the volume is going, what kind of inventory movements we have. As I said before, of course, it is difficult because the visibility goes to January, February and March and to look further.
We looked at it quite clearly, and, of course, we looked at it also as, let's say from our point, different scenarios, and this is the picture we are coming out, so we are quite confident that this will be the most likely outcome. As I said before, if there would be negative effects or more negative effects, we are able to have countermeasures to do something.
Okay.
Yeah.
Thank you. That's my first question. My second question is around your Q1 adjusted EBIT guidance of approximately EUR 160 million or annualized figure of EUR 640 million. What are the moving parts or building blocks that would get you from this EUR 640 million towards the upper end of your full year guidance, which is where consensus at the moment? Are you baking in any improvement in the macro environment in the second half of the fiscal year?
I don't know whether I really got your question right. For the first quarter, we guided a more, let's say.
Flattish
... flattish amount, and then you were asking how is it coming and what has to happen if we had to come to the development of our, of our three digits, uh, number. So I mean, what we are seeing is that, I mean, it's very clear that if you look at our Materials business in Europe and Material Service, we see compared to the last 50 year because of prices of, uh, a lower EBIT, they are dynamic. This is very clear. This is something you can also see in our guidance here. And this is in a way, um, counter the counter effect is that we see better results in Automotive Technologies and also in Multi Tracks business.
These are the main moving parts here in this area. Yeah, these are the most ones. Anything to add from you?
Thank you very much.
Thank you.
The next question is coming from Tom Zhang at Barclays.
Yes. Afternoon. Thanks very much for taking our questions. The first one, just on Materials Services again. You mentioned it's EUR 100 million of inventory write-downs in Q4. Would you be able to provide the same number for the full fiscal year, so including sort of the inventory gains from Q1-Q3?
You know that these gains.
Yeah.
We are not providing for doing something in the balance sheet. This is very clear. Only with the market is going in the other direction, then we have to do something in the balance sheet. Of course we have no negative effect. This is very clear.
Yes. Sorry. I mean the windfall gains versus windfall losses.
Yeah, yeah.
You're saying windfall losses -EUR 100, right?
We, you know, don't comment on the windfall gains here. I mean, that's, you know. No, we don't comment on the windfall gains. We have not gave information on that.
Okay.
What you said in the past is that if you would assume a normalized margin of.
Yeah.
2%-3%, yeah. Yeah. Of course, if you would assume a normalized margin as I said, then you can make your own calculation. This is truly what you already did so far.
Okay, perfect. Thank you. The second question, just on the pensions. It's come in slightly lower versus Q3 given slightly higher discount rates. I'm just interested because one of your German conglomerate peers today has also given full year results, and they've actually raised their pension obligations because of much higher inflation expectations. I know of course in the background you also have IG Metall negotiations ongoing. I mean, how do you see the risks of pensions moving back up in the next few quarters, or do you think your accounting is already sort of sufficiently conservative?
I mean, since the accounting of this is not necessarily only done by us but by the auditor, we are pretty much sure that our accounting for this is quite proper and, of course, the right way to do. Interest are moving the value of the liability and this is what you can see in the balance sheet.
You would not expect higher pension liabilities to be much of a risk going forward or TBC?
No. Only if interest rates are going down again, then we would see higher numbers. At the moment not.
Okay. Understood. Thank you.
The next question is coming from Christian Obst at Baader Bank.
Yes. Good afternoon. I have two questions also. One, in the end you have the EUR 3.7 billion net cash position, and you're guiding for a break-even free cash flow at least in a difficult times this business year. When it then comes to some kind of normal net debt ratio, you have funds available of between EUR 5 billion and EUR 6 billion at least going forward. First question is how to use these funds going forward. It seems that you can going forward invest or finance your investments out of the operating cash flow as such. How would you go get back more of your money to the shareholders going forward?
Because in the end it makes more sense to run a long years with such a positive net cash position, right?
You're talking about funds, you mean liquidity?
Yeah.
Good. Yeah. I mean, if you look at our debt structure, you know that we have, of course we have debt more than EUR 3 billion, which we at one point of time had to pay back. This is clear. This is also need liquidity. This is also clear. You know, in this kind of uncertain time, we are quite happy to have this security on the balance sheet, this liquidity. If you are saying what is regarding the dividend to pay it out, you know, I think gave a good decision here to start with dividend payment.
Of course, we are clearly looking forward to do this on a more reliable basis, but at the end of the day, it is determined by the operational capability to do this year- by -year. Of course, this is also something to do with the free cash flow performance we have here.
Of course I heard you.
This year- by -year. Yeah.
Of course I heard you. Sorry, in the end, you are saying that the restructuring is more or less over and you are aiming for a break-even free cash flow at times when things are quite tough going forward in next business year. This means in some kind of a normalized world, whatever that means, going forward, you should reach a positive free cash flow.
Yeah.
If this is the case, then you will not decrease your net debt position currently, but increase it going forward. It could make sense to make additional plans with how to use these funds.
Yes, of course. I mean, if it come to the situation as to the point of time where we see that the overall economic environment do not have that much risk, and we are clearly not done, we will never be done, that we can really prove that we are able to show a reliable positive cash flow. Of course, we have to look at our balance sheet and our financial position. You know, there are several things which could be done. I think we both also discussed some things we could do with the pensions and other things we could do. This is, at the moment, not our first priority.
We definitely have our ideas and we'll come to some kind of decision if we go more into a more normal phase of environment. It is clear.
Now, what is the-
We will not leave it as it is.
Okay. What is your current position on share buyback?
I mean, this is something I cannot exclude to do something like this. At the moment we are not discussing it.
Okay. The next question is concerning with nucera. You are pointing. Okay, I can understand that the current capital market situation, which is difficult. Nevertheless, can you give some kind of a framework? What are your KPIs when you are going to an IPO? Is that a certain value? Is that a certain time frame? Is that a certain KPI from order intake and demand for your product?
Mm-hmm.
What is the main KPI? Where are you looking at?
First of all, if you look at KPI, like order intake or something, you know that we considered an earlier IPO in earlier times in this fiscal year. Since then, the situation with order intake improved a lot. We were IPO ready some months ago, and we are IPO ready from the performance of the business anyway at the moment. This is very clear. It's the situation. I think the assets improved into a very positive way. The assets in itself, the situation improved, first of all.
The second is, we do not have such a time pressure because the financing of the development of the business with, for the moment or for the next couple of years, let's say, this way, we do not necessarily need this money to finance the growth of this business. Therefore, I mean, we clearly look at what kind of value crystallization is able to reach in a potential IPO. This is something we look at it.
Just one remark on that. Of course, but in the end, you also don't need that money so far. If you would place a stake of 10%-15%, you don't need that money so far. We discussed that earlier. It could be some kind of a motivation for the people within nucera saying, "Okay, we are now IPO," then some people of the top management, they have their stakes maybe in that IPO. It could be a motivation for the people there.
You are clearly right and the, and the team is highly motivated to do so. But we as a shareholder have also something to, let's say to consider what kind of argument is now higher. But it is very clear. This, this company, our first priority is to IPO this company, and time will bring, um, the right time.
Okay. Good luck. Thank you very much.
Yes, thank you.
As a reminder, if you have a question for our speakers, please dial zero one to enter the queue. The next person is coming from Rochus Brauneiser at Kepler Cheuvreux.
Yes. Hi, good afternoon, and thanks for taking my questions. Yeah, a few left from my side. One is kind of a follow-up on this remark on the dividend. What I'd like to understand is what we shall read into this dividend resumption of the EUR 0.15. Is this now already the time where we should think this is now continuing, even though there is still uncertainty whether you are creating a positive net income this year? Would you be ready to pay that from substance? You have it. If necessary, if the economic headwinds will be greater than anticipated. That would be my first question.
I mean, as we said also earlier today in some other occasions too, we think that this EUR 0.15 we are now proposing is a good number and very balanced number. We increased our net financial position, we increased our equity, we increased our earnings. Which is of course relevant, you know, that not the IFRS result for the group is relevant, but also the result of the TKAG in the local balance sheet. Here we got also a big amount which can be used for distribution, yeah, for dividend. Therefore it is clearly the right time to do so.
If you're telling is this the beginning of a reliable dividend payment, we always said we want to do it, but we are also very clear. If we do not have the room to do so, we won't do so. You're saying are we going to pay dividends if we have against our values or our against? You said it. If we could not allow for it, if we would do it and destroy value, no, most likely we would not do so. We have to be able to do so. This is something we are going to analyze every year. Therefore, I cannot tell you whether we are going to do this next year again.
I think the decision that we do this this year also reflects that the likelihood to do so, we think is going to be higher and higher.
Right. It's also a reflection of our commitment that we have given, yeah. That we want to get back to being going forward a dividend payer, and that we want to make the dividend a sizable part of the investment case in thyssenkrupp. That we want to return, of course, money to shareholders. With all the progress that we described, we believe that it's now the right time to show this commitment, and of course, with more improvements going forward, this will also be reflected in our decisions.
Okay. That's crystal clear. The second question is looking at your stake in TK Elevator. I think there's an impairment again on your stake. Can you help us to understand the financing of this asset? We know it's a levered vehicle because it's private equity financed. Is the financing structure on a fixed rate or shall we consider there's anything popping up as a risk factor in an environment where interest rates are going up?
Well, of course, we are not commenting too much on the funding structure of this company. You know that we have shares in this company. We are not going to disclose, by the way, the value of the shares or how much our share is. You know that the impairments we see here is, you know, an increase in interest rates is increasing the capital output, and then discounting makes the value lower. This obviously is the main reason why we see this impairment here. Unfortunately, even if I would, I cannot disclose more information about it.
Right. Fully understood. Portfolio changes. I think you reflect it again as a lever and driver in the transformation process. Specifically, how shall we think about the concrete plan or possibility to get rid of some of the non-core assets within, let's say, the next 12 or 18 months? What is on the cards in a more concrete way? Maybe also on an M&A basis like NSK in Japan. Any update would be very interesting.
Yeah. Thank you. Martina speaking. Thanks for the question. I mean, the headline remains the same for the short and midterm, let me say, portfolio decisions. Currently, uncertainty is high and visibility low. In such a market environment, of course, as we mentioned regarding a possible steel independence, it's the same on all other portfolio developments. We have thoroughly thought through what might generate value in our portfolio and where we are and can even become a better owner to the business.
You know that we have defined a group of businesses where we clearly mentioned that we do not consider ourselves being the best owner, and those businesses are still part of the Multi Tracks portfolio, and we have not changed our opinion regarding that group of businesses. We are preparing this transaction once it's promising that we can execute on them because everything else would destroy value. We maintain productivity and quality and supply to our customers on a good level in order to improve the value, the intrinsic value of these businesses. However, we have not changed our view on the portfolio development and streamlining for good.
Okay. Very clear.
Once it's becoming possible to execute, we then will start for these businesses an official process. You know what I mean? There is a difference between a pre-sounding and an official process. Such official process would then be promising that we can execute it to a timing. Before that, we would not question the performance of the business and our responsibility to lead and drive performance as long as we are the owner of the business. The other question is, of course, I think the question regarding our possible partnership agreements with NSK in Japan, that follows more or less same principle. We are still in talks.
Both companies, let's say, are depending on the automotive industry. We still see the strategic rationale being valid. We are not questioning the approach, and we are still working towards an agreement. You know, we are all professionals in this call. We know that things can happen. For this point in time, we have no reason to question the strategic rationale of such partnership.
Okay. Very good.
Is it okay?
Maybe, yeah. No. Perfect. Yeah. Fully understand. Thank you very much.
Thank you, Rochus.
The next questions come from Dominic O'Kane at JP Morgan.
Hello. I have two questions, but they're interlinked. I wonder if you could help us on the bridge for Steel Europe in 2023 in terms of some of the, maybe the macroeconomic assumptions that you're embedding into your guidance. Obviously coming out of Q4 from EUR 221 million EBIT to a guidance that's in the mid-single digits. I wonder if you could just maybe give us some clarity on how you're thinking about maybe H1 versus H2. The second part of the question, it relates to where we are in terms of energy pricing. With current steel prices and energy prices, are you expecting further capacity curtailment through your business in 2023?
Yeah. The first question, I think, was give us more guidance on the guidance. You know that, I think what we see now is that our sales pattern at the moment is comparatively quite okay because, let's say, we have this long-term contract. The next relevant date will be the first of January, where we do negotiate a quite central portion for the next coming longer terms. Too early to say something, but of course it is very crucial to even in this price environment we are in here, to reflect on the factor cost and energy cost we see here. I think I cannot go more into detail.
Of course, we have our assumptions here, and of course we know how these things come together. At the moment, in this current, let's say, quarter of the fiscal year, of course, as expected and as you know, our price base is somewhat some kind of quite fixed. During the year, of course, your question regarding this capacity, I think you are referring to some of our competitors already shut down the blast, not a blast furnace, no, to be clear, not a blast furnace, the electric arc furnace, some of them did.
This is not something we are going to do because we can reduce our blast furnace capacity to a certain extent, and therefore we can also breathe with the capacity. At the moment, of course, you know that it is a typical time of the year where the volumes are not so high. Of course you can make some assumptions what is going to be in the next calendar year. We have our opinion on this.
It's fair to say that if we consider energy prices, if we consider our expecting prices we to the customers, and if we consider also the volumes we see in the rest of the year, we will come to that what we guided to you. To be honest, I have to excuse you. I cannot be more precise on it at this point, at this time. Of course, volumes will not be that high as we could do. This is also very clear.
Yeah. Okay. Thank you.
Right. Operator, please take over for the next one in the line, if there is.
Yeah, there is one more. Again, from Rochus Brauneiser at Kepler Cheuvreux.
Yeah. Please go ahead.
Right. Thanks for taking the call. Maybe on your sales guidance. I think you guided for a decrease. You said something about low-digit. Maybe you can put it in a bit of a more narrow range. Shall we think in a dimension of more like a 5% decrease, or is it more like a 10% decrease? In this regard, where shall we think about the greater growth opportunities? Is it more on the A.T. side or is it more on the Marine side in terms of year-over-year growth?
If you look at the sales development, I think we guided the reduction, a significant reduction. First of all, we have to consider that in the last year we also had some divestment, which is something we have to consider in the lower sales number. The other thing is, if you would exclude this, would compare apples to apples, it only has something to do with the price development on the Steel and the Materials business. We do not consider lower sales in the other business to be very key. Therefore, it's not a two-digit number reduction we see. I think this should be the one.
I mean, as you can see in the guidance, this will be a difficult year. If you look at growth potential, we think that our automotive business will do more business, this is clear. We also see in the Bearings business that there will be some dynamics. In the Marine business, I think order intake is going to be at a very proper and comfortable volume. The turning this into sales will take time. This is not something we definitely see too much in this year. It's going to increase, but the big amount of the roughly EUR 40 billion order in hand we have, we will see in the years to come. Something for that.
Mm-hmm. Okay. Very good. Finally on HKM, I think we know for quite some time that Vallourec has, you know, signaled interest to exit. How shall we think about the timeline until this shareholder structure is being reorganized and until when you plan to take a decision on how to decarbonize that asset?
I mean, this asset, you know, that there are three shareholders. You're right regarding this Vallourec. There are contracts. There are contracts every shareholder has to go through. If you are going to say, we're going to quit this contract, there are some consequences on the timeline I think. I'm not going to comment on what the shareholders now are going to do with this situation, because one shareholder is tkSE(uncertain), the other is Salzgitter and the other is Vallourec. Therefore, I cannot comment on this. There will be at one point of time a decision, but I cannot tell you when. The same is regarding the decarbonization. It's something these three shareholders have to do.
And, uh, they are in talks, but, um, I cannot give you information about it because it's, uh, not relevant. Not only relevant for us.
Right. No, fully understand that. Thanks for clarifying that.
Yeah.
Thank you. Operator, I think there are no further people in the line. Is that true?
Exactly. There are no further questions.
Okay. Thank you. We would like to conclude the conference call and also, of course, thank you for the participation and your questions. As always, if you need more information, the I.R. team is available for you. Please keep in mind that next week, Friday, there is our Capital Market Update for which you can still register, and we would very much like to continue our dialogue also there with you. Thank you. Goodbye, and have a nice day.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded.