Yes, ladies and gentlemen. Welcome to the webcast of Tsongkhou Beijing. BYJ. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode.
G. After the presentation, there will be an opportunity to ask questions. May I hand you over to Claus Ehrenbeck, who will lead you to this conference. Please go
ahead. Yes. Thank you very much, operator. Yes, hello, and welcome for this conference call Pay. Today, on our Q1 numbers, also on behalf of the entire team, I would like to wish you An interesting call.
And of course, I said already, welcome you in our call today. We are sorry for the delay. There were some technical issues. So I would like to thank you also for your patience. The documents for this call have already been released this morning at 7 a.
M. And are available on the IR section on our websites. Before I hand over to Claus Kuisberg, who will lead you through the presentation, I would like already now ask you for the Q and A session only to ask 2 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. And with that, I would like to hand over to Claus AG.
Yes. Thank you very much. A warm welcome 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 Q1 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 Group was developed or has developed extraordinary dynamically across all regions. Consequently, we recorded higher sales at Industrial Components Automotive Technologies in 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, which 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 EVIT adjusted of €78,000,000 with MT being the sole exception.
Furthermore, we recorded a positive free cash flow before M and A of EUR 32,000,000 with positive Business cash flow contributed from all segments, but Stereop and Marine Systems. And year on year improvement at all segments expect Marine Services. This is the first positive number in years, and it obviously strengthens our net cash balance of EUR 5,100,000,000 Clearly, major contributors to this result are our stringent control of cash and net working capital as well as last year's termination by GE. Of the year end, net working capital measures preventing a swim 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 Steelworks.
We are conducting an in-depth value assessment of all major strategic options. You know these options. This is a sale option and the stand alone option and potentially also a spin off option and anticipate to conclude a landmark Decision in March this year. In terms of Multitrack, we have terminated our attempts to find a buyer for Heavy Plates And thus initiated the closure with Envision completion until the end of this year. Moreover, due diligence phase for mining has been launched for which we have received a bond offer from Apple Smith, which you also could read in the media.
And last but not least, we have decided to halt the M and 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 Quebec, 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 AG. That EBIT adjusted will improve significantly towards almost breakeven with all segments improving and all segments delivering a positive contribution except In addition, we raised our free cash flow before M and A forecast and now expect it to improve more strongly and move towards the negative 1,000,000,000 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. Surbough by a strong recovery in the automotive by GE. 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 2 CHF 60,000,000. In particular, our segments, Automotive Technologies, Industrial Components and Steel Group took advantage of the demand upswing in auto by GE. 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 FT feet feet feet feet feet feet feet feet feet feet feet feet Es across all segments year on year in total. Thereby, we have reduced within our defined restructuring programs, which we communicated last year, 560 GE. The FTEs in Q1, that sums up to a total of 4,200 FTEs in our current target by GE. Of the reduction by 11,000 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es. So repeat it again, 4,200 reduction of FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es within our communicated restructuring programs and in total 5,500 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es.
One important thing It's really that, of course, if you consider if you compare our previous guidance to the one we gave out now is, Of course, we see backwind from the market. But 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 measures, our performance measures really, 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 we with this, we weren't, In spite of this, able to increase our EBIT by €260,000,000 So 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 and A has risen year on year by more than EUR 2,400,000,000 addition to the performance turnaround and tight net working capital managed, cash flow in Q1 also benefited from earlier customer payments.
Furthermore, inventory levels are not yet fully aligned with the faster than anticipated market dynamics requiring further buildup in Q2. At the same time, Our strong net cash position of EUR 5,100,000,000 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. And year on year, nearly all segments have achieved an EBIT adjusted improvement With Woodiflex being the only real exception since Materials Service was only a few millions lower.
Materials Service did not yet benefit from higher materials prices so far, But we'll do so in Q2. Despite stable shipments in Q1, the business witnessed 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 by the closure of logistics sites and branches in Germany, France and the UK 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, however, 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 Technologies 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 nonconformance costs. Moreover, 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. Thus, EBIT adjusted margin took a really nice jump AG. To a direction which, from our point of view, is all time high, but we still do so far.
Likewise, Stereos' 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 There's 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. And finally, at Multitracks, 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 Raising our fiscal year forecast due to the better than anticipated performance in Q1. And 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 the expected structural improvements in our business, sales 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 breakeven 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 material This improvement will be mainly due to clear structural progress in all businesses and is predicated on the development of Only Multitracks will clearly exhibit a loss, which is expected to be in the low to mid-three digit €1,000,000 range. As a result of earnings improvements in all segments, the free cash flow before M and A is expected to improve and move towards a negative €1,000,000,000 In this context, we need to consider the investment required to set up performance and value upside of our business.
And if we talk about investment, We also need restructuring. So 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 Seadrook in March 2021 and further pursue the M and A execution For our Multiflex business to achieve a streamlined target portfolio.
At the same time, we will continue the execution for restructuring and performance initiatives show our value levers at all businesses. Moreover, our continuous improvement focuses on achieving returns on par by GE. With our best competitors and driving cash generation. And last but not least, TECAR 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 electrolytes. Having said this, I thank you for your attention.
And of course, I'm ready to take your questions. By G. Thank you
very much.
Yes. Thank you very much, Claus. And with that, we would like to hand over to you, And 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. And now operator, please take over.
Chorsunkoff AG. 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 and 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 and D and CapEx you want to spend in 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 has independent flexible management structures and AG, Direct Capital Market Access, whereas I think at least for now your unit is a business unit reporting into a rather complicated business area.
Yes. Thank you, Mr. Jacob, for the question. Of course, as Martina Maersk also said on the General Assembly, so we took the decision to develop the business by our own. And this, of course, needs some by our own.
And this, of course, needs some strategical, let's say, questions to be answered. And 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. But of course, These issues you raised are totally the right ones. So where do we find this business in our organization? And it's very clear that we cannot find this business in the organization as it is now.
So we will come up, of course, with, let's say, with another approach and are going to introduce it to you At the appropriate time then. And 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 And all possible options. So if we 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.
So this are evaluating on this, but the clear target is that we, 1st of all, look at a stand alone, Let's say, solution to develop this business by our own. So having said much, but the short conclusion is we will come up, latest
Tescoigne. Okay, great. Then I'll try to wait until May. And then the second question is probably also one where you will 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 and I think you reset the book value at a time when steel That looked a lot less favorable a few months ago.
So 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? Or in other words, whether one could say that you have a much improved steel markets, you would not be willing to pursue Which causes an impairment for Steel
Europe? Well, I mean, 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. So 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.
But 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 and not, let's say, a current one more 1 over the cycle. And this is, of course, where we are looking at. And nothing else to say. By GE.
You understand that I cannot be more concrete about this.
Of course. Thanks very much.
Thank you. The next question is from Zach Wilkinsfeld of Exane. Please go ahead. Your line is now open.
Good afternoon. This is Seth Rosenfeld at Exane. If I can ask 2 questions, first on working capital and then second going back AG. On working capital, obviously, very strong performance in fiscal Q1. Can you just touch on or provide some AG.
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 AG. Your balance sheet and therefore, your working capital, please.
I'll start there.
Yes. Working capital, of course, I mean, we saw a good
by G. Network and capital development in the Q1.
But this is if you look at the dynamic of the business, you see that You normally have a seasonal trend. So you know that the Q4 number no, Q4 calendar number, so Q1 of our business year It's normally if you look at the sales volumes, it's a weaker one. But in this time, you are normally going to restock a bit For the rest of the coming months, which are supposed to be stronger. And this is something, of course, which went also in this Q1. But business came out stronger, yes?
So 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 side that we got, let's say, A few payments which we did not expected. So 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. So 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, yes.
Okay. Thank you. If I can answer 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 We've 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 this was cyclical? How much this was just your own conservatism and communication? Nice to see a positive surprise, but we all know that, that can swing the other way as well.
Thank you.
I mean, if I got you right, you were talking about the full year guidance because we did not guide the really the Q1. But I mean, the question nevertheless makes sense. So the guidance which we brought out in November, of course, was something We already saw the dynamic of the market, which started at the already at the Q4 of the last fiscal year. And 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.
And this was the reason why we were cautious at that point of time. And Even now, if you take into consideration the Q1 figures, I mean, what we observed there was clearly that a high dynamic AG. And a high demand. But we clearly can say also now that some of this came out of catch up effects from the supply chains and auto by GE. And auto producers and things like this.
Now 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 6 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. So taking this into account, we have a positive mute.
But our visibility is only 2 months. And 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 2 months, we are still cautious. You can also count our Actual guidance is cautious. And yes, it is so.
But 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
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 the SteelCell to go ahead for satisfactory evaluation.
Jason, we are not quite sure whether we get The later part of your question, right, could you please repeat
it? Yes, sure. So Bottom line is you guys don't need the money today. You've got €5,000,000,000 of cash on the balance sheet. And so the exit of Steel is if you like a strategic imperative rather than a financial one.
So would you actually finance GE. The sale of that business, so 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?
Yes, yes. I see what you mean. So no, this is nothing we really want to go with. So we if we 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.
And the other one is the stand alone, the stand alone within the group or potentially this is something we are checking Potentially, let's say, lead this into the direction of the spin off, which all the Let's say which all the opportunities which are coming out of this, let's say, this kind of business model. And 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, of equity and net debt and pensions and things like this, this has to be Decided, but it's nothing that we would do a financing for someone who is wants to buy the assets. It's nothing we are going to intend
by GE.
Okay. Thank you. So just a second question then if I could. On the multi track, we're talking about €5,000,000,000 Of turnover, roughly, how should we think about the duration of this business? Is it gone in 3 years?
Well, at least this is the plan, yes? So you know that if you talk about What is in the business? So in the business, of course, AST, the stainless steel mill in Italy, we are 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, why they had we are quite advanced because we have a bit here. And the Cement business, this is something we already discussed also on other occasions.
We were also in contact with potential buyers. But as we also said, we are not doing fire sales. So if we are not happy with the conditions, then we also say, well, we step back from this But as you said, 3 years' time, yes, this is clearly our plan to get rid of the businesses in 3 years'
AG. I'm sorry, just a cheeky follow-up. So if it's gone in 3 years, at the end of 1 year, Is it 1 third gone or half gone? How should we think about the past?
You mean in 3 years whether it's totally gone or not but 1 third gone? AG.
Exactly. Or even on a 1 year view, yes?
On a 1 year view, yes. The 1 year is always very difficult because you know that this is difficult To say, is it 1 year done or not? So we should have some progress with the major assets here. But on a 3 year basis, we should This is, of course, a wish. This is something I cannot promise you.
But this is, of course, a clear intention that in 3 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 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 some obviously some catch up effects here.
These are generally very volume driven businesses. So I would have thought this has still mostly been driven by basically a good volume hitting maybe an improved cost base. And then 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, very decent demand here. So the order book doesn't actually indicate a deceleration in the second quarter
Yes. If you talk about Automotive Technologies, for instance, of course, if you look by GE. At the sales number from Automotive Technologies and compared this in the Q1 against the previous quarter, you only see an increase of 3%. So it's it is of course, this turnover of €1,200,000,000 is the one which is far Higher than we anticipated in our original planning, but it's only 3% higher than in the previous year. GE.
And what we also see is, of course, that we see really efficiency gains in our plants. So 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. And 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 Technologies. We as a sample, we said in 20 nineteentwenty twenty, Sales went down 20%. And in 2021, it will go up 10%. So this is more or less a sample. So 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. So the Q1 was a bit better AG. And pre corona. What we see is that the dynamic in the Q2 is not bad, but it's not it's more normalized by GE. Then in the Q1.
So and we also see effects from the semiconductor shortage, and we also see some effects from 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 volumes. But we don't have an evidence of this, and that's the reason why we stick to our cautious, let's say, AG. Do you want this?
Does it help a bit? And
Yes. Sorry, go ahead.
Yes. And the Bearings and the Ford Technology 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, and 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% in sales increase.
But the EBIT increased a lot, And this is why it is so because performance measures, there were big performance measures which came into effect. And 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. And if you go 1 year further ahead, then it's more than 2,500. So this is really effective, what we are seeing here. You really see that the cost basis is going to be increased a lot.
So this is the major driver for Bearings and sales for Technologies is restructuring. Automotive Technologies is against previous quarter. It's more restructuring and efficiency. And also, Automotive Technology reduced headcounts by more than 850 people by GE. Again, previously.
So 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 The margins we see, so we've had 11% in automotive, we've had 16%, and I see you never have been reporting this Business 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. So are these margins a directional indication of what you are aiming for in
AG. To be very honest, so the 16% is, of course, for the whole IC business and Automotive Control, so we see a 9%. Nevertheless, it doesn't matter. 9.11, it's good enough. So this is, of course, something If you have to take into account the special product mix, so by Automotive Technology, it depends very much which in which cars you are now AG.
In good volumes in this quarter. This is not necessarily the 9%, which you can really count for the whole year, it's a good development into this. So and 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 appropriate time. But I will not, let's say, release the margins now. This is very clear.
But To be honest, the Automotive Technology margin is a very good one. So it's an all time high, and we are very happy with this.
Okay, okay. Thank you. Then just one more question, if I may, just on the Multitrack businesses. And I guess you generally Quoted overly limited visibility, which is obvious in the second half of this year. And I guess that applies particularly for the businesses which are contributing profits.
In Multitrack, 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 by G. Basically within your own control in terms of how you will be improving. So 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.
Yes. I mean this is because we have so heterogeneous business in there, this is difficult to say. So if you look at the stainless steel, we at the moment, The demand is not too bad, but let's say, raw material prices, especially in nickel, is quite high. So this is Not good for the EBIT. So we think that it's going to improve during the year.
This is something we think, but we don't know. But 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 we in the Cement Business and the Mining business, we are Let's say in the Mining business, we are quite advanced in the divestiture process. In the Cement business, we are have some restructuring progress.
We will improve the With us during the year, yes. And then if you talk about the rest, this is the Springs and Stabilizer business, you know that we have a restructuring program ongoing there. This is the closure of Olga and the streamlining of Hagen, the 2 German plants here. And this will definitely have an effect in this year. But at the end of the day, this will be difficult business anyway.
So this is something where we are why we also say that we're expecting here a loss In this fiscal year still.
But you do think the run rates will improve from here basically is what you're saying?
Yes. Yes, this is what I'm saying, yes.
Okay, great. Thanks so much.
You're welcome.
Thank you. The next question is from Tom Song of Credit Suisse. Your line is now open. Please go ahead.
Thank you very much. It's actually Karsten from Credit Suisse. Quickly, a lot of questions were already answered, but 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 Q2 will be actually very strong with regard to volumes. Price is not really pointing to, I believe to the lower side yet.
So 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, the conservative it is a 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 1 year starting at the first For January, we also have some contracts which are valid in April and some June, and this is the normal case. You know this business. But This is something which is not so much, let's say, gives us not so much fear here about this.
This is quite good development. We clearly see what is the raw material price development. So we see iron ore, Which is coming up over 100 and 50, which went to 170. And this is something if it stays with 170, 160, it's of course not good for nobody. But this is Of course, we will have, let's say, not such a nice development.
This is something you have to digest. So this is one case. And the other case is regarding volumes. Yes, we are in a good way. And to be also honest, for the whole group, and I'm not saying too much, the January Started quite good.
So this is not the case. But as I said, we only see 2 months. And we don't see what is going on really in the demand If we talk in April or May. So if you could have the glass bowl and see what is going on in May with the demand, then we could come to another conclusion,
Okay, perfect. The second one is, I stay in the Materials business, Materials Services. We have seen Quite a bit of earnings upgrade at Klerkner, 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 Your inventories in your Q4 and hence had to buy steel at comparably higher prices, which means The inventory effect comes later with you.
Or why do you think you're lagging here a little bit?
Well, this is if you for instance or if you especially look to Klugner, you have to bear in mind that Well, the road steel portion of Klockner is higher than the ones of Materials Services. So the stainless steel portion of Materials Services is much higher than from Kloeckner. So this hedge Kloeckner in this moment. And also their footprint in the U. S.
Is better than for Materials Services. It's something which is go 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 AG. Which for the Materials Services business. And you have to bear in mind that we have an Aerospace business in Materials Service, which is at the moment, Let's say, as you can imagine, not performing as we saw this performance 1 year ago.
This is something which is also you have to Bear in mind if you do a comparison on our benchmark here.
Okay, perfect. That's fair. Thank you very much.
You're welcome.
Thank you. The next question is from Christian Georges of Societe Generale. 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 €1,000,000 amount. If we look at Multitrack's EBIT, There's about €70,000,000 difference between your EBIT adjusted and your EBIT. I mean, are these the restructuring costs you're highlighting?
And this is part of the guidance. And what exactly is behind the EUR 70,000,000 in the quarter? And are they recurring?
AG. What you are referring to is the difference between EBIT and EBIT adjusted in the Q1, so roughly This is yes, these are restructuring costs mainly related to the yes, this is the case. But we will see more restructuring costs During the year, so I think we guided a big three digit number, and this is going to come still. So out of this Total number, 70, we digested in the Q1, more or less, and the rest is to come. AG.
So this is the line where those restructuring costs you're guiding for, that's where they would appear, mostly for Multitrack and possibly some for the core businesses.
Yes. So these restructuring costs are more or less AG. We see some in Multichrex. We will see some in Steel. And we will see some also in other businesses because we do restructuring in nearly every business.
By GE. So yes, but yes, you're right. So this is my question. Okay.
That's very clear. Thank you. And my second question is still on multitrack. I mean, obviously, you're looking at divesting all these businesses. I mean, can you give us an idea of the book value of all these multitracks?
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?
Yes. You might you clearly understand that we are not going to distribute the book value now. But If you for instance, the mining the cement business, yes, so we will step back from the divestiture for the moment because We think that what we saw so far is not, let's say, appropriate enough. So 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'll 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, saw it out. This is not going to happen, but is something we are not looking for. So we clearly think that we will have we have the time to do not make economic nonsense, Yes.
This is clearly our objection. But 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 2, 3 years, as we said before. But it's I cannot really say what will be the effect on equity or cash At this point of time, sorry for that.
Okay. Thank you. And I'll just sneak one very small one. On hydrogen, AG. 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 AG. A one off. Are we still a long way from more potential deals in selectivity?
Well, Christian, whenever we talk with our colleagues from the green hydrogen unit, we have the impression that Paygee. So they are really busy, really busy. And they are telling us that their project funnel is expanding. So 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. And they we are hearing that more of these announcements are planned for the remainder of the year.
So there's really something going on in the hydrogen business.
Okay. Very good to know. Thank you too, boss.
You're welcome.
Thank you. The next question is from Roeth Braunheiser of Kepler Cheuvreux. Please go ahead. Your line is now open. AG.
Yes, 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 be would sound less of a landmark decision to me.
What should we take as a conclusion if you would To the business, ultimately, now, would that mean that this is in a decision, which will be valid For a longer period, because now you had this strategic decisions back and forth in the AG. At some point, I guess, there needs to be more stability in the kind of direction for business. And 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. So why not harvesting these benefits on your own? And 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
Sorry, we were on mute. I already thought something.
Sorry for that.
Sorry, I have to explain AG. Again, so talking about your question about this landmark decision, which is supposed to come AG. You know what kind of options are on the table. This is a potential divestiture to Liberty or the stand alone within the group or Not within the group as a spin off. And then you consider this is not if you go if you want to make if you would make the decision to make a stand alone To go ahead with a stand alone 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 here because you know that we are we have these options on the table, and we are looking AG. What is the value creation potential for each of the options? And if we look at, for instance, the divestiture option, of course, we can present it easily. If we look at the stand alone 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. Now this is something we are clearly looking at.
By GE. The spin off 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. I mean for us, the most important thing is really the most important thing is what is the option where you create the most value. And we are very much convinced that our steel asset is the one where we can AG. And we are very much convinced that also in a stand alone 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. And AG. So this is something. And we are very confident that we are able to do this by our own 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. Of course, we see some, let's say, Challenges in the European Steel market, yes. You know this overcapacity, and you know this transformation to green steel and things like this. Is it More easy to overcome this challenging? Is it are there plans in the world where you can create more value if you talk, for instance, about the consolidation?
And this is the reason why we also look at the spin off. This might be but we have not taken a is really we were very open to say that we are looking at it to make a feasibility study. But what is the strategic ratio behind? And the strategic ratio is I think it's very open. If you have a pure player at I mean, 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.
And this is something we are examined 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. And if we would take the decision not to divest, To make a stand alone one, when you're asking, is this a decision which will be, let's say, for the next 2, 3, 4, 5 years, I cannot say that this is And of course, the decision where we clearly commit on investments and measures and on a stand alone basis and go ahead with this. And if on the way in 3 or 4 years is something going on going to happen on a strategic basis, we will consider. But for the time being, this will be then our way.
I hope this is something you understand.
And on the CapEx, I
Yes. The CapEx for steel or
AG. I asked for the CapEx range for the current year and how much would be steel and What would be the main tickets big tickets you are seeing on the road for the next 2 to 3 years?
I mean, the CapEx for the fiscal year, you know that we our depreciation is AG. Roughly EUR 1,000,000,000 and we are planning to do investment. This is not well decided, but we have ideas to Divest to invest more than EUR 1,500,000,000. So this is something where we clearly have ideas to. And if you look, for instance, That's the steel business.
I mean, these are strategic investments, really, I have to say, yes? So this has something to do with, let's say, production capacities in wind energy with bearings, yes? This is something to do with, let's say, supply chain solutions for Materials Service in the U. S. These are really good, let's say, projects where we have Clear projects behind with good rentability, which is really pushing us, enabling the businesses, these investments We have on the table here.
And of course, the Steel 1, this is something we also said that in Steel, we have a normal level of investments of And within the Steel Strategy 2,030, we are willing to invest in addition To the yearly 500, 800 in the next 6 years, which then will be you can allocate this on the years now. So of course, this is also will also have an impact also in this Okay. That's
yes. My question is there any landmark Project on the steel road in this EUR 800,000,000 you want to you can highlight as a particular one to boost the footprint?
Yes. It's of course, this is really one that we are totally convinced in this investment. So the first investment is in Duisburg. It is, let's The separation of the Giesweissenlager, I don't know the English word for this, but it is The continuous caster. The continuous caster.
So this is something where you really increase, let's Say the quality of in the process of hot metal and then by GE. And this is you have to do this. And 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 AG. Because now having the piece of the permanent caster, it's something is a bit if the volumes are coming, it's good, but it's a bit inflexible.
You can imagine that it's totally integrated here. The other one is investment in Bochum. It's It is
an annealing line.
Annealing and annealing line, yes, annealing and annealing line. And the one is Doppler De Van Jagerust. I don't know the English word for this, but this has something to do you really need this once To go into the special grades for electromobility, and you really need this one to go introduce grades for high strength steel and pressure element steel. So you all you need this hot strip with a Better material, better quality and then also to make them more processing to 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. This is the other 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 Alan Gabriel of Morgan Stanley. Your line is now open. Please go ahead.
AG.
Yes, good afternoon. I have two questions, if I may start with. The first one is on the steel plate closures. Can you remind us you anticipate any major rehabilitation costs in terms of cash outflows that are not really reflected in your guidance for restructuring for fiscal 2021? And how much cash burn would you save next year once you exit place is the first question.
I didn't get the second sorry, can you repeat it again?
Yes. 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?
Yes. I mean, the first one to get Of the Handyplate business, it's everything is digested in the numbers. So this is the first one. The second One question is my translation of the question is when will be the free cash flow positive? And Let's say, is it what you're seeing?
Or is this do we see a free cash flow positive next year? Is this something what you're saying?
What is the negative free cash flow that you expect this year from Heavy Blade, which will disappear next year
once you exit?
Okay. So it is let's say, it is lower 3 digits million numbers.
Range 1 to
approve. Thank you.
And the second question I have is basically on if you take a step back and just Remove Multitrack 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 paid to keep, let's say, 3 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 breakeven EBITDA for everything that you plan to keep In 3 years down the line.
Well, this is well, well, well. Difficult question, if you talk about investments. So if we would not have Steel Europe and Multitracks, this would be roughly, Let's say EUR 800,000,000 or something like this. So a release of EUR 800,000,000 in cash flow, so in investments. So This is the first thing I can say.
The other thing is it is too quick to really say, but
AG. Other items that could be considered here that need to be considered in the cash flow bridge are then the pensions. If steel would leave, of course, then quite AG. Some of our pension payments would go. If you consider that €4,000,000,000 of our €8,700,000,000 of pensions And you can also then make a pro rata calculations for our annual payouts.
And other items that you need to consider in the cash flow bridge, of course, interest, Probably the effect would not so be not so much on interest since interest payouts in the meantime Not that high. It's about €200,000,000 in total for the year. And on the tax side, it really depends on the profitability. So That's too early to say currently.
Okay. Thank you.
Does it help me take a question? Yes, we work and then come back to you later. So this is
AG. We can discuss it very clearly.
Thank you very much.
Welcome.
Thank you. The next question is from Luke Nelson of JPMorgan. Please go ahead. Your line is now open.
Afternoon. Thanks for taking the call. My first question is on normalized earnings, following up on Bastien's question a bit earlier. If I just Take Autotech as an example, Q1's adjusted EBIT annualized well over 400,000,000 Relative to capital employed in that division implies something above 20% versus the cost of capital of around 8% to 9%. You can do a similar exercise with Components Technology, we're earning well above cost of capital.
So maybe asking that early 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 overrunning? That's my first question.
AG. It was difficult to understand. So the first question I just checked also here is whether the impairments were too high We did last year. So we definitely do not think so. And this is you know that these impairments are done also with a long term view on this.
And the long by GE. Term view is not, let's say, so much influence on the, let's say, 1 or 2 years dipped from corona. So we really Take a long term view on this. And so no, we don't think that the impairment were too high on this. The 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 I'm we will not, let's say, come to, let's say, the disclosure of the, let's say, envisaged target margins. But the 9% we see in the Q1 is not a one we can sustain on a continuous basis here. So is number we see not on this level for the ongoing time.
Okay. I suppose second question then to the change in tax just on following up on Steel Europe and the restructuring Auctions. Obviously, Tata and Amoden, with their separate sale process falling over recently. Just wondering whether at all it's being considered in the context of the European Steel landscape Hence we changed over the last 2 to 3 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 is that something being considered?
Well, This is something this is a good question. If you ask me personally and what will be the steel land In 10 years, I would say that we do not see so much players. So this is definitely a market for Where consolidation might make sense. So but at the end of the day, you have to find concepts where you have, let's say, You have a win win situation for all parties here. And 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 5 or 10 years? I cannot say to you.
So but Even if we are taking the landmark decision and clearly say that we want to let's say, we stick to the strategy and we Stay to the business plan and stay also to the investment. We never can say definitely that it's not Going to be the time for consolidation afterwards. This is something which is clear.
Okay. And sorry, just one quick follow-up. Just on the Steel Europe decision, are there any sort of tax FX or anything on a deconsolidation basis that we should be aware of?
You mean the tax effects if Steve is going to be deconsolidated?
Yes. And there are any of the different the Two scenarios, either a sale or a spin off. Are there sort of any sort of one off or exceptional?
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. So this is something we this is definitely part of the visibility.
AG. Thank you. As there are no further questions, I would like to hand back to you.
Yes. Thank you very much, operator, and also thank you all outside for joining our conference call today and for by G. The lively discussion. We would now like to conclude the call. And as always, for any further discussion, questions, information, by GE.
The IR department is always available for you. Thank you very much, and we look forward to staying in touch. Bye bye. Bye bye.
By GE. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.