Dear ladies and gentlemen, welcome to the webcast of thyssenkrupp AG. At our customers' request, this conference will be recorded. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Claus Ehrenbeck, who will lead you through this conference. Please go ahead.
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 is on our Q2 numbers and the outlook for the year. Here on the call are our CFO, Martina Merz, and also Klaus Keysberg. Our CEO, Martina Merz, and our CFO, Klaus Keysberg.
It is a pleasure that we have Martina today with us on the call. All the documents for this call are available on our website. Martina and Klaus will guide you through the slides that you can find there. We start with Klaus, then followed by Martina, and then there will be a Q&A session. With that, I would like to hand over to Klaus Keysberg.
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 strong operational progress and effective turnaround initiation. Overall, our performance has improved year-over-year and also quarter-on-quarter due to a continued upswing of the market, particularly in the Materials Services and Automotive Technology businesses, and of course, supported by our relentless focus on performance. The operational developments also reflect the progress of our group transformation.
Nonetheless, we are by far not yet where we would like to be and will have to take several more steps to bring TK to a really sustainable performance. Current market developments are reflected in the order intake, where we have been able to record a 10% increase year-on-year as well as quarter-on-quarter, and in our sales, which have grown 17% quarter-on-quarter as a result of the strong demand recovery.
Simultaneously, we have been able to generate a positive EBITDA adjusted of EUR 298 million in the first half year, a significant improvement vis-a-vis the loss of the minus EUR 465 million we recorded during the same period of time in the previous fiscal year, which had already taken a hit from the pandemic. In this context, the rising demand has led to an improved capacity utilization, and together with a more favorable product mix, the structural improvements from our restructuring and performance measures gave a strong push.
Last but not least, the free cash flow before M&A has improved substantially by more than EUR 2 billion from a minus EUR 2.7 billion during H1 of last year to a minus EUR 780 million in this year so far. Let us now jointly take a look at the performance in Q2 more specifically. In terms of EBIT adjusted, all segments have contributed positively apart from Multi Tracks.
Virtually all segments have recorded major improvement year-over-year. With MS and AT as overall top contributors, resulting in a positive EBITDA adjusted of EUR 220 million. In terms of free cash flow before M&A, the higher EBITDA adjusted was offset mainly by a net working capital buildup of EUR 700 million as well as CapEx above depreciation in an amount of EUR 104 million, mainly due to Europe, 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, because of higher prices and amplified by a catch-up effect from Q1, which we already anticipated in February. Based on the better-than-anticipated result in Q2, and therefore H1, we are raising our full-year EBITDA adjusted forecast to a positive mid-three-digit million range and expect all segments to contribute positively, with Multi Tracks being the sole exception.
We would like to confirm our free cash flow before M&A guidance of improving year-on-year towards the negative EUR 1 billion, mainly affected by temporary high spending in net working capital and CapEx, well above D&A, and of course, also due to restructuring expenses. It should be noted that this would mark a major improvement versus the minus EUR 5.5 billion of the previous year.
Of course, we saw some extraordinary effects when we stripped down EUR 3 billion because of normalization of net working capital. Moving on to the next slide now, let me briefly highlight some major developments and performance levers throughout Q2 by segment. At Materials Services, we were able to benefit from the continued uplift in the materials businesses in the form of substantial price increase, which also had positive effects on the margin.
By execution of a further optimization of our network, for example, via the closure of five logistics sites in Q2, as well as 9% decrease in the number of employees. We achieved productivity gains of 7% in the first half year. 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 and efficiency measures in form of lower personnel and purchasing costs. Moreover, at Forged Technologies, costs were further reduced by measures focusing on lowering the costs of purchasing for direct production materials and administrative expenses. 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 freight costs due to limited capacities. At the same time, the results have been pushed by an increased production efficiency and favorable order structures. In addition, there were cost savings from the ongoing restructuring, focusing on lowering personnel and material costs, particularly at the Automotive Body Solutions and on segment level.
In case of thyssenkrupp, the favorable pricing environment is now starting to be reflected in our customer contracts, where average revenues per ton has started climbing higher. Higher selling prices and more favorable product mix were partially offset by higher raw material costs, primarily for iron ore. Furthermore, shipments have increased significantly quarter-on-quarter by 10%, and further efficiency gains have been achieved by an improved utilization, as well as restructuring progress with a reduction of more than 600 FTE year-on-year.
Moving to thyssenkrupp Marine Systems, performance program measures focusing on procurement and project execution are yielding their desired effects. Last but not least, Multi Tracks has considerably reduced its losses, in particular at Springs & Stabilizers, Automotive Engineering, Mining Technologies, and Heavy Plate. 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 reduce losses, mainly via an FTE reduction of 1,400 FTEs. On the next slide, we would like to briefly summarize what we have accomplished regarding our priorities since we introduced our group of companies concept to you one year ago.
We have stringently continued our performance first initiatives and have achieved a significant operational turnaround, as I described to you earlier. Simultaneously, by the previous sale of our elevator business, our balance sheet has been strengthened substantially, as reflected in an equity ratio of 29% and a net cash position of EUR 4.2 billion, giving us room to maneuver and to do what is necessary in order to improve our businesses and drive TK to a sustainable performance.
At the same time, we have initiated our largest ever restructuring program with a reduction of target of more than 12,000 FTEs until fiscal year 2023 from our previously defined programs, of which 5,400 FTE have already been reduced. Adding further FTE reductions from the segments on top of the progress, we have achieved an overall reduction of 7,000 FTEs so far.
In this context, we are expecting provisions in the amount of roughly EUR 1 billion, EUR 400 million in the current fiscal year, in addition to the EUR 600 million in the last fiscal year, reflecting, this is the reason why we mentioned this, reflecting that our targets are substantial and by clear plans. As part of our portfolio transformation, we have embarked on a group of companies approach, entailing full entrepreneurial freedom, accountability of leadership teams to support a true performance culture.
In this context, I would like to specifically highlight the thyssenkrupp Strategy 2030, where the management continues their performance push aiming at returning the business to a best-in-class position. The envisaged performance step-up also creates optionality and is a prerequisite for a standalone readiness. Looking at our portfolio restructuring, we see some progress at Multi Tracks, which comprises those business where we believe that going forward, we are not the best owner.
A potential signing of our Mining Technologies is getting closer. Over and above, we have received numerous expressions of interest for the sale of AST and Infrastructure, while the closure of Heavy Plate will be conducted until the end of fiscal year 2021, so the current fiscal year. Likewise, we have recently concluded that the Carbon Components business unit will be discontinued.
With regards to the green transformation trend in our industries, in addition to working towards our own climate neutrality targets, we are intending to seek opportunities by leveraging our strong USP and enabling our clients in areas such as e-mobility, renewable energy, and green hydrogen 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 three 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 of carving the electrolysis business out from our chemical plant operations.
The next slide seeks and summarizes where we stand with the restructuring of our businesses. As part of our plan, entailing a reduction of more than 12,000 FTEs, 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 FTEs.
In this context, we already had EUR 300 million additional provisions in the first half, reflecting the majority that we planned for the entire year. The cash out for restructuring exceeded EUR 100 million in the first half and is expected to be a low to mid-digit billion EUR amount in the fiscal year or in the full fiscal year.
Looking forward to the next two years, the corresponding expenses will be considerably lower, while some of the planned cash out is yet to occur. Taking a look at the cumulative sustainable savings resulting from the restructuring, we expect a low mid-three digit million EUR range until the end of this fiscal year, which is set to increase to a high three digit million EUR amount until 2023.
To conclude, we believe that 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 EBITDA adjusted outlook again is justified. Therefore, we now expect to achieve a positive mid three digit million EUR EBITDA adjusted with positive contribution from all segments, except Multi Tracks, whose performance is to improve significantly, yet it will still record a substantial negative EBITDA adjusted in the low mid-three digit million EUR range.
At the same time, it should be noted that uncertainties still persist regarding, for example, COVID-19 related issues such as lockdowns or supply chain constraints, particularly for semiconductors, for the second half of the fiscal year. In terms of free cash flow before M&A, we would like to confirm our previous guidance towards negative EUR 1 billion versus the EUR -5.5 billion in the previous fiscal year.
This includes the business cash flow of Multi Tracks, which we expect to be a negative mid-three digit million figure. In this context, we considered some net working capital buildups due to the strong demand and the likely high raw material cost. Also, the payouts for restructuring in a low to mid-three digit million range I referred to earlier have to be taken into account.
Another influencing factor is the variability of cash profiles at the project businesses, largely determined by upfront payments for large orders and milestone payments in the course of the project execution, which can't be forecasted with an absolute degree of certainty at this point. 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 the product mix towards higher margin products. Having said that, I will now give over to Martina.
Thank you, Klaus. Thank you very much. Ladies and gentlemen, thank you very much for participating in today's call. The share price developments this morning show that we will have an interesting discussion afterwards. I'm looking forward to that. As Klaus said, and the figures show, the transformation of thyssenkrupp is making progress, although we have not yet put the COVID pandemic fully behind us. However, it's also clear that we have not yet reached our goals.
Additional efforts will be needed to close the gap with our best competitors, achieve a positive cash flow, and strengthen the foundation for growth. For this reason, improving our performance is and remains our most urgent task, and we are continuing to work hard on further cash flow improvements in all our businesses.
By doing so, we reach a point in our transformation process where we are evolve the focus of our efforts from transform to perform, to perform to sustainability. For our transformation, all relevant decisions have been taken and we know what to do. Going forward, we will challenge ourselves to focused, performing for dual 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 priorities. We can calmly but forcefully work on our tasks. What that means in the first place is, of course, speed, and again, speed. I do ask you for your understanding that you will not hear much from us in the upcoming months. We simply are busy working. Our focus clearly is on doing rather than talking.
The path is defined. 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 the levers for sustainable performance, we have defined them together with the businesses and are systematically monitoring their implementation.
I won't go into detail, but here are just a few of our key topics. Materials 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 chain management and integrate ourselves more deeply into our customers' value chains. We are on a really good path here. At the same time, we are continuing to optimize our network. We are closing sites and investing in new logistics centers, as recently in Rotenburg. Industrial Components.
Just very briefly, for bearings, it is primarily a question of growing in the wind. We have already 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 Technology. 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 China. Overall, we are examining how we can expand our very good position also by further improving our system competencies.
Here, too, we are reducing our dependence on combustion 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 continuing 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.
Such a standalone solution is subject to a number of conditions. The adjustments to the Strategy 2030 are important steps in this respect. Today, I can say that steel has a robust business case. To tackle the green transformation, we urgently need planning certainty with regard to political support regarding the regulatory framework, infrastructure, and financing. We are working on this, but a decision on how to make steel a standalone business simply takes time.
Marine Systems. Marine Systems is about to receive the largest order ever, submarines for Norway and Germany. You have read about this already in the news. Contracts are not yet signed, we expect the order intake in the next month. Respective investments are currently being made in order to be well-positioned for building these subs. It's now key for Marine Systems to capture the value of this filled order book. Performance measures are defined, the colleagues are improving steadily.
At the same time, we will continue to remain open for consolidation opportunities. Here, we are now in a far more comfortable situation with such an order intake to report. Multi Tracks. The sales processes at Multi Tracks are progressing according to plan. At Mining Technologies, AST, and Infrastructure, we are in advanced negotiations and talks with interested parties, and the closure of Heavy Plate mill will be completed by the end of fiscal year.
March 18th was already the last working day on the roll. It is now key to drive the M&A processes, bring them to a favorable finish, and at the same time, continue the ongoing restructuring measures. Yes, I know that you expect me to say something about hydrogen. The latest order for an engineering and supply contract with CF Industries for a 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 customers commercially and technically mature solutions for the production of green hydrogen. This area is one of the world's fastest-growing markets. We are therefore currently examining intensively the best possible way forward. Ladies and gentlemen, to sum up briefly, TK'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 far from over. We have a clear picture of our next steps and will systematically work on our priorities. 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 19th, an update on the current situation. We will continue on our transformation path step by step, dauntless and determined. Much for my outlook, and I'm very looking forward to your questions. Klaus too, by the way.
Of course.
Many thanks to both of you. With that, we can now hand over to the operator. Operator, could you please take over for the Q&A session?
Yes, I will. Ladies and gentlemen , if you would like to ask question for speakers press star zero and one on your telephone keypad to enter the queue. Once your name has been announced you can ask the question. Please only have a maximum of two questions. If you find your question is answered before your turn to speak you can dial zero and two to cancel your question. If you are using speaker equipment today please raise your hand up before making any selection. One moment please for the first question. The first question is from Ingrid, Kommerzbank . Your line is now open.
Yes. Thanks for taking my question. 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 2030. Nevertheless, I think if we compare it to the EBITDA per ton or margin improvement compared to 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 different material prices.
Maybe I can take this question, Tina. If you look at the performance of thyssenkrupp Steel Europe, of course, you have to look at several things here. First of all, we always said that in the past, we are regarding the performance behind the performance 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 far-reaching measures. We have to admit these measures are not fully implemented at the moment. That's the reason why we of course, still at the moment are a bit behind our competitors. This is the one thing. By the way, everything is on track and on plan. You also saw the numbers that making the people redundant takes a bit of time. We started, we already have more than 600 people made redundant so far, but not 3,000 plus 750.
This is the first explanation to this. The other, maybe even more important, is the contract structure of Steel Europe. You know that our dependency on automotive is quite high, and therefore also our structure of contract is with not being so much involved in, let's say, a spot market business, but more in let's fixed contract business.
It's clear that it takes, let's say, more time to convert the high spot markets into our contracts than maybe other competitors have, which do have other contract structures. If prices are up, this takes a bit more time. If prices go down, it should also take a bit more time when we lose our related margin to this. Is this helping?
Yes. That's helpful. Of course, I think especially in context of the strategic importance, that's of course, very important for us, I think, to track the profit trajectory of this segment in particular. My second question would be on Multi Tracks. I'm glad to hear that you're progressing well on the mining side, and of course, seems to be a good time to sell it.
Hopefully allow you to focus more on book gain. Maybe on AST and the 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 whether it's a favorable business or it should be a favorable deal or not. You have understanding that we are not commenting on conditions at the point of time. Let's see what the outcome will be. We are looking quite optimistic into this scenario. Regarding AST, we have some interest expressions to AST, yes. We are in negotiation with it. It's also you have to understand that we are not commenting on who it is. This is not only one, these are more.
Okay, great. Thanks. I appreciate that you're obviously not trying to overpromise at this point. I think that's a good approach, obviously. Maybe just a quick one on cash flow. Can you tell us whether there's a bigger Marine down payment included for this year in your full year cash flow guidance, or would that come on top?
On our cash flow guidance, you mean a down payment from marine?
Yeah.
There is one down payment included.
Okay.
This is something which is not surprising. This is what we have already considered always into our projection scheme.
Okay. Thanks very much.
Maybe one thing on steel.
Yeah, sure.
Again, if you look at the full year outlook, you know that we will have, let's say shutdown of blast furnace one.
Relining.
It is not a shut one.
Relining
A planned relining of our blast furnace one, which is technically necessary, and therefore, it's a long plan to do this, and it's also not an option to do it in another point of time. It's specifically a plan to do this starting from July, also because of the upcoming holiday months for our customers, our car producers. This is something we have to bear in mind.
Okay, that's very helpful. Thank you.
Yeah.
The next question is from Seth Rosenfeld, Exane BNP. Your line is now open.
Good afternoon. Thank you for taking our questions. A couple questions with regards to the outlook for automotive demand, please. Can you give a bit more color on how the ongoing semiconductor shortage is impacting demand, both in steel and auto components? Maybe what scale disruption's currently baked into your forecast for second half of the year?
Then I, to follow up on the earlier question for your steel business with margin progression. In a normal cycle, lower sales to your auto customers we view as margin dilutive. Several of your peers have commented that, in fact, the semi shortage is actually aiding their margins at present, given how hot the spot market is. Reallocating from auto to distributors is helpful. Are you seeing that in your business as we look ahead to the coming quarters?
Maybe to the first question regarding our outlook on the automotive demand. I think it clear we saw a really uplift of the demand in our first fiscal year quarter, which is, of course, last fourth calendar year quarter. We also saw some effects in, let's say, fulfilling again, fill up the supply chain. What we saw or what we estimate is if you look also in the media, you know that some OEMs are really shutting down. This, of course, has to do with the shortage of the semiconductors and logistics problems.
Therefore, we said we still see from automotive a quite good demand, but it's as I said before also, the OEMs could sell more than they are able to produce. 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 lower than in the first half year. 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, yeah. As I said before, we have some positive on the spot market business.
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. 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. Hope you understand.
You're benefiting in Materials Services, surely, from this.
Yes, of course. Yeah. Of course.
Thank you.
Dependent on steel, in Materials Services, we are depending on this very much, of course. You know that the shortage in, if this was the question, the shortage in materials from, as you say, saw also in the Q2 numbers, our sales number with Materials Services was not higher than previous year. This was just because of the shortage of material. Of course, this has one good effect because spot prices went up, and of course, this is good for the EBITDA for materials. Yes.
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 lagging than your peers. 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. Yeah, you know that it's so that, of course, if you have, let's say, a revamp of one blast furnace, you have limited capacity. This is also one thing. You have to take into account in which direction do I send my material now. We will do this wisely. We will, of course, go for the automotive volumes, but also then, for the industry volumes, if the demand is there.
We will see what the outcome will be. Yeah, as margins should be better at the end of our fiscal year, very clear. Also take into account, I don't want to be pessimistic here on this point of time, but you also see the iron ore development at the moment. This is something, of course, which is not helping, but, yeah, you have to take into account.
Okay. Thank you very much.
The next question is from Bastian Synagowitz, Deutsche Bank. Your line is now open.
Mr. Synagowitz.
At the moment, we can't hear you.
Can you hear me now?
Yes.
Perfect. Thank you. My first question is on Auto Tech and Industrial Components. Where last quarter you were basically guiding down sequentially. I guess the situation around SEMI is as well flagged for autos, obviously. Your order intake in none of the businesses so far indicates a major slowdown.
Is it fair to assume that your guidance on these businesses at this point is really more preemptive cautiousness? Just being very conservative, or are you seeing an actual indication that we are up for a major deceleration in those businesses? Overall, the indicators still, at least for Industrial Components in particular, look pretty supportive.
As I said before, if you look at Automotive Technology, we think that we will have quite a good half year, but not with the dynamic of the first year. This is clear. 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 something. This is a pure effect of the logistic problems and the semiconductor problems, not a real demand.
This is something where we have a question mark on. If this is going to happen, then we will deal with our guidance. 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 business, when I got you right, you also said that we might have a, let's say, lower performance in the second half. Yes.
You also have to take into account the bearings business where we clearly see, if you look at bearings for wind energy in China, this was a booming quarter. The first quarter was also subsidized by Chinese government. This dynamic is definitely not going to be this high dynamic in the second half year, but still a good dynamic. We are happy with this. This is something which is happening.
Okay, perfect. Thanks for clarifying. My second question is a follow-up on Ingrid's question and your contract exposure in steel, in particular. 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.
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 skew 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 the case, because you know that we have, let's say, a big amount of contracts where we have these contracts. We have, let's say, different situations. There are much contracts which start the 1st of January, goes three months or six months. Some go to 12 months. Then we also have, let's say, the next phase where we have negotiations for orders which are starting at 1st of April for three months. It's going on and going on.
We have, let's say, every quarter we are able to negotiate something in the order structure here. Overall, this is okay. This is fair. Every quarter we are able then to really also negotiate with some customers the new raw material situation. If we are now talking about increasing raw material prices, then you are asking the question, if the raw materials price or if prices go down, then we have other questions. You know what I mean?
Yeah. No, I can imagine, of course, then you'll be benefiting. Always just thinking that your overall contract exposure is still very much January heavy in terms of the point in time of when you negotiate, and that obviously makes it pretty dependent on sentiment and the cycle at that point in time.
It's more balanced than you think. It's not so much January heavy.
Yeah. Okay. Understood. Thank you.
Okay.
The next question is from Carsten Riek, Credit Suisse. Your line is now open.
Thank you very much. My first question also on Industrial Components. As Bastian mentioned already, last quarter you hinted on a normalization. Here we are again, close to EUR 100 million in EBITDA. Is that the new normal or is it finally more normalizing, why is that the case? That's the first one. The second one, on stainless steel, I haven't found any numbers in the report.
Given that's the biggest unit in the Multi-Tracks, would it be possible to at least give us some shipment numbers, EBITDA, 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?
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, since the beginning of year, we are ramping up in volumes. This is clear. Let's say the first quarter we had, of course, the nickel development and scrap development was not in favor of the industry.
Now we are, let's say, seeing increasing volumes and better also price conditions. Maybe just to give you an idea what the business is going on. The other question was regarding the IC business, whether the EUR 100 million is a new normal. Hopefully. Sorry for this simple answer. We really think that the businesses which are, let's say, combined in this Industrial Components business unit, they will be very strong business also in the future.
You don't expect from me now to give you a number from quarter to quarter, but this will be strong businesses. This is at the moment clear, wind energy is supporting and also other things. 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? 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, then we really see big growth potential in this business, in the bearings business.
I think on the forged side, just to add something on the forged side. I think the bigger part of the business in combustion engine is still with trucks.
Yeah.
Our market share in that business is, I would cautiously say, significantly higher than 50%. Truck business is first going at this, and you know that. Truck business is currently a very good business, high growth rate, and it will remain stable for a relatively long time now. Forged is combustion engine, but in the right part of combustion engine.
And also-
Okay
in construction business also.
Yeah.
And this is-
Yes
another playing ground.
One quick word on Multi Tracks. Martina, would you be disappointed if Multi Tracks would be still in the same shape and form at the end of the fiscal year as it is right now?
First, I would say no. I try it with provocation. Because what counts is what price you can, what value you can crystallize from the businesses you're in. I have to say, our positioning in most of these parts is in a way promising that we might benefit from the current improvements of, and let me say, with the view that the coronavirus pandemic is coming to an end.
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 Tracks anymore by the end of the fiscal year. Klaus mentioned it. We are, let me say, our discussions on Mining Technologies, let me say, it's progressed very well.
Please define.
Excuse me. Let me say, it's still in the structure. 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 Multi Tracks will at the end contribute to the value creation of the overall company. For me, what counts very much is, we have a roadmap to value creation for thyssenkrupp.
This roadmap to value creation is to us a kind of Holy Bible. In this creation of value, of course, we have defined the full potential plan for ourselves, and we have created a program to capture this full potential. All what counts is to execute on this plan. So far, I have to admit, we have not deviated. We have not deviated significantly from this plan.
Our problem was COVID-19, but not a significant deviation to our own execution plan. Klaus 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 thyssenkrupp, it will take time to really develop a 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. This is why you might find us from time to time a bit conservative. To us, we really want people understand our roadmap and our value creation plan, and that we here and there reprioritize a bit in terms of timing. Of course, I think that lies in the nature of a business environment which is volatile. 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 spoke of being conservative in the way you look at things. Your EBITDA guidance for the full year is implying the quarterly profits of almost EUR 100 million for the next two quarters, which is half of what you achieved during Q2.
You clearly refer that auto disruption is to be blamed for part of this forecast. 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 we should be thinking about? That's the first question.
Even Claus has started the meeting with describing Martina as the CFO. I will not go into the explanation of figures because that has a significant risk that Klaus afterwards will 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 believe that the best thing we can do is to develop a standalone pure play out of our steel community.
What counts for that is, of course, to implement, for steel, a plan that they can achieve competitive EBITDA per ton and competitive performance. Not only for one year, not only for half a year. This must be an outlook, because steel is a business where it takes years to improve the performance bottom up.
There's always how you react on market ups and downs. 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. In order, you have heard that we decided last year when we sold the elevators business, that two months after that, we provided capital in a significant amount to the steel business to develop its business. In order to implement these investments, it takes years.
That means, to us, it was clear from the beginning that the steel business will need some time in order to improve its fundamental performance. Our goal is and was that we find a future for steel, where they can really contribute to the market and to our investors and shareholders what is adequate to the number two in Europe in this business.
Thank you.
That's, I think, I do not ask you for patience, or I just try to explain, challenge us for speed, but please understand that we are not over-promising and under-delivering. That's the last thing we want to do.
Thank you. As a follow-up to this question, clearly having steel as a standalone can mean different things to different people. Can you elaborate a bit more on how do you define having it as a standalone? Have you set any hard deadlines by which you need to make a definitive decision on how you move forward with steel?
In our current strategies, of course, and now Klaus I'm walking through your garden, so.
Please go ahead.
As Klaus is responsible for the steel business. Based on our financial situation, of course, it is a quite courageous approach, to discuss about a standalone business, a potential spin, and IPO of a steel business. 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 standalone of steel, which then possibly next step means a spin, and then following possibly an IPO. This should be then supported by the entire board. The final decision and the final result of the feasibility study, we expect them to be available only possibly second quarter calendar year 2022. Klaus, right?
We do our own, let's say, milestones and things like this, but we have, let's say, an ambitious timetable, but we are not talking about this ambitious timetable. There is so much homework to do if you talk about the potential spin or IPO. There are so much things to do, which we are at the moment starting to do. We have different projects to look at it.
Of course, we have to do our own homework. With this own homework, we think we are very good on the way, but there are also some other issues which have to come to terms. 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 fact-based optimism. It's not just about optimism, it's fact-based optimism. Based on this approach, of course, to us that the alignment throughout the different leadership levels in the company, starting with the supervisory board, our unions, to us or
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 a speed of change in a transformation. This is why we are, at this point in time, we are exactly in this alignment activity, but we are quite confident that the further transformation of thyssenkrupp will be supported by our supervisory board.
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? Particularly, normally is that you would build up inventories ahead of the quarter and ahead of the closure in July. When we look at your costs in that division, excluding raw materials, we're seeing an increase over Q1, and that would be consistent with the higher level of production into Q3. 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, and the demand is high. 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 scraps and things like this. This is something we normally do in these circumstances, and this is something which is ongoing to prepare this phase of relining this last one as well.
Okay. That's why you're guiding for Q3, EBITDA, steel up higher than Q2?
Most probably.
Yeah. Okay, makes sense. A question on steel and your distribution. You're guiding for a flat performance Q3 versus Q2. This is a great, obviously, performance you've achieved at EUR 126 million 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.
Yeah.
Q3, is it?
On the steel distribution. If it's something which is recurrent.
If you look at the business model of this business, of course, you have to take into account that in this kind of market period where the prices are going up, you're realizing so-called windfall gains. This is a matter of when you purchase the material and when you, let's say, sell the materials. This kind of market we are in, of course, this is supporting.
You know that we are working very much on performance here, but the amplitude of this effect is, of course, a big one, and you can see this also on the competitors. We think we will have a good Q3 and also quite a good Q4. 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.
Yeah.
Last thing is on your hydrogen, as I think you're implying you're looking at carving out hydrogen from the rest of the plant technology. Does it mean that you will be considering a variety of corporate option with it, letter A? B, what's the outlook for mining within that and the rest of chemicals?
For the hydrogen business, Lars, we are considering, and you have heard about that probably already. We are considering a partial value crystallization. We have already mandated a bank, we expect that the bank and this process to deliver results in the summer.
Based on that then, and in order to allow this partial value crystallization, if the offers are good enough to us, if we do that, then of course, we would then talk about only the hydrogen business unit, and the plant, so means the Uhde, or we know it as Uhde or CPT earlier, would then still be a part of thyssenkrupp, until we would start a next process to sell it off.
Yeah.
We are actually assessing. We have already carved it out as a business unit from the chemical plant technology, so Uhde segment. Yes, we are investigating now this partial value crystallization.
Does that mean either flotation or straight sale to somebody else?
That's not yet decided. That's part of the process to investigate. At this point in time, we are considering only a partial one, not a full one.
Okay. 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. 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. Because we can, of course, provide full ammonia plant, and we have a good reputation for doing so, and that's the next big wave. We are enjoying for the time being, let me say, lots of discussions with customers for potential projects to come. We are actually in this area, we are observing a bit what the market development before we would take a final decision.
Perfect. Sounds logical. Thank you very much.
Yep.
The next question is from Christian Obst, Baader Bank. Your line is now open.
Yes. Thank you very much and all the best. First question, I have three. 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 next two to three years? That would be the first question. Okay, go on with the next one is on auto, more taking the longer term view.
There was a long phase of ramping up new plants, restructuring and so on and forth. Can you give us an idea where we stand currently in terms of utilization and the ramp-up of these plants? Are these plants fully ramped up now and fully operational? Going forward in auto, do you still looking for cooperation or partnerships, at least for some parts of the Automotive Technology? The last one is on industrials, especially in bearings.
Of course, there will be a strong demand for windmills in the years to come. How do you plan your capacity for the next three to five years, let's say? 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? Thank you. What is the current bottleneck there?
I'm going to start with the question to Auto. Yes, you hit the nail on its head, with the question regarding the utilization of our Auto plant. thyssenkrupp has invested a huge amount in order to develop a global footprint, which is absolutely must-have in an automotive business. For the time being, we believe we have now finalized that build-up phase for the global footprint.
We grow into the given plants. There is still capacity. We expect the Auto business to invest, let me say, below previous years. That's the first thing, but also important for the profitability improvement of our Auto business, mainly in the steering knuckles. You know that they enjoyed a really significant growth in their early years.
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 offer, 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.
Yes, we expect, I think the investments to be lower than in previous years. Your question regarding alliances. That is something the auto industry has always done on a level, let me call it, order per order. Sometimes a customer wants somebody to cooperate with somebody else in a system. A commodity A is combined with commodity B into a system.
The two companies providing these two parts, for example, they are being asked by the customer to join forces for a certain order. 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 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 beyond that. Joining alliances is a key success factor in the automotive industry, I think, going forward.
Maybe I have a direct question on that. You're talking about a system approval, which I understand, but you're not investing by yourself to really enlarge your system approach there. When you're looking for cooperation, partnership, alliances to get the system approach, but you're not heavily investing into that.
Right. We are not, let me say, thinking about an acquisition or something. We are not thinking about that.
Okay.
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. From time to time, we invest ourselves a bit in system capabilities when it comes to a point that a customer requires or is interested in two or more parts out of our portfolio, then we are investing in engineering kudos.
Perfect. Thank you.
Okay. Thank you. The next question.
Oh, I think to offset some further questions.
Yeah.
Maybe very quick to Bastian Synagowitz, you've asked about capacity. Actually we are investing in increasing capacity also. We did this at the beginning of the year. We have some other projects which are coming up. This is something where we are definitely going to increase capacity. The other one were emission rights with steel.
So far we had this free allocation of emission rights. Together with some planning we did, we were covered, let's say, this way. Looking into the future is a bit difficult. We don't know, but there is a likelihood that emission rights will go down. We will come into a, let's say, situation where we have a shortfall where we have a, let's say, where we are to a certain % not covered. This is not a problem of thyssenkrupp. This is a, let's say, structural problem of steel industry in European steel industry. Nothing more to say.
Okay. Thank you very much.
The next question is from Roland Brandner, Equita Group. Your line is now open.
Yes. Thank you very much for taking the question. 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. Martina, 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 deliver it in the long term?
That's the first question. The second question is, how shall we think about the earnings impact in the first quarter from the Schwelgern reline in terms of underutilization and shipment loss? Thirdly, 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 these steel pensions in order to find the right setup for this separate entity?
I'm going to start with the question regarding hydrogen. This partial value creation.
Hello?
Mrs. Merz, at the moment, we can't hear you any longer. One moment, please, I will get back to the speakers shortly. The speakers are back online.
Yeah. Roland, sorry for the interruption.
No, no problem at all, yeah.
Most of the things you might have heard what Martina said.
No, I think it was cut off right from the beginning.
From the beginning. I repeat briefly. What I said was this partial value crystallization could lead into several solutions, like a subsidiary IPO or a SPAC. The main objective behind it is to fund further growth in this business. 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 certain regions, it might make sense to, yes, to work together with somebody. As said, the main objective for us is to potentially fund further growth.
There were some other questions regarding steel. The first one was on regarding the capacity shortage because of the revamping of the blast furnace. Yeah, this is a technical, nominal one of up to a low three digit tons number.
Yeah.
The other question was regarding the pension liabilities. There's some kind of flexibility. Yes, it is. Normally it goes with the business, so the way it is, and but there's some kind of flexibility. Clearly to say, nothing is, at this point of time, decided or something like this. We have a pension liability, which is dedicated to the steel business, and this is EUR 4 billion. Full stop.
Okay. The impact of this underutilization and potential shipment loss in the first quarter?
Well, too early to say. It's really difficult to make an EUR number on this. There will be an impact, but very difficult to say.
Sorry, a question is.
Of course. Yeah.
You said, obviously you might have built some inventory. In this market, it's probably a difficult situation to either build a stock for the reline or just sell into the market and realize the higher price level.
The revamping or the realignment, technically, it is not possible to do it on another point of time. Technically, it is a must. This is not an option to postpone it or to make it at another time point. Yeah. Therefore, we do this, and as I said before, we do this by intention in summer because we see most of our customers shut down their production facilities in August, and this is the reason why we do this also then there.
Okay. Makes sense. Yeah.
Yeah.
Thank you very much.
Okay.
Thank you.
I think with those question and answers, we have come to the end of our today session. Therefore, I would like to thank you very much on behalf of the entire team, for your participation, for your questions. 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. We wish you a nice rest of the day, and bye-bye with that.
Thank you all. Bye-bye.
Bye-bye.
Bye.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.