Dear, ladies and gentlemen, welcome to the webcast of SSundprobe AG. At our customers' request, this conference will be recorded. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Claus Ehrenbeck, who will lead you through this conference. Please go ahead.
Yes. Thank you very much, operator. Hello, everybody. This is Claus Ehrenbeck speaking. Also on behalf of the entire team, I would like to welcome you to our conference call today.
It's on our Q2 numbers and the outlook for the year. Here in the call are our CFO, Martina Merz and also Claus Kuisberg. Our CEO, Martina Metz and our CFO, Claus Kiesberg. It's a pleasure that we have Martina today with us in the call. All the documents for this call are available on our websites.
And Martina and Claus will guide you through the slides that you can find there. And we start with Claus, then followed by Martina, and then there will be a Q and A session. And with that, I would like to hand over to Claus Kasper.
Thank you very much. A warm welcome also from my side to today's conference call on our Q2 figures. Let us briefly take a look at some key financial highlights reflecting our operational progress and effective turnaround initiation. Overall, our performance has improved year on year and also quarter on quarter due The operational developments also reflect the progress of our group transformation. Nonetheless, we are by far not Where we would like to be and will have to take several more steps to bring TK to a really sustainable Current market developments are reflected.
The order intake, where we have been able to record a 10% Of the strong demand recovery. Simultaneously, we have been able to generate a positive EBIT adjusted €298,000,000 in the first half year, a significant improvement visavisa loss of minus EUR 465 In this context, the rising demand has led to an improved capacity utilization. And together with a more favorable product mix, the structural And last but not least, the free cash flow before M and A has improved substantially by more than EUR 2,000,000,000 from a minus EUR 2.77 billion during H1 of last year to a minus EUR 7 In terms of EVIT, adjusted, all segments have contributed positively apart from Multitrack. And virtually, All segments have recorded major improvement year on year. With MX and I see as overall top contributors, resulting in a positive EBIT adjusted of EUR 220,000,000 In terms of free cash flow before M and A, the higher EBIT adjusted was offset mainly by a net working capital buildup of EUR 700,000,000 as well as CapEx above depreciation in an amount Other than EUR 44,000,000 mainly due to the growth where investments in downstream network will further improve its competitiveness.
The net working capital increase was due to the stronger than anticipated demand, but also important to notice Based on the better than anticipated results in Q2 and therefore H1, we are raising our Full year EBIT adjusted forecast to a positive mid three digit million range and expect all segments to contribute With Multitrack being the sole exception. Besides, we would like to confirm our free cash flow before M and guidance of improving year on year towards the negative €1,000,000,000 mainly affected by temporary high spending in Capital and CapEx, what about G and A and of course also view of restructuring expenses. It should be noted that this Would mark a major improvement versus the minus €5,500,000,000 of the previous year. Of course, we saw some And we stripped down EUR 3,000,000,000 because of mobilization of net funding capital. But moving on to the next slide now, let me briefly highlight some major developments and performance levers throughout Q2 At Materials Services, you were able to benefit from the continued uplift in the Materials businesses in decrease in the number of employees.
We achieved productivity gains of 7% in the first half At Industrial Components, once again, we recorded a strong margin of 15.5%, Positively affected by Forged Technologies' ongoing demand recovery. In addition, we have entailed further cost measures in form of lower personnel and purchasing costs. Moreover, at Forage Technologies, costs were further reduced by measures on lowering the costs of purchasing for direct production materials and administrative expenses. And furthermore, bearings benefited from stable high Demand and economies of scale in the production of their key components for wind turbines. Looking at Automotive Technologies, the 6.4% Margin was supported by a continued market recovery, while receiving first headwind from supply chain constraints, particularly for semiconductors at higher At the same time, the results have been pushed by an increased production efficiency and favorable order structures.
In addition, there There were cost savings from the ongoing restructuring focusing on lowering personnel and material costs, particularly at the Automotive Body Solution and In case of Steel Works, the favorable pricing environment is now starting to be reflected in our Customer contracts where average revenues per tonne has started climbing higher. Higher selling prices and more favorable product mix were partially offset by higher raw material efficiency gains have been achieved by an improved utilization as well as restructuring progress with a reduction of more than 6 Moving to Marine Systems. Performance program measures focusing on procurement and project Executions are yielding the desired effects. And last but not least, Multitrack has considerably reduced its losses, in particular at At Springs and Stabilizers Automotive Engineering Mining and Heavy Blade. Stainless has been negatively impacted by market related developments on price and cost side.
Overall, the operational improvements have been realized with a total of 640 restructuring and cost control measures to further losses mainly via an FTE reduction of 1400 FT feet feet feet feet feet feet feet feet feet feet feet feet feet Feet Es. On the next slide, We'd like to briefly summarize what we have accomplished regarding our priorities since we introduced our group of companies We have stringently continued our performance for First initiatives and have achieved a significant operational turnaround as I described to you earlier. Simultaneously, by the previous sale of our Elevator business, €4,200,000,000 giving us room to maneuver and to do what is necessary in order to improve our businesses and drive to a sustainable performance. Therefore, at the same time, we have initiated our largest ever restructuring program with target of more than 12,000 FT feet feet feet feet feet feet feet feet feet feet feet feet Es until fiscal year 2023 from our previously defined programs, of which 5,400 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es of 7,000 FT feet feet feet feet feet feet feet feet feet feet feet feet Es so far.
In this context, we are expecting provisions in the amount of roughly EUR 1,000,000,000 therefore EUR 400 euros in the current fiscal year, in addition to the €600,000,000 in the last fiscal year reflecting, this is the reason why we mentioned this, reflecting that our As part of our portfolio transformation, we have embarked on a group of companies approach, We highlight the Steel Europe's Strategy 2,030, where the management continues their performance push aiming at returning the business best in class position. The envisaged performance step up also creates optionality and is a prerequisite for a stand alone Looking at our portfolio restructuring, we see some progress at Multitracks, which comprises those business where we believe that going forward, we are Not the best owner. A potential signing of our mining business is getting closer. Over and above, we have received numerous expressions of interest for the sale of ASD and Infrastructure, while the closure of Heavyplate will be conducted until the end of fiscal year 20 With regards to the green transformation trend in our industries, in addition to working towards our own climate neutrality targets, we are production, the latter currently being probably the most promising if we consider our technology position and Market projections by experts.
As a further confirmation of our USP in the alkaline water electrolysis, We have already been nominated 3 times for industrial scale projects, and more is about to come. In order to enable a more efficient development as well as readiness for strategic optionality, we are currently in the process The next slide That summarizes where we stand with the restructuring of our businesses. As part of our plan, entailing a reduction of more than 12,000 FT feet feet feet feet feet feet feet feet feet feet Es, we estimate that 60% of our current target will be achieved until the end of this fiscal year. I mentioned earlier already that when taking into consideration FTE reductions from the segments beyond the previously planned programs, we have already achieved a reduction of 7,000 In this context, we already had EUR 300,000,000 additional provisions in the first half, reflecting the majority that we planned for the The cash out for restructuring exceeded EUR 100,000,000 in the first half and expected to be a low to Sustainable savings resulting from the restructuring, we expect a low mid-three digit €1,000,000 range until the end of this fiscal year, which To conclude, we believe With the anticipated structural improvements from the continuous execution of our value levers and expected market tailwinds mainly For our Materials and Auto related businesses, raising our full year EBIT adjusted outlook again is justified.
Therefore, we now expect to This performance is to improve significantly, yet it will still record a substantial negative EBIT adjusted in the low mid-three digit €1,000,000 range. At constraints, particularly for semiconductors for the second half of the fiscal year. In terms of free cash flow before M and A, we would like to confirm our We considered some network capital buildups due to the strong demand and the likely high raw material costs. Also, the payout In a low to mid three digit million range I referred to earlier has to be taken into account. Another The main factor is the variability of cash profiles at the project business is largely determined by upfront payments for large milestone payments in the course of the project execution, which can be forecasted with an absolute degree of certainty And furthermore, we are enhancing our production, resulting in an investment significantly above depreciation.
As mentioned Earlier, this applies in particular to Steel Europe, where planned investments will strengthen our competitive advantage and shift Having said that, I will now give over to Martina.
Thank you, Thank you very much. Ladies and gentlemen, thank you very much for participating in today's call. The share price developments this Show that we will not we'll have an interesting discussion afterwards. So I'm looking forward to that. But as Claus said and the figures show, The transformation of Thyssen Group is making progress, although we have not yet put the corona pandemic fully behind us.
However, it's also clear that we have not yet reached our goals. Additional efforts will be needed to For this reason, improving our performance is and remains our most urgent task, And we are continuing to work hard on future on further cash flow improvements in all our By doing so, we reach a point in our transformation process where we have evolved The focus of our efforts from transform to perform to Sustainability. On the one hand, greener, but above all, progressing sustainably in terms of business performance. With respect to our journey, we do have a mutual understanding with our supervisory board regarding our at speed and against speed. And I do ask you for your understanding that you will not hear much The path is defined.
But in order to shed some light on what we are specifically working on, let me Share with you some thoughts on our businesses and the respective priorities. We know I won't go into detail, but here are just a few of our key topics. Material Services. At Materials Services, it is about further implementation of the Materials as a Service strategy. With Advancing digitalization and the expanded use of artificial intelligence, the aim is to offer enhanced supply At the same time, we are continuing to optimize our network.
We are closing sites And investing in new logistics centers as recently in Rothenburg. Industrial Components. Just very briefly, for bearings, it is primarily a question of growing in the wind. We have already We made initial investments. This is a promising market, and we are well positioned.
Forged technologies has Systematically restructured. The aim here is to develop the business model to further reduce dependence on internal combustion engine While still exploiting the opportunities in the market for the next years, we are Already making good progress with steering knuckles for trucks. Automotive Automotive Technology in total is very well positioned and already has a good footprint in e mobility. All the relevant players are among our customers, including the new car manufacturers from Overall, we are examining how we can expand our very good position also by engines, which is already very small, thanks to our strong product portfolio in steering systems and dampers. Steel Europe.
As far as steel is concerned, we are to examine whether and how we can make steel an independent business. We are convinced that a pure steel company with an independent structure has better opportunities to develop in a sustainable way. However, Such a stand alone solution is subject to a number of conditions. The adjustment to the 2,030 deal strategy are Important steps in this respect. Today, I can say that steel has a robust However, to tackle the green transformation, we urgently need planning certainty with Regarding the political support regarding the regulatory framework, infrastructure and financing, we are working You have read about this already in the news.
Contracts are not yet signed, but we have sorry, but we expect the With such an order intake to report. Multitrack. The sales processes At Multitrack are progressing according to plan. At Mining Technology, And the closure of heavy plate mill will be completed by the end of fiscal year. March 18 It was already the last working day on the roll.
It is now key to drive the M and A processes, bring them to a favorable And yes, I I know that you expect me to say something about hydrogen. The last the latest order for an Engineering and supply contracts with CF Industries for our water electrolysis plant for the production of green ammonia adds to our Impressive list of references. This again confirms we are technologically well positioned to offer Ladies and gentlemen, to sum up briefly, Teekay's future is based on the development of its businesses. The figures show that we have taken further steps on the right path, but this path is For these reasons, there will be no groundbreaking decisions in the short term. Accordingly, We, as the executive board, will provide the supervisory board on May 19 an update on the current situation, and we will continue on our transformation path step by step, dauntless and So much for my outlook, and I'm very looking forward to your questions,
Many thanks to both of you. And with that, we can now hand over to the operator. Operator, could you please take over for the Q and A session?
Yes, I will. Please only ask a maximum of 2 questions. And the first question is from Ingo Schachel, Commerzbank. Your line is now open.
Yes, thanks for taking my question. And the first one would be on Steel Europe and the profitability in this segment. I think you spoke a lot about the restructuring efforts and the progress towards Strategy 2,030. Nevertheless, I think if we compare it to the EBITDA per Ton, margin improvements compared to the previous quarters. I think your rate of improvement falls quite a bit short of what competitors have shown.
I was just wondering whether you see any specific Operational issues, things in dealing with supply chain bottlenecks or so, where you feel that maybe you're not entirely happy with your performance in the quarter or whether In your view, the performance can only be explained with other factors such as contract mix and material prices.
Yes, maybe I can take the question, Tina. Yes, if you look at the performance of Steel Europe, of course, You have to look at several things here. First of all, we always said that in the past we Regarding the performance behind the performance of the of our competitors or the benchmarks. You know that we initiated this Heavy restructuring program. And we have a very good view, and we have a very good long term view on the performance Perspective of this business.
We have a long term investment plan, and we have measures, far reaching measures. But we have to admit, Measures are not fully implemented at the moment. So that's the reason why we, of course, still at the moment, a bit behind our competitors. This is the one But by the way, everything is on track and on plan. So but you know that and you also saw the numbers that Making the people redundant takes a bit of time.
So we started. We already have more than 600 people made redundant so far, but not 3,000 plus 3,700 plus 750. So this is the first explanation to this. And the other, maybe even more important, is the contract Structure of the steering wheel. You know that our dependency on automotive is quite high.
And therefore, also, our structure of contract With not being so much involved in, let's say, it's spot market business but more in less fixed business. It's clear that we that it takes, let's say, more time to convert the high Go down. It should also take a bit more time when we lose our related margin to this. Is this helping?
Yes, yes, that's helpful.
And of course, I think especially in context of the strategic importance, that's of course very important for us, I think, to track the Yes, profit trajectory of this segment in particular. And my second question would be on Multitracks, And I'm glad to hear that sort of you're progressing well on the mining side. And of course, it seems to be a good time to sell it. So I hope Hopefully, it allows you to focus more on book gain. But maybe on AST and interest you spoke about, can you specify a bit more just very broadly whether it's just European competitors or global interests or more strategic or financial investors that you're currently seeing at this time?
Well, if you come to mining, your question was what whether it's a It should be a favorable deal or not. So you have understanding that we are not commenting on conditions at the point of time. So Let's see what the outcome will be. So we are quite looking quite Stick into this scenario. Regarding AST, we have some interest expressions to AST, yes, and we Negotiation with it.
But it's also you have to understand that we are not commenting on who it is. But this is not only one, these are more. Okay, great. Thanks.
And I appreciate that you're obviously not trying to overpromise at this point. I think that's a good approach, obviously. And maybe just a quick one on cash flow.
On our cash flow guidance, you mean a down payment from Marine? Yes. There is one down payment included. So but this is something which is not surprising. So this is what we already considered into or with into our projections.
Okay. Thanks very much. Maybe one thing on Steel. Again, if you look at the full year outlook, you know that we will have, Let's say, shutdown of Blast Furnace 1. Relining.
It is not a shutdown. Relining. Relining of A planned relining of our Blast Furnace 1, which is technically necessary, and therefore, it's a long plan to do this, and it's also not an To do it in another point of time, and it's specifically planned to do this starting from July also because of the Coming also holiday months for our customers, our car producers. So this is something we have to bear in mind. Okay.
That's very helpful. Thank you.
The next question is from Seth Rosenfeld, Exane BNP. Your line is now open.
Good afternoon.
Thank you
for taking our questions. A couple of questions with regards to the outlook for automotive demand, please. Can you give us a bit more color on how the ongoing semiconductor shortage impacting demand both in steel and other components? Maybe what scale disruptions currently baked into your forecast And then I just to follow-up on the earlier questions for your steel business with margin progression. In a normal cycle, lower sales to your auto customers reviewed as margin dilutive, but several of your peers have commented that in fact the semi shortage Actually aiding their margins at present given how hot the spot market is, so reallocating auto to distributors is helpful.
Are you seeing that in your business as we look ahead to the coming quarters?
Yes. Maybe to the first question regarding our outlook on the Automotive demand. Well, I think it's clear we saw really uplift of the demand in our 1st fiscal year quarter, which is, of course, last 4th calendar year quarter. And we also saw some effects in, let's say, fulfilling again fill up the supply chain. And we saw but what we saw or what we estimate is if you look out there in the media, you know that some OEMs are really shutting down.
And this is, of course, has to do with the shortage of the semiconductors and logistics problems. And therefore, we said we Still see from automotive quite good demand, but it's as I said before, also the OEMs could sell more than they are able to produce. And therefore, we see That we estimate that in the second half year, the automotive demand not the automotive demand, but the supply to automotive will be It will be lower than in the first half year, but we do not see, let's say, a problem with the overall demand. It's more a logistic problem, which we Hope that will be, let's say, better after the summer holidays or, let's say, in the direction Of the end of fiscal year, something like this. This was the first one.
The second one was, if I recall right, whether we Participate from the spot market and yes, as I said before, we had some issues with not some issues, we have some positive on the spot market business, but since most of our business is with contract related higher margin business, It's not that we are so much, let's say, have so much profit out of this. So but we are quite happy. Nevertheless, we are quite happy with the situation because our shares in high margin business is increasing in this contract business.
We are benefiting in Materials Services surely from
Yes, of course, yes. Of course. I thought it was dependent on steel, but in Materials Service, we are depending on this very much, of course. That's the shortage in if this was the question, the shortage in Materials from we as you say saw also in the Q2 numbers, Our sales number with Materials Service was not higher than previous year, which was just because of the shortage of material. But of course, this has one Good effect because pot prices went up.
And of course, this is good for the EBIT for materials.
Thank you. Just to clarify, the last question I guess what I was trying to get at was, I understand your contract exposure is quite significant and therefore more lagged than your peers. But if your second half guidance is for lower sales to auto OEMs, does that not imply actually a better exposure to the spot market temporarily in terms of your mix. Should that not be positive for your margin realization as a result?
You mean for the steel business? Yes, exactly for Steel. For the Steel business. Yes, you know that it's so that, of course, If you have, let's say, a remap of 1 blast furnace, you have limited capacity. This is also one thing.
And then you have to take into account in which direction do I Send my material now. So and we will do this wisely. So we will, of course, go for the automotive volumes, but also then for the industry volumes if the demand is there. So we will see what the outcome will be. So Yes.
Margins should be better at the end of our fiscal year, very clear. But also take into account, I don't want to be at this point of time, but you also see the iron ore development at the moment. So this is something, of course, which is not helping. But Yes, you have to take into account.
Okay. Thank you very much.
The next question is from Bastian Synagro with Deutsche Bank. Your line is now open. Mr. Nagowitz, At the moment, we can't hear you.
Can you
hear me now?
Yes.
Perfect. Thank you. So my first question is on Auto Tech and Industrial Components, where Like last quarter, you're basically guiding down sequentially. And I guess the situation around semi is well flagged for autos, obviously. The order intake, none of the businesses so far indicates a major slowdown.
So is it fair to assume that your guidance on these businesses at this point is really more Preemptive cautiousness, so just being very conservative? Or are you seeing like an actual indication that we are up for like a major deceleration in those business? Because overall, the indicators still, at least for our industrial components in particular, look pretty supportive.
If you as As I said before, if you look at Automotive Technology Business, we think that we will have quite a good half year, but not with the dynamic of the first year. This Just curious, what does it mean? This does mean that overall, it could be that our sales numbers in the second half year is lower than the first half year. This is a pure effect, a pure effect of the logistic problems in the semiconductor program, not a real demand. So if And this is something where we have a question mark on.
So if this is going to happen, then we will deal with our guidance. If the numbers if the volumes are better, then of course, we have also room for improvement on this. If you look at the IC business or the Industrial Components When I got you right, you also said that we might have a, let's say, lower performance in 2nd half, yes. You also have to take into account the bearings business where we clearly see, if you look at bearings for wind In China, this was a booming month, booming quarter. The Q1 was also subsidized by Chinese government.
And this dynamic is definitely not going to be this high dynamic in the second half year, but still a good dynamic. So we are happy with this. But this is something Which is happening.
Okay. Perfect. Thanks for clarifying. My second question and as a follow-up on Iguo's question and your contract exposure And steel in particular. So here, I'm wondering how far you're convinced that the current contract structure in steel is still really the best way to run the businesses in an Environment where raw material price volatility has become very high and where we've seen steel prices obviously in an unprecedented rally.
So I'm wondering whether you're maybe not running the risk of missing out on these cycles in general on the price side, while you then may get squeezed on raw materials on the other side And whether it wouldn't make sense to better split your contract exposure over the years versus very much skewed into January at the moment, to basically not just depend on where the steel cycle is at the point in time when you negotiate contracts in January.
In fact, What you are saying is, in fact, is the case because you know that we have, let's say, a big amount Contracts where we have this contract, yes, but we have, let's say, different situations. So much contracts which start 1st January Goes 3 months or 6 months, some go also 12 months. And then we also have, let's say, the next phase where we have negotiations For orders, which are starting at 1st April for 3 months. And it's going on and going on. So we have, let's say, every quarter, we are able To negotiate something in the order structure here.
And overall, this is okay. This is fair. Every quarter, we are able to really Also, we negotiate with some customers the new raw material situation. So if we are now Talking about increasing raw material prices, then you are asking the question, if the raw materials price If prices go down, then maybe we should have then we have other questions. You know what I mean?
Yes. No, I can imagine, of course, then you'll be benefiting and always just thinking that your overall contract exposure is still very much January heavy in terms of the point in time when you negotiate. And that obviously makes it pretty dependent on sentiment and the cycle at that point in time. But
But it's more balanced than you think. It's not so much generally heavy. Yes. Okay.
Understood. Thank you.
The next question is from Karsten Riek, Credit Suisse. Your line is now open.
Thank you very much. My first question also on Industrial Components because as Ingle as Bastiat mentioned already, Last quarter, you hinted on the normalization, but here we are again close to €100,000,000 in EBIT. Is that the new normal? Or is it Finally, more normalizing and why is that the case? That's the first one.
And the second one, On stainless steel, I haven't found any numbers in the report. Given that's the biggest unit In the multitrack, would it be possible to at least give us some shipment numbers, EBIT and sales to make it a bit more transparent how this unit developed In order to make our judgment whether it's actually improving or not?
Maybe start with stainless. So There's a sense that we have not, let's say, distributed this number so far. I can tell you that As a stainless business, as you might see in other stainless businesses, we since the beginning of the year, we are ramping up in volumes. This is clear. Let's say, in the Q1, we had, of course, the nickel development and scrap development was not in favor of the industry.
But now we are, let's say, Seeing increasing volumes and better also price conditions. So maybe just to give you an idea of what the business is going on. The other question was regarding the IC business, whether the EUR 100,000,000 is a new normal, hopefully. Sorry for the simple answer. I mean, We really think that the businesses which are, let's say, here, combined in this Industrial Components Business unit, there will be very strong business also in the future.
So it's you don't expect from me now to give you a number for quarter to quarter, but this will be strong businesses. I mean this is, at the moment, clear Wind Energy is supporting and also Other things, but if you also look at the cost structure of forged technologies and the order structure and also at the order structure from bearings business, How much of this is really related to wind energy? And if you then look at the future possibilities for wind energy is also what maybe The government is now going to decide in the next couple of days that we really see big growth potential in this business, in the bearings
I think on the forward side, I have to add something on the forward side. I think The bigger part of the business in combustion engine is still with trucks. And Our market share in that business is, I would cautiously say, significantly higher than 50%. And the truck business is first going at this and you know that the truck business is Currently a very good business, high growth rate, and it will remain stable for a relatively long time now. So it's so Forged is combustion engine, but in the right part of combustion engines.
One quick word on Multistructure. Martina, would you be disappointed if Multistructure, Multitrack, Would you be disappointed if Multitrack would be still in the same shape and form at the end of the fiscal year as it is right now?
Ferroft, I would say no. I tried with provocation because what counts is what price you can You know what value you can crystallize from the businesses you're in. And I have to say, our positioning in most of these parts It's in a way promising that we might benefit from the current improvements And let me say, of with the view that the corona pandemic is coming to an end, so we see positive signals On the order intake side, yes, there is I'm relatively sure that one of the businesses will not be part of The multi threats anymore by the end of the fiscal year. So Claus mentioned it. So we are, let me say, our discussions on the mining business, Let me say, it's progressed very well.
And excuse me? So let me say, it's still in the structure. So this is why I said before the question, It's not an issue, but what counts is how far are the projects developed in order to make us believe That multitrack will, at the end, contribute to the value creation of the overall company. For me, what counts very much We have a roadmap to value creation for Thyssenkrupp. And this roadmap to value creation It's to ask a kind of Holy Bible.
So in this creation of value, of course, We have our we have defined the full potential plan for ourselves, and we have created a program to capture this full potential. And all what counts is to execute on this plan. And so far, I have to admit, We have not deviated. So we have not deviated significantly from this plan. Our problem was corona, but not a significant Deviation to our own execution plan.
So, you know, Claude and I, we have A kind of approach to everything, and we call it the regain trust approach. We are not Over promising and under delivering, that's very important to us. We really after all the years where people lost Confidence in Trusser book, it will take time to really develop solid Confidence into the capabilities of this company. This is why we are very cautious to make promises we Can possibly not live up to it. So this is why you might find us from time to time a bit conservative.
But to us, it's very we really want to people understand our roadmap and our value creation plan And that we hear and there, we prioritize a bit in terms of timing. Of course, I think that lies in the nature of a business environment which is volatile, but we are not deviated from the activity and from the execution plan in total.
Okay. Thank you very much for the explanation.
The next question is from Alain Gabriel, Morgan Stanley. Your line is now open.
Yes. Thank you for taking my questions. The first one is, Martina, you mentioned of you spoke of being conservative in the way you look at things. Your EBIT guidance for the full year is implying the quarterly profits of almost €100,000,000 for the next two quarters, which is half of what you achieved during Q2. You clearly referred that auto disruption is to be blamed for part of this forecast, but what do you think about the Projected improvement in Steel Europe, is it not going to be enough to offset the risks in autos for the next two quarters?
What are the different moving parts that should be thinking about it.
Even the cloud has started the meeting with this describing Martina as the CFO, but I will not go into the explanation of Filos because that has a significant risk that's And we said that, afterwards, tell me that I'm running around in his garden, which is definitely not my job. No, to be very honest, especially on the steel side, what counts to us is the realignment of Thyssenkrupp means We really totally we believe that the best thing we can do is to develop a stand alone pure play out of our steel community. What counts for that is, of course, to implement for steel a plan that they can competitive EBITDA per tonne and competitive performance and not only for 1 year, not only for half a year, There must this must be an outlook because steel is a business we have where it takes years To improve the let me say, to improve the performance bottom There's always how you react on market ups and downs. But the fundamental performance is driven mainly by your equipment and by your operational capabilities in your plants. And our plant is a rather big one.
So in order you have heard that we decided last year when we sold the Elevators business that 2 months after that, we provided Capital in a significant amount to the steel business to develop its business. And in order to implement these investments, It takes years. So that means to us, it was clear from the beginning that the steel business That the steel business will need some time in order to improve its fundamental performance. But Our goal is and wants that we find a future for steel What is adequate to the number 2 in Europe in this business? And as I think I do not want to execute for I do not ask you for patience.
I just try to explain, Challenge us for speed. Challenge us for but please understand that we are not overpromising and under delivering. That's the last thing we want to do.
Thank you. And as a follow-up to this question, clearly having steel as a stand alone can mean different things to Can you elaborate a bit more on what how do you define having it as a standalone? And have you set any hard deadlines By which you need to make a definitive decision on how you move forward with Steve?
In our current, what this is, Of course, I'm now Claus. I'm walking through your garden. So
Please go ahead.
So because Claus is responsible for the steel business. So on we based on this on our financial situation, of course, It is a quite courageous approach to discuss about a stand alone business, a potential And the IPO of the steel business. So of course, we have developed milestones. A first milestone, a very important milestone Will be the upcoming supervisory board where we try to make sure that our plan To try to make this happen and to try to make it possible means the feasibility study for a full stand alone of steel with then possibly next step, so means a spin and then following possibly an IPO, that this will be that this Should be then supported by the entire Board. But the final decision and the final result of the feasibility study, We expect them to be available only possibly 2nd quarter calendar year 2020 Close, right?
We do our own, let's say, milestones and things like this, but we do not have We have a, let's say, ambitious timetable, but we are not talking about this ambitious timetable. So we have our there are so much homework to do if you talk about the And there are so much things to do, which we are, at the moment, starting to do. So we have different projects But of course, we have to do our own homeworks. And with this own homeworks, we think we are very good on the way. But there are also some other issues which have to come to terms.
And therefore, we will, let's say, look at this very closely. We have this project, and we will inform you if there is something new, but this is not going to happen for the next couple of months.
Just for an additional explanation, I think this is valid for everything. What, of course, is important to us is to provide to you and to our team in the company kind of fact based optimism. It's not just about optimism. It's fact based optimism. And on this based on this approach, Of course, to us that the alignment throughout the different leadership levels in the company, starting with the Advisory Board, our unions, to us and to me, it's a kind of leadership principle to make sure that you have at the beginning An alignment of the key contributors, then you can create momentum and the speed of change in a transformation.
This is why we are at this point in time, we are exactly in this realignment activity, but we are quite confident Not realignment, on this alignment activity, but we are quite confident that the first transformation of Thyssen Group will be supported by our supervisor
Thank you.
The next Question is from Christian Georges, Societe Generale. Your line is now open.
Thank you very much. Can I just clarify something on the steel side about this relining of BF1? Procedure anomaly is that you would build up inventories Ahead of the quarter and ahead of the closure in July. And so when we look at your costs in that division, excluding raw materials, We're seeing an increase over Q1 and that will be consistent with the higher level of production into Q3. I mean, is it something you've been doing?
Or Have you not built up any inventories before the relining?
Yes. We are doing the normal things now. Of course, we Try to do what you are saying, the demand is high. But of course, this is also something we normally do if you have something like this. You try to Make plans also in, let's say, purchasing not only raw materials, but also slabs and things like this.
This is something Normally, we do in these circumstances, and this is something which is ongoing to prepare this phase of realigning This last one is 1.
Okay. So that's what you're guiding for Q3 EBIT in Steel Europe higher than Q2?
Most probably, yes.
Okay. Makes sense. And Mr. Seager, other question on steel on your distribution. You're guiding for a flat performance Q3 versus Q2.
So I mean this is a great, obviously, performance you've achieved At EUR 126,000,000 in Q2, is it something which was just one time spectacular? Or do you feel that the business actually Can generate this kind of profitability given the right conditions as we're having now?
Your question was whether we expect
in, let's say,
in Q3. So is this something?
Yes. On the fee distribution, is it something which is recurrent?
Now if you look at the business model Of this business, of course, you have to take into account that you know that in this kind of market period where the prices are going up, you're realizing so called windfall gates. Yes. So this is a matter of when you purchase the material when you, let's say, sell the materials. And this kind of Market we are in, of course, this is supporting. And you know that we are working very much on performance here.
And but the amplitude of this effect is, of course, a big one. And you can see this also on the of this effect is, of course, a big one. And you can see this also on the competitors. So we think we will have a good Q3 and also Quite a good Q4. But if the price development is going into another way, we'll also see this in the development Of the margins, this is something you have to bear in mind that market conditions are favorable at the moment for this business.
Okay. Value of inventories. Okay. And last thing is on your hydrogen, as I think you're implying, you're looking at carving out hydrogen from The rest of the Flon Technology, I mean, does it mean that you would be considering a variety of corporate option with it, A little a. And b, what's the outlook for mining within that and the rest of chemicals?
Because for the hydrogen business, Lars, for hydrogen business, we are considering and you have heard about Probably already. We are considering a partial value crystallization. And we have already mandated a bank, and we know that we as a result, we don't know what we expect the bank and processed to deliver results in the summer. So based on that then And in order to allow this partial value crystallization, if the offers are good enough to us, Ocen Business Unit and the plant, so means the Ode, We know it as Oudar CPT earlier, would then still be a part of But we are actually assessing we have already carved it out from the as a business unit from the plant from the chemical plant technology, so UDI segment. But yes, we are investigating now this partial value crystallization.
Does that mean either
So
Okay. And for the rest of chemical, because obviously, mining is well advanced on divestment, But the rest of the chemical business has got some great operation as well. I mean, are you closer to divesting that? Or is it on hold for the time being?
For the time being, I think you know that market is developing quite favorable because there is still besides hydrogen, There is still ammonia being so because we can, of course, provide full ammonia plant, and we have a good reputation And that's the next big wave. So we are enjoying for the time being, let me say, Lots of discussions with customers for potential projects to come. So we are actually
Perfect.
Sounds logical. Thank you very much.
The next question is from Christian Ulz, Baader Bank. Your line is now open.
Yes, thank you very much. And I'll get there. First question, I have 3. First question is on CO2 cost. What you currently have to buy?
And can you give us an idea about the impact on cost you expect for the 2 to 3 years, that would be the first question. Then I'll go on with this. Next one is on auto, More taking the longer term view as it was a long phase of ramping up new plants, restructuring and so forth. Can you give us an idea where we stand currently in terms of utilization and the ramp up of these plants? Are these Class fully ramped up now and fully operational.
And going forward in auto, Do you still looking for cooperation or partnerships at least for some parts of the automotive technology? And the last one is On Industrials, especially in bearings, of course, there will be a strong demand for windmills in the years to come. So how do you plan your capacity for the next 3 to 5 years, let's say? So forget about the short term incentives from the Chinese, But the longer term view in bearings, how much do you intend to invest? And what is your capacity planning there?
And what is the current bottlenecks there?
So I'm going to start with the question to Otto. Yes, I think You hit the nail on it, Ted. I think with the utilization with the question regarding the utilization of our auto plants. Thyssenkrupp has invested a huge amount in order to develop a global footprint, which is absolutely must have in an automotive business. But for the time being, we believe we have now finalized The buildup phase for the Global Foods, and now we grow into the given plants.
So there is Still there is still capacity, so we expect the auto business To invest, let me say, below previous years. That's the first thing. But I think also important For the profitability improvement of our auto business, mainly in the steering community, you know that they enjoyed Really significant growth in the early year. And at that time, and this is now something we try to correct going forward, They developed a significant product complexity. Product complexity is something very expensive.
In order to develop, let me say, very competitive office, you need to have a very simple product Architecture with lower complexity. With such a change, you have a second positive impact on your investments in the future because you can reuse better what you have already implemented for previous orders. So yes, we expect, I think, the investments to be lower than in previous year. And your question regarding alliances, That's I think that is something the auto industry has always done on the level, let me call it, Order per order. Sometimes a customer wants somebody to cooperate with somebody else In the system, so a commodity A is combined with commodity B into a system, so The 2 companies providing these 2 parts, for example, they are being asked by the customer to join forces for a certain order.
So to develop alliances is a Totally normal process in the automotive industry and, of course, developing bigger alliances now for system Businesses is, I think, always something to be questioned. I would never say we don't do that because there are some times from time to time, of course, we discuss with somebody. But we are not discussing about giving up The business, it's just discussions about joining forces, alliances. There are not yet formal discussions But joining alliances is a key success factor in the automotive industry, I think, going forward.
Maybe I have a direct question on that. So but you're not you're Talking about the system approval, which I understand, but you're not investing by yourself to really To enlarge your system approach, you are looking if then you are looking for cooperation, partnership, alliances To get the system approach, but you're not heavily investing into that.
We are right. We are not heavily we are not, let's say, thinking about an acquisition or We are not thinking about it. But I can give you a small example what we are doing from time to time, for example, active dampers. Active dampers and steering are both part of an active vehicle motion system. So from time to time, we invest Ourselves a bit in system capabilities when it comes to a point that a customer requires I was interested in 2 or more parts out of our portfolio, then we are investing in engineering results.
Perfect. Thank
you. Thank you. The
next question
I think So, Oakes had some further questions. Maybe I can make it very quick. So, Bering, Sam, you've asked about capacity. And Actually, we are investing in increasing our capacity. Also, we did this at the beginning of the year, and we have some other projects which we are coming up.
So This is something where we are definitely going to increase capacity. The other one were emission rights with steel. So well, you know that So far, we have this reallocation of emission rights. Together with some training we did, we were covered, let's say, this way. Looking into the future, it's a bit difficult.
So we know that emission rights will be we don't know, but there is a likelihood that the emission rights will be We'll go down. And then we will come into, let's say, a situation where we have a shortfall and then where we have, let's say, that we are, To a certain percentage not covered, but this is not a problem of Dusse and Coop. This is, let's say, a structural problem of steel industry and European Steel Industry. So Nothing more to say.
Okay. Thank you very much.
Your next question is from Rohen Fraunhiser, Kepler Cheuvreux. Your line is now
open. Yes. Thank you very much for taking the question. And apologies if the question has been already asked because I'm late to the call. On these Comments you made on the hydrogen partial value crystallization.
Mr. Maersk, can you give us a bit of a sense whether this is referring to kind of an opportunistic approach where you try to get the highest possible price for that stake? Or is it more about Getting the right partner for the business, which would delay it in the long term. That's the first question. The second question is, How shall we think about the earnings impact in the Q4 from the Schrodinger line In terms of underutilization and shipment loss?
And certainly on the steel spin off, Can you help me to understand your current thinking about the ability to offload debt and pensions? Is there a kind of a mechanism that all the pensions which are currently associated to steel Would automatically go into a spin off vehicle? Or how much is the flexibility you have above or below
So I'm going to start with the Question regarding hydrogen. This partial value creation,
Hello?
Mrs. Mertz, at the moment, we can't hear you any longer. One moment please, I will get back to the speakers shortly. So the speakers are back online.
Yes. Yes. Habron, sorry for the interruption.
No problem at all, yes.
Most of the things you might have heard what Martina said.
Now I
think it will start off right from the beginning.
From the beginning. So then I'll repeat briefly. What I said was this partial value crystallization could, Capitec, could lead into several, let me say, into several solutions like a subsidiary IPO or a spec. But the main objective behind it is To fund further growth in this business, so we would want to dedicate the potential funds into growth. And that can, of course, mean also to find partners in order to grow.
For example, in several regions, it might make sense to just to work together with somebody. But as that the main objective before our sales for us is to potentially fund total growth.
And there were some other questions regarding steel. The first one was regarding the capacity Shortage because of the revamping of the blast furnace. Yes, there will be a this is a technical, a nominal one off up to A low three digit tons number. So and the other question was Regarding the pension liabilities, there's some kind of flexibility. Yes, it is.
So normally, it goes with the business, So where it is and there's some kind of flexibility. But clearly to say, nothing is At this point of time, decided or something like this. So we have a pension liability which is dedicated to the steel business, and this is EUR 4,000,000,000, Full stop.
Okay. And the early impact of the this Underutilization and potential shipments loss in the Q1?
Well, too early to say. Too early to say. Yes, it's really difficult to make a new number on this. There is will be an impact, but very, very, very difficult to say.
Can you Of
course, yes. This is all.
You said, obviously, you might have built some inventory. So in this market, it's probably a difficult situation to either stock for the realign or just Sell in the market and realize the higher price level. So
What do you
think about?
The revamping or the realignment is technically it is not possible to do it on another point of time. It is Technically, it is a must. This is not an option to postpone it or to make it at another time point. Yes. And therefore, we do this and this is as I said before, we do this by intention in summer because we see our Most of our customers shut down their production facilities at August, and this is the reason why we think it's also been there.
Okay. Makes sense. Yes.
Yes. Thank you very much. Okay. Thank you.
Thank you very much.
Okay. Thank you.
And I think with that with those questions and answers, We have come to the end of our today session. And therefore, I would like to thank you very much on behalf of the entire team for your participation, for your questions. And as always, After the call, our Investor Relations team is available for you to discuss any further questions you might have. We look forward to staying in touch with you, and we wish you a nice rest of the day, and Bye bye, Margaret.
Thank you, Oren. Bye bye. Bye bye. Bye.
Ladies and gentlemen, thank