Dear ladies and gentlemen, welcome to the Webcast of thyssenkrupp AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties 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.
Thank you very much, operator. Hello, and welcome for this conference call today on our Q1 numbers. Also on behalf of the entire team, I would like to wish you an interesting call. Of course, I said already welcome you in our call today. We are sorry for the delay. There were some technical issues. I would like to thank you also for your patience.
The documents for this call have already been released this morning at 7:00 A.M. and are available on the IR section on our website. Before I hand over to Klaus Keysberg, who will lead you through the presentation, I would like already now ask you for the Q&A session only to ask two questions at a time in order to make sure that all the participants who want to ask questions have the opportunity also to ask their questions. With that, I would like to hand over to Klaus for the presentation.
Thank you very much. A warm welcome, of course, also from my side to today's conference call on our Q1 figures. Well, let us briefly take a look at the highlights of what we have accomplished during the first quarter of our fiscal year 2021. First of all, I'm very glad to announce that our start into the new fiscal year went better than we anticipated at the time we gave our forecast in November last year. Across all segments, order intake has grown year-on-year, with the exception of Materials Services.
Demand, in particular from our auto-related customer groups, has developed extraordinarily dynamically across all regions. Consequently, we recorded higher sales at Industrial Components, Automotive Technologies, and Steel Europe, and we were able to generate a positive EBIT adjusted already in Q1.
The turnaround was also supported by the consequent implementation of ongoing management initiatives. This is very important to mention, addressing the bottom and top-line levers that Martina and I introduced to you already in our conference call in November last year. In this context, each segment contributed positively to the group EBIT adjusted of EUR 78 million, with MT being the sole exception.
We recorded a positive free cash flow before M&A of EUR 32 million, with positive business cash flow contributions from all segments, but Steel Europe and Marine Systems. Year-over-year improvement at all segments except Marine Systems. This is the first positive number in years, and it obviously strengthens our net cash balance of EUR 5.1 billion.
Clearly, major contributors to this result are our stringent control of cash and net working capital, as well as last year's termination of the year-end net working capital measures preventing a swing back effect we got used to see in the last couple of years, but not this year. Besides, we have progressed with our portfolio transformation regarding Steel Europe.
We are conducting an in-depth value assessment of all major strategic options. You know these options. This is the sale option and the standalone option, and potentially also a spin-off option. Anticipate to conclude a landmark decision in March this year. In terms of Multi Tracks, we have terminated our attempts to find a buyer for Heavy Plate and thus initiated the closure with envisaged completion until the end of this year.
Moreover, the due diligence phase for mining has been launched, for which we have received an offer from FLSmidth , which we also got to read in the media. Last but not least, we have decided to hold the M&A process for our chemical plants business since we witnessed encouraging developments in the hydrogen production product pipeline and have secured a major engineering contract from Hydro-Québec, Canadian, confirming our conviction that we are very well-positioned for the green hydrogen market that is about to take off now.
Based on our better-than-anticipated performance in Q1, we are raising our fiscal year outlook and now forecast that EBIT adjusted will improve significantly towards almost breakeven, with all segments improving and all segments delivering a positive contribution except Multi Tracks.
In addition, we raised our free cash flow before M&A forecast and now expect it to improve more strongly and move towards the negative EUR 1 billion figure. I will touch on this again later on. Moving on to the next slide, we can see the impact of the aforementioned developments on our key financials. Spurred by a strong recovery in the automotive sector and the segment's continued efforts to restructure while bringing their value levers into effect, we were able to improve our EBIT adjusted year-on-year by more than EUR 260 million.
In particular, our segments Automotive Technologies, Industrial Components, and Steel Europe took advantage of the demand upswing in auto and truck-related industries, whereby Automotive Technology was also able to gain market shares thanks to new products for chassis applications and the production ramp-up. Simultaneously, we further reduced our headcount by more than 5,500 FTEs across all segments year-on-year in total. We have reduced within our defined restructuring programs, which we communicated last year, 560 FTEs in Q1.
That sums up to a total of 4,200 FTEs in our current target of a reduction by 11,000 FTEs. Repeated again, 4,200 reduction of FTEs within our communicated restructuring programs and in total 5,500 FTEs. One important thing is really that, of course, if you compare our previous guidance to the one we give out now, is of course, we see backwind from market.
If you compare our, let's say, performance from the Q1 of this fiscal year with the Q1 of the previous fiscal year, you really have to take into account that our performance measures really got into impact. If you see at the sales development, our sales development is 4% below previous sales of the Q1 of the previous fiscal year, and with this, we were, in spite of that, able to increase our EBIT by EUR 260 million. This shows that the measures got into place.
In line with higher operational earnings and the lack of the Q1 swing back effect, the free cash flow before M&A has risen year on year by more than EUR 2.4 billion. In addition to the performance turnaround and tight net working capital manage, cash flow in Q1 also benefited from earlier customer payments.
Inventory levels are not yet fully aligned with the faster than anticipated market dynamics, requiring further build-up in Q2. Our strong net cash position of EUR 5.1 billion remained nearly unchanged vis-a-vis Q4, in line with a slightly positive free cash flow. Let's jointly take a look at our operational performance in more detail. As evidenced by the figures, quarter-on-quarter, all segments improved significantly apart from Marine Systems.
Year-on-year, nearly all segments have achieved an EBIT adjusted improvement, with Multi Tracks being the only real exception since Materials Services was only a few million lower. Materials Services did not yet benefit from higher materials prices so far, but will do so in Q2. Despite stable shipments in Q1, the business witnesses an unfavorable product mix with lower stainless steel prices and a decline in the aerospace industry.
The effect from corresponding sales decline on the bottom line could be strongly mitigated, working intensively on achieving further cost reductions and enhancing its competitiveness by increasing the efficiency of its distribution network via the closure of logistics sites and branches in Germany, France, and the U.K., and streamlining its headquarters with the Project Switch.
Moving on to Industrial Components, we see a significant improvement with EBIT adjusted margins, which comes to the level of more than 16% in total, primarily due to the sales growth of bearings, where strong demand from renewable energy applications, wind turbines, was further reinforced by the pre-buying from customers in China, since government incentives expired at the end of 2020 and further supported by Forged Technologies, where the demand recovery for auto and truck components increased.
The majority of the improvement came from higher personal productivity as well as cost control in admin and purchasing and led to a really pleasing margin for EBIT adjusted. Automotive Technology recorded an improvement year-on-year after a trough in Q4, fueled by a higher production efficiency also on the back of higher capacity utilization and shorter cycle times, a more profitable order structure and further restructuring efforts, as well as lower non-conformance costs.
Lower depreciations following the recognition of impairments in last fiscal year had an effect on our results, but this was a lower one. It was a very low two-digit one in the quarter. EBIT adjusted margin took a really nice jump to a direction which, from our point of view, is all-time high one so far.
Likewise, Steel Europe's EBIT adjusted has improved sharply, benefiting from 10% higher shipments and enhanced product mix with a higher share of auto, improved utilization rates and, of course, initial effects from the ongoing restructuring with a progressive workforce reduction as well also here in this case, as lower write-downs due to the asset impairment in the last fiscal year. In the case of Marine Systems, performance initiatives gaining traction and stabilized margins in the backlog as well as for new orders where measures to improve commercial project executions are taking effect.
Finally, at Multi Tracks, we see a very heterogeneous picture across all companies given the composition of the segment. Year on year, EBIT adjusted was more negative due to Plant Technology and Stainless. However, quarter-on-quarter, the business strongly reduced its losses on the back of management initiatives or restructuring taking effect.
As initially mentioned, we are raising our fiscal year forecast due to the better than anticipated performance in Q1. Let's keep in mind, though, that the visibility for the fiscal year second half year is limited and might be affected by the sustainability of the market trend, particularly the global automotive market, which will also be influenced by the further progression of the coronavirus pandemic and, of course, other factors.
Against this background, we feel that it is appropriate to stay cautious despite are expected to grow in the high single-digit percentage range, but remain clearly below the levels before the pandemic. Regarding EBIT adjusted, we forecast a significant improvement towards break-even level, mainly as a result of the improved demand in our materials and automotive components business, and, of course, to some extent, dependent on the further development of raw materials costs.
This improvement will be mainly due to clear structural progress in all businesses and is predicated on the development of sales. Only Multi Tracks will clearly exhibit a loss, which is expected to be in the low to mid three-digit million euro range. As a result of earnings improvements in all segments, the free cash flow before M&A is expected to improve and move towards a negative EUR 1 billion. In this context, we need to consider the investment required to set up performance and value upside of our business. If we talk about investment, we also mean restructuring.
Consequently, we will spend a low to mid three-digit million amount for restructuring and in addition, CapEx for driving competitiveness and capturing growth opportunities. To conclude, we believe that the current market trend and the continuous execution of our value levers justify rising our full year outlook.
Looking forward, our top priority is to enhance progress across the key value drivers. As a part of our portfolio transformation, we will take a landmark decision regarding Steel Europe in March 2021, and further pursue the M&A execution for our Multi Tracks business to achieve a streamlined target portfolio. At the same time, we will continue the execution for restructuring and performance initiatives, so our value levers at all businesses. Moreover, our continuous improvement focuses on achieving returns on par with our best competitors and driving cash generation.
Last but not least, thyssenkrupp aims to further build on its existing positioning, leading to a green transformation, thereby capturing attractive market opportunities, continuing its hydrogen-based steel climate strategy, and leveraging its leading position in alkaline water electrolysis. Having said this, I thank you for your attention, and of course, I'm ready to take your questions. Thank you very much.
Yeah. Thank you very much, Klaus. With that, we would like to hand over to you, operator. Before we do so, again, our remark that we would like to kindly ask you to only ask two questions at a time so that everybody has the opportunity to ask his questions. Thank you. Now, operator, please take over.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now. We've received the first question. It is from Ingo Schachel of Commerzbank. Please go ahead. Your line is now open.
Thanks for taking my questions and congratulations on returning to profits and positive cash flow so quickly. My first question would be on your hydrogen business. You've now made the decision, a commitment to develop the chemical plant business internally.
I was just wondering whether you've already made a decision, how much capital do you want to deploy in there? How much of R&D and CapEx you want to spend on this business per year going forward, and how do you ensure that the unit has enough flexibility and managerial attention to compete successfully with successful pure plays, which have independent, flexible management structures and direct capital market access, whereas I think at least for now, your unit is a business unit reporting into a rather complicated business area.
Yeah. Thank you, Mr. Schachel, for the question. Of course, as Martina Merz also said on the general assembly, we took the decision to develop the business by our own. This, of course, needs some strategical, let's say, questions to be answered. This is something we are in the process and we are going to deliver to you when we, let's say, ended up with our strategic process, which will be in May. Of course, these issues you raised are totally the right ones.
Where do we find this business in our organization? It's very clear that we cannot find this business in the organization as it is now. We will come up, of course, with another approach, and I'm going to introduce it to you at the appropriate time then.
If you talk about financing, yes, this is also a thing which we are looking at, and you know that this kind of business at the moment, everybody is talking about partnership, partnering and partnering financing and things like this. We have not come to a decision, but we are looking at all possible options. If you talk about partnering, this could be a strategic partnering, a financial partnering, but it's really too early to give you an answer to this.
We are evaluating on this, but the clear target is that we first of all look at the standalone, let's say, solution to develop this business by our own. Having said much, but the short conclusion is, we will come up latest until May with concrete actions on this.
Okay, great. I'll try to wait until May. The second question is probably also one where you will tell us to be patient until March at least, but on the European steel business, I think on the Q4 conference call, you were already asked about potential impairments, and I think at that time, you didn't really send a strong message as to whether you would be willing to incur impairments in context of a potential divestment of Steel Europe.
Now with the steel markets having rebounded very strongly, I think you reset the book value at a time when steel markets looked a lot less favorable a few months ago. At this point, would you be willing to tell us whether, let's say, the book value is any important reference point for you in this current strategic review? In other words, whether one could say that with much improved steel markets, you would not be willing to pursue a strategic path which causes an impairment for Steel Europe?
This is, of course, a question which goes a bit into the detail regarding the negotiations with a potential buyer, which is called Liberty. This is very clear. As always, and very independent from our book value, in best case, the book value is more or less on, let's say, on the market value. This is very clear.
Not so much looking at the book value, we always intend, if we are talking about divesting a business, we have to have, let's say, an enterprise value, which is in accordance with the market valuations. Not, let's say, a current one, more one over the cycle. This is, of course, where we are looking at, and nothing else to say. You understand that I cannot be more concrete about this.
Of course. Thanks very much.
Thank you. The next question is from Zach Wilkins of Exane. Please go ahead. Your line is now open.
Good afternoon. This is Seth Rosenfeld at Exane. If I can ask two questions, first on working capital, and then second, going back to some of the cost savings, please. On working capital, obviously very strong performance in fiscal Q1. Can you just touch on or provide some scale of expected investment that will be needed going into fiscal Q2 or even over the next 12 months, so we can better understand how raw materials are impacting your balance sheet and therefore your working capital, please? I'll start there.
Working capital, of course, we saw a good net working capital development in the first quarter. If you look at the dynamic of the business, you see that you normally have a seasonal trend. You know that the Q4 calendar numbers, so Q1 of our business year, is normally, if you look at the sales volumes, is a weaker one.
In this time you are normally going to restock a bit for the rest of the coming months, which are supposed to be stronger. This is something, of course, which went also in this first quarter. Business came out stronger. To be very honest, I think we have to, let's say, restock more to really fulfill the needs of the business in the future more.
We saw also some effects on the receivable sides that we got, let's say, a few payments which we did not expected. There were some effects on this case, but we think that we have to deal with a slightly higher net working capital level for the rest of the year. This is something which we are going to expect also looking at the dynamics of the business. This is more or less what we can say to net working capital. Yeah.
Okay. Thank you. If I can, a separate question, please, on self-help cost savings measures, please. Obviously, your Q1 EBIT came well above where the Street initially was, based on your prior guidance from late November. I just want to better understand how, with only about six weeks left in the quarter by the time of the guidance, results came so much higher than what was basically expected at that time.
How much of this was self-help measures that were executed quicker than expected? How much of this was cyclical? How much of this was just your own conservatism in communication? Nice to see a positive surprise, but we all know that that can swing the other way as well. Thank you.
If I got you right, you were talking about the full year guidance, because we did not guide the, really the first quarter. The question nevertheless makes sense. The guidance which we brought out in November, of course, was something we already saw the dynamic of the market, which we started already at the Q4 of the last fiscal year.
As we also said, is that we were not quite sure whether it is, let's say, a catch-up effect, which we saw in the Q1, and how much of this catch-up effect is going to be transferred in the rest of the fiscal year. This was the reason why we were cautious at that point of time. Even now, if you take into consideration the Q1 figures. What we observed there was clearly that a high dynamic and a high demand.
We clearly can say also now that some of this came out of catch-up effects from the supply chains and auto suppliers and auto producers and things like this. Speaking about the rest of the fiscal year, we still see a high demand, which is very positive, which is good, and this is something which we were not sure whether it's going to happen, I think six weeks ago. This is something we were not sure about. We see a dynamic, but the dynamic normalized a bit, so it's not as dynamic as in the Q1. Taking this into account, we have a positive mood.
Our visibility is only two months. If you then take into account potential, let's say, variables or potential risks, and you all know them, this is Corona and the lockdowns. This has something to do with semiconductors.
We can go into this in more detail. We also have, let's say, the raw material price development in iron ore and, let's say, logistic cost increases and things like this. This is something we see as a variable, and since we do not have a good visibility more than two months, we are still cautious. You can also count our actual guidance as cautious. Yes, it is so. We do not have, let's say, the reason why we should be more optimistic, because we don't have the visibility.
That's clear. Thank you very much.
Thank you. The next question is from Jason Fairclough of Bank of America. Please go ahead. Your line is now open.
Yep. Good afternoon, everybody. Thanks for the call. Look, first question from me. With the elevator sale, I think you participated in the purchase vehicle. I guess if we think about steel, would you consider a partial exit or possibly even supply vendor finance if it allowed a steel sale to go ahead for a satisfactory valuation?
Jason, we are not quite sure whether we get the later part of your question right. Could you please repeat it?
Yep, sure. Bottom line is you guys don't need the money today. You've got EUR 5 billion of cash on the balance sheet, the exit of Steel is, if you like, a strategic imperative rather than a financial one. Would you actually finance the sale of that business? In other words, would you essentially give somebody an IOU for the sale to allow the sale to happen, or would you consider a possible exit if somebody didn't have the money they needed to buy the asset?
Yeah. I see what you mean. No, this is nothing we really want to go with. If you talk about the options we are talking about is, let's say a sale option, which is Liberty. Nothing else on the table. Liberty is on the table, nothing else. The other one is the standalone within the group, or potentially, this is something we are checking, potentially, let's say, lead this into the direction of a spin-off, which all the opportunities which are coming out of this kind of business model.
If we talk about the sale of the business, as I said before, we are looking at an enterprise value, and this has to be on a market level, and everything else about the mixture of, let's say, equity and net debt and pensions and things like this has to be decided. It's nothing that we would do a financing for someone who wants to buy the asset. This is nothing we are going to intend to do.
Okay, thank you. Just a second question then, if I could. On Multi Tracks, we're talking about EUR 5 billion of turnover, roughly. How should we think about the duration of this business? Is it gone in three years?
Well, at least this is the plan. If you talk about what is in the business. In the business, of course, AST, the stainless steel mill in Italy. We want to really, let's say, progress this process so far that we could really have something tangible through this year. The same applies also to the mining business, as we said before, for instance, the mining business, way ahead we are quite advanced because we have a bid here. The cement business, this is something we already discussed also on other occasions. We were also in contact with potential buyers.
As we also said, we are not doing fire sales. If we are not happy with the conditions, then we also say, well, we step back from this one single alternative. Of course, we are looking further for the exit option here. Meanwhile, we are going to develop the business by ourselves. As you said, three years' time. Yes, this is clearly our plan to get rid of the businesses in three years' time. Yeah, this is the plan.
Sorry, just a cheeky follow-up. If it's gone in three years, at the end of one year, is it 1/3 gone or half gone? How should we think about the path?
You mean in three years, whether it's totally gone or not, but 1/3 gone?
Exactly, or even on a one-year view. Yeah.
On a one-year view. The one year is always very difficult because you know that this is difficult to say, is it in one year done or not? We should have some progress with the major assets here. On the three-year base, this is, of course, a wish. This is something I cannot promise you. This is, of course, a clear intention that in three years' time, we want to get rid of this business. Yes, clearly. Definitely yes.
Okay. Thank you very much.
Thank you. The next question is from Bastian Synagowitz of Deutsche Bank. Please go ahead. Your line is now open.
Yes. Good afternoon, gentlemen. Also two questions from my side, please. My first one is on the performance in Industrial Components and Autotech, which was highly impressive. Could you please let us know how far this performance has been really fully underlying? I think you've been quoting, obviously, some catch-up effects here. These are generally very volume-driven businesses. I would've thought this has still mostly been driven by basically a good volume hitting, maybe an improved cost base.
Also, how do you reconcile the guidance with a deceleration in the second quarter with the fact that from what we can read out of your order books, you actually still see a very decent demand here? The order book doesn't actually indicate a deceleration in the second quarter from the data you're reporting. That is my first question on the business.
If you talk about Automotive Technology, for instance, of course, if you look at the sales number from Automotive Technology and compare this in the first quarter against the previous quarter, you only see an increase of 3%. It is, of course, this turnover of EUR 1.2 billion is the one which is far higher than we anticipated in our original planning, but it is only 3% higher than in the previous year. What we also see is, of course, that we see really efficiency gains in our plants.
We see, let's say, less failure costs. We see better overall equipment efficiencies and, of course, we see better product ratios and product portfolio, sorry. This is something which we clearly see an underlying improvement in the efficiency of the plant. If you talk about the volumes, well, the volumes is very difficult in Automotive Technology.
As a thumb rule, we said in 2019/2020, sales went down 20%, and in 2020/2021 it will go up 10%. This is more or less a thumb rule. That means that in 2021, we will be still below the pre-corona level. This is at least what we anticipate and what we incorporated in our guidance also. The Q1 was a bit better than pre-corona. What we see is that the dynamic, in the Q2 is not bad, but it's more normalized than in the Q1.
We also see effects from the semiconductor shortage, and we also see some effects on the logistics. If you talk to our customers, and this is what you can also read in the media, things are going to catch up in the middle of the year. If it's okay, then we will see higher levels, volumes. We don't have evidence of this, and that's the reason why we stick to our cautious, let's say, view on this. Does it help a bit?
Yeah.
Yeah. [crosstalk]
Sorry. Go ahead.
The Bearings and Forged Technologies business. The Bearings business we saw, also during the last fiscal year, a big increase in volumes and in sales numbers, which is definitely also leading to a huge EBIT increase. This is something which is clearly the case. If you look at the Forged Technologies business, here's also the case. You can see this also by, if you compare the numbers in the Forged Technologies business, we only had not that much sales increase, only a few percent, 2% sales increase, but the EBIT increased a lot.
This is why it is so, because performance measures, there were big performance measures which came into effect. This is something if you compare the numbers of employees of the Q1 fiscal year to the previous one, I think they reduced by roughly 700 to 800 people.
If you go one year further ahead, then it's more than 2,500. This is really effective, what we are seeing here, and you really see that the cost basis is going to be increased a lot. This is the major driver with Forged Technologies. Bearings, it says Forged Technologies is restructuring. Automotive Technology is against previous quarter. It's more restructuring and efficiency. Also Automotive Technology reduced headcounts by more than 850 people against the previous year. This is something which now you can see in the numbers.
That's really impressive, I've got to say. Just a very quick follow-up on this one, just in terms of the margins we see. We've had 11% in Automotive, we've had 16% in IC. You never have been reporting these businesses for a long time over the cycle, and I would say most people probably use peak margins, which are literally a fraction of what you did in Q1 already. I think you're still due to communicate your actual aspirational margin targets for these units. Are these margins a directional indication of what you are aiming for in these businesses?
To be very honest, the 16% is of course for the whole IC business and Automotive Controls we see a 9%. Nevertheless, it doesn't matter, 9%, 11%, it's good enough. This is of course something, you have to take into account the special product mix. By Automotive Technology, it depends very much in which cars you are now in good volumes in this quarter. This is not necessarily this, the 9%, which you can really count for the whole year. It's a good development into this year.
If you talk about the target margins, which we of course know for the business and also let's say set as targets for the businesses, this is something we are going to, let's say, also distribute to you at the appropriate time. I will not, let's say, release the margins now. This is very clear. To be honest, the Automotive Technology margin is a very good one, so it's all-time high and we are very happy with this.
Mm-hmm. Okay. Thank you. Just one more question, if I may, just on the Multi Tracks businesses, and I guess you generally quoted only limited visibility, which is obvious, in the second half of this year. I guess that applies particularly for the businesses which are contributing profits.
In Multi Tracks, I guess this is much more also of a cost-cutting game, and I guess from that point of view, maybe there should be more basically within your own control in terms of how you will be improving. What is your visibility, how that business and the current run rate will be improving in the second half of the year, given the packages of measures which you're still implementing?
Yeah. Because we have so heterogeneous business in there, this is difficult to say. If you look at the stainless steel, at the moment, the demand is not too bad. Let's say, raw material prices, especially in nickel, is quite high. This is not good for the EBIT. We think that it's going to improve during the year. This is something we think, but we don't know. This is always the case if you talk about stainless steel business.
There are also some big factors which are not in your own control. If you talk about Plant technologies, I think in the cement business and the mining business, let's say in the mining business, we are quite advanced in the divestiture process. In the cement business, we have some restructuring progress. We will improve the results during the year. Yes.
If you talk about the rest, this is springs and stabilizer business, you know that we have a restructuring program ongoing there. This is the closure of Olpe and the streamlining of Hagen, the two German plants here. This will definitely have an effect in this year. At the end of the day, this will be difficult business anyway. This is something why we also say that we are expecting here a loss in this fiscal year, too. Yeah.
You do think the run rates will improve from here basically, is what you're saying?
Yes. This is what I'm saying. Yes.
Okay. Very clear. Thanks so much.
You're welcome.
Thank you. The next question is from Tom Zhang of Credit Suisse. The line is now open. Please go ahead.
Thank you very much. It's actually Carsten from Credit Suisse. Quickly, a lot of questions were already answered. One question I have on the steel guidance. You guide quarter-over-quarter flat, which looks not too ambitious to be fair, given that your crude steel production went actually up 30% quarter-on-quarter, suggesting that the second quarter will be actually very strong with regard to volumes. Price is not really pointing to, I believe to the lower side yet.
Where is the weaker component here? Is it in the long-term contract prices, which you potentially negotiated a little too early? Just want to understand where the rather conservative guidance comes from.
Well, is it conservative guidance? Yes, it is so. It is not so much on the price side. You know that we negotiate prices in long-term contracts half a year or one year, starting at the first of January. We also have some contracts which are valid in April and some in June, this is the normal case, you know this business.
This is something which gives us not so much fear here about this. This is in a quite good development. We clearly see what is the raw material price development. We see iron ore, which is coming up over 150, which went to 170. This is something, if it stays with 170, 160, it's of course not good. For nobody it's good. This is something of course we will have, let's say, not such a nice development.
This is something you have to digest. This is one case, and the other case is regarding volumes. Yes, we are on a good way and to be also honest for the whole group, and I am not saying too much, the January started quite good. This is not the case. As I said, we only see two months, and we don't see what is going on really in the demand if you talk in April or May. If you could have the glass ball and see what is going on in May with the demand, then we could come to another conclusion. We don't see this, therefore we stay with our cautious guidance here.
Okay. Perfect. The second one is, I stay in the materials business, Materials Services. We have seen quite a bit of a earnings upgrade at Klöckner, one of your competitors here. We haven't seen that much of performance in Materials Services yet. Maybe you can shed a little bit of light why that is. Did you deplete your inventories in your fourth quarter and hence had to buy steel at comparably higher prices, which means, the inventory effect comes later with you? Why do you think you're lagging here a little bit?
Well, if you especially look to Klöckner, you have to bear in mind that Walzstahl, the raw steel portion of Klöckner is higher than the ones of Materials Services. The stainless steel portion of Materials Services is much higher than from Klöckner. This helps Klöckner in this moment. Also their footprint in the U.S. is better than from Materials Services. This is something which is in their favor at the moment.
We clearly can say that we are expecting, let's say, a better development also from volumes and prices accordingly in Q2 and following, which for the Materials Services business. You have to bear in mind that we have an aerospace business in Materials Services, which is at the moment, let's say, as you can imagine, not performing as we saw this performance one year ago. This is something which is also you have to bear in mind if you do a comparison or benchmark here.
Okay, perfect. That's fair. Thank you very much.
You're welcome.
Thank you. The next question is from Christian Georges of Société Générale. Your line is now open. Please go ahead.
Yes. Thank you very much. I'll be brief. Just you're highlighting these restructuring costs, a low three-digit million euros amount. If we look at Multi Tracks EBIT, there's about EUR 70 million difference between your EBIT adjusted and your EBIT. Are these the restructuring costs you are highlighting, and is this part of the guidance? What exactly is behind the EUR 70 million in the quarter, and are they recurring?
What you are referring to is the difference between EBIT and EBIT adjusted in the Q1. The roughly EUR 70 million. These are restructuring costs mainly related.
That's right.
This is the case. We will see more restructuring cost during the year. I think we got it a bit three-digit number. This is going to come still. Out of this total number, EUR 70, we digested in the Q1 more or less. The rest is to come. You're right.
This is the line where those restructuring costs you're guiding for, that's where they will appear, mostly for Multi Tracks and possibly some for the core businesses.
Yeah. These restructuring costs are more or less, we see some in Multi Tracks, we will see some in steel, and we will see some also in other businesses because we do restructuring in nearly every business. Yeah. Yeah, you're right.
Okay. No, it's very clear. Thank you. My second question, still on Multi Tracks. Obviously, you're looking at divesting all these businesses. Can you give us an idea of the book value of all these Multi Tracks and whether we should take that as an area where we could have a risk of an impact on your equity if you're forced to sell well below the book value?
Yeah, you might. You clearly understand that we are not going to distribute the book value now, but for instance, the mining, the cement business. We step back from the divestiture for the moment because we think that what we saw so far is not, let's say, appropriate enough. We are not doing fire sales on the one hand.
On the other hand, willing to divest the businesses. It will be, let's say, at the end of the day, we will have to see what kind of effect do we have. Do we have maybe an effect on equity or maybe an effect on cash? I will not totally, let's say, sort it out that it's not going to happen, but this is something we are not looking for. We clearly think that we have the time to do not make economic nonsense.
This is clearly our objection. On the other hand, we want to be, let's say, we clearly want to have a perspective to get rid of the business in the next two, three years, as we said before. I cannot really say what will be the effect on equity or cash at this point of time. Sorry for that.
Okay. No, it is very clear. Thank you. I'll just sneak one very small one. On hydrogen, I know you can't tell us too much yet, but is the pipeline looking for the next 12 months still relevant, or was the Canadian announcement one of, are we still a long way from more potential deals in select activity?
Well, Christian, whenever we talk with our colleagues from the green hydrogen unit, we have the impression that they are really busy. Really busy. They are telling us that their project funnel is expanding. You have seen the announcement in January for the project in Canada, which is really a nice proof that the market is starting to take off now. We are hearing that more of these announcements are planned for the remainder of the year. There's really something going on in the hydrogen business.
Okay. It's very good to know. Thank you to both.
You're welcome.
Thank you. The next question is from Rochus Brauneiser of Kepler Cheuvreux. Please go ahead. Your line is now open.
Thanks for taking the questions. Let's start first with Steel. I guess you were repeatedly stating about the landmark decision in March on Steel Europe. I guess if it would be a sale to Liberty, it would be kind of a landmark decision. If you would keep it, probably in that sense would sound less of a landmark decision to me.
What should we take as a conclusion if you would stick to the business ultimately now? Would that mean that this is a decision which will be valid for a longer term period? Now you had these strategic decisions back and forth in the business, and at some point, I guess, there needs to be more stability in the kind of direction for the business.
In this context, I'm not really sure whether I understand the point on the potential spin-off, because you're now really working hard in harvesting the synergy and extending discussions with labor about stepping up eventually the restructuring efforts. Why not harvesting these benefits on your own? The second question is, can you get a bit more specific on the kind of CapEx range you see for this year, and what are the main tickets in terms of steel CapEx you're seeing for the next two to three years?
Sorry, we were on mute. I already talked something.
Sorry for that.
Sorry, I have to explain again. Talking about your question about this landmark decision, which is supposed to come in March. You know what kind of options are on the table. This is the potential divestiture to Liberty or the standalone within the group or not within the group as a spinoff. Then you consider if you would make the decision to go ahead with a standalone decision within thyssenkrupp, you do not consider this as a landmark decision, which I understand from your point of view, but for us it is something.
You know that we have these options on the table, and we are looking what is the value creation potential for each of the options. If we look at, for instance, the divestiture option, of course, we can judge it easily.
If we look at the standalone option, we will have to have a full potential business plan, which we are working on it, and then make our decision whether it's better or worse in comparison to the options we have on the table. This is something we are clearly looking at. The spinoff is, of course, something, and we are always quite open in what kind of things we are, let's say, looking at and make a feasibility study or something like this. For us, the most important thing is really, what is the option where you can create the most value? We are very much convinced that our steel asset is the one where we can create asset.
We are very much convinced that also in the standalone case, we can create value because we really are convinced that our setup of production plants in Europe is more or less unique, and that we have, let's say, in our capability to produce, let's say, special grades and our relations to the customer. It is something. It is really something. This is something. We are very confident that we are able to do this on our own. The other thing is, of course, you always have to judge what is a potential better solution.
That's also the reason why we were talking about potential consolidation. We see some, let's say, challenges in the European steel market. Yeah. You know this overcapacity, and you know this transformation to green steel and things like this. Is it more easy to overcome this challenging?
Are there plants in the world where you can create more value if you talk, for instance, about a consolidation? This is the reason why we also look at a spinoff. This might be. We have not taken a decision really. We were very open to say that we are looking at it to make a feasibility study. What is the strategic ratio behind? The strategic ratio is, I think it's very open.
If you have a pure player at steel, this is something, and if you look at, for instance, other spinoffs which you saw in the history, you maybe get another commitment from every kind of stakeholder you see. This is something we are examining, and we will take into account at the end of the day. This is the reason why we, from our point of view, it's something like a landmark.
If we would take the decision not to divest, to make a standalone one, then you're asking, is this a decision which will be, let's say, for the next two or three, four, five years? I cannot say. This is then, of course, a decision where we clearly commit on investments and measures and on a standalone basis and go ahead with this. If on the way, in three or four years is something going to happen on a strategic basis, we will consider. For the time being, this will be then our way. I hope this is something you understand.
On the CapEx?
Yeah. The CapEx for Steel or for... [crosstalk]
I asked for the CapEx range for the current year and how much would be steel and what would be the main tickets you're seeing on the road for the next two to three years?
The CapEx for the fiscal year, you know that our depreciation is roughly EUR 1 billion. We are planning to do investment. This is not well decided. We have ideas to invest more than EUR 1.5 billion. This is something where we clearly have ideas, too. If you look, for instance, at the steel business, these are strategic investments, really, I have to say. Yeah. This has something to do with, let's say, production capacities in wind energy with bearings.
This is something to do with, let's say, supply chain solutions for Materials Services in the U.S. These are really good projects where we have clear projects behind with good profitability, which is really pushing us and enabling the businesses, these investments we have on the table.
Of course, the steel one, this is something we also said, you know that in steel we have a normal level of investment of EUR 500 million. Within the steel Strategy 2030, we are willing to invest in addition to the yearly EUR 500 million, EUR 800 million in the next six years. Will be, you can allocate this on the years now. Of course, this will also have an impact also in this year. Yeah.
Okay. Is there any landmark project on the Steel Europe in this EUR 800 million you can highlight as a particular one to boost the footprint?
Yeah. Of course, this is really one that we are totally convinced in this investment. The first investment is in Duisburg. It is, let's say, the separation of the Gießwalzanlage. I don't know the English word for this, but it is the [crosstalk]--
Continuous caster.
--the continuous caster. This is something where you really increase, let's say, the quality in the process of hot metal and then Warmband hot strip. You have to do this. With this also, it is not only an increase in quality, it is also, let's say, a bit of flexibilization of the production footprint. Now having the Gießwalzanlage, the permanent caster, if the volumes are coming, it's good, but it's a bit inflexible. You can imagine that it is totally integrated here. The other one is investment in Bochum. It's a Glühisolieranlage. It is, oof.
It's an annealing line, yeah.
An isolating line.
An insulating line, yeah. Annealing and insulating line. The one is a [Foreign language]. I don't know the English word for this, but this has something to do. You really need these ones to go into the special grades for electromobility. You really need this one to go into these grades for high-strength steel and crush-relevant steel.
You need this hot strip with a better material, better quality, and then also to make them more processing on the cold side with these aggregates I just mentioned to really go for the grades for electromobility and also high-strength steel, which we clearly see huge margin and growth potential in this area. These are the most important issues here when you talk about the strategy investment program.
Okay. No, that's very helpful. Thank you very much.
Welcome.
Thank you. The next question is from Alain Gabriel of Morgan Stanley. Your line is now open. Please go ahead.
Yes, sir. Good afternoon. I have two questions. If I may start with the first one is on the steel plates closures. Can you remind us if you anticipate any major rehabilitation costs in terms of cash outflows that are not really reflected in your guidance for restructuring for fiscal 2021? How much cash burn would you save next year once you exit plates? This is the first question.
I didn't get the second. Sorry. Can you repeat it again?
The second part of the question is how much free cash flow, how much cash burn would you save next year by just exiting plates? What would be the annual run rate of savings you would realize by exiting plates?
Yeah. The first one, to exit out of the Heavy Plate business, everything is digested in the numbers.
Yeah.
This is the first one. The second question is, my translation of the question is when will be the free cash flow positive? Let's say, is it what you're saying? Or do we see a free cash flow positive next year? Is this something what you're saying, or?
What is the negative free cash flow that you expect this year from Heavy Plate, which will disappear next year [crosstalk]--
Okay.
--once you exit?
Okay. it is, let's say, it is a lower three-digit million numbers.
Range of 1-2.
Okay. Thank you. The second question I have is basically on if you take a step back and just remove Multi Tracks from the business, remove Steel Europe from the business, what would be your cash needs for the RemainCo, basically for all the remaining businesses that you anticipate to keep, let's say, three years down the line, as you have mentioned? In terms of cash needs, I'm referring more to CapEx, to any other cash outflows in terms of taxes, financing costs, and so on, just to get a sense of what would be the break-even EBITDA for everything that you plan to keep in three years down the line.
This is a difficult question. If you talk about investments, so if we would not have Steel Europe and Multi Tracks, this would be roughly, let's say, EUR 800 million or something like this. A release of EUR 800 million in cash flow, so in investments. This is the first thing I can say. The other things, it is too quick to really say.
Other items that could be considered here, that need to be considered in the cash flow bridge are then the pensions.
Yeah.
would leave, of course, then quite some of our pension payments would go. If you consider that EUR 4 billion of our EUR 8.7 billion of pensions come from Steel, you can also then make a pro rata calculations for our annual payouts. Other items that you need to consider in the cash flow bridge, of course, interest. Probably the effect would be not so much on interest, since interest payouts in the meantime are not that high. It's about EUR 200 million in total for the year. On the tax side, it really depends on the profitability. That's too early to say currently.
Okay. Thank you.
We work and then come back to you later.
No, we can discuss it quietly.
Thank you very much. Thanks.
Welcome.
Thank you. The next question is from Luke Nelson of JP Morgan. Please go ahead. Your line is now open.
Afternoon. Thanks for taking the call. My first question's on normalizing, following up on Bastian's question a bit earlier. If I just take Auto Tech as an example, Q1's EBIT adjusted annualized well over EUR 400 million. Relative to capital employed in that division implies something above the 20%, versus the cost of capital of around 8%-9%. You can do a similar exercise with Industrial Components, earning well above cost of capital.
Maybe asking that earlier question slightly differently, is the capital employed a realistic base to think about what the mid-cycle earnings potential for these companies are? Or were input impairments taken too aggressive last year? Or conversely, are we just in a point in the cycle where these businesses are potentially over-earning? That's my first question.
It was difficult to understand. The 1st question I just checked also here is whether the impairments were too high. We did last year, we definitely do not think so. You know that these impairments are done also with a long-term view on this, and the long-term view is not, let's say, so much influenced on the, let's say, one or two years dipped from a Corona. We really take a long-term view on this.
No, we don't think that the impairment were too high on this. What you're also asking for was the, let's say, normal level of earnings for the automotive business. I just gave the answer that we will not, let's say, come to the disclosure of the, let's say, envisaged target margins. The 9% we see in the Q1 is not the one we can sustain on a continuous basis here. This number we see not on this level for the ongoing time.
Okay. I suppose second question, sort of changing tack just on following up on Steel Europe and the restructuring options. Obviously, Tata and Amador with their sort of separate sale process falling over recently. I am just wondering whether at all it has been considered in the context of the European steel landscape potentially changed over the last two to three years, whether a combination of those assets in a standalone entity would make sense or would be palatable from a regulatory or competitive point of view, and if that is something being considered.
Well, this is a good question. If you ask me personally and what will be the steel landscape in 10 years, I would say that we do not see so much players. This is definitely a market where consolidation might make sense. At the end of the day, you have to find concepts where you have a, let's say, win-win situation for all parties here. We checked it in the last couple of months, and we did not find a solution.
That's the reason why we go on this way, and I think we are prepared to do so, and we maybe are also prepared in a good way, so we do not fear the competitiveness here. What will be in five or 10 years, I cannot say to you.
Even if we are taking the land acquisition and clearly say that we stick to the strategy, and we stay to the business plan, and stay also to the investment, you never can say definitely that it's not going to be the time for consolidation afterwards. This is something which is clear.
Okay. Sorry, just one quick follow-up. Just on the Steel Europe decision, are there any sort of tax effects or anything on a deconsolidation basis that we should be aware of?
You mean the tax effects if steel is going to be deconsolidated?
Yeah. Are there any of the sort of different, the two scenarios, either a sale or a spin-off? Are there sort of any sort of one-off or exceptional... [crosstalk]
This is something we are checking. This is part of the feasibility studies. There might be some effects, but it's too early to say whether they are major or not. This is something which is definitely part of the feasibility. Yeah.
Okay. No problem. We will wait for the March update. Thanks a lot.
Okay.
Thank you. As there are no further questions, I would like to hand back to you.
Thank you very much, operator, and also thank you all outside for joining our conference call today and for the lively discussion. We would now like to conclude the call, and as always, for any further discussion, questions, information, the IR department is always available for you. Thank you very much, and we look forward to staying in touch. Bye-bye.
Bye-bye.
Ladies and gentlemen. Thank you for your attendance. This call has been concluded. You may disconnect.