thyssenkrupp AG (TKA) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of thyssenkrupp. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Claus Ehrenbeck, who will lead you for the conference. Please go ahead, sir.

Yes, thank you very much, operator. Yes. Hello, everybody, and welcome also on the behalf of the entire team here. The call is on our Q3 numbers for the fiscal year. We released all the documents for this call this morning at 7:00 a.m. So you can find all the documents on the IR section of our website. Before we start the call and the Q&A -- the presentation and the Q&A session, [Operator Instructions] We want to make sure, and this would be very kind of you, that many people have a chance to ask the questions after the presentation. And with that, I would like to hand over to Klaus Keysberg for the presentation.

Yes. Thank you very much. A warm welcome from my side to today's conference call on our Q3 figures. And before we have a look at the financials, let me start with a short update for you on the transformation process and what we accomplished in the past months. By far, the biggest step and an important milestone in the transformation of the company initiated last year was, of course, the closing of the elevator sale on July 31 to a bidding consortium led by Advent International in Finland. With the closing, we will see, in our Q4 numbers, a conversion of net debt to a net cash position for the first time since the financial crisis as well as a significant equity uplift by more than EUR 40 billion, and the proceeds provide us tailwind for the transformation that lies ahead, which is clear. And I can assure you, we continue to focus all our energies in substantially improving the performances of our business, which is absolutely key. Therefore, on May 19, we presented the main cornerstones of our portfolio assessment. The core being the transformation into a higher performer group of companies with entrepreneurial independent businesses that will close the gap to the benchmark, lean management structures and a clearly structured portfolio. We divided our businesses into more or less 3 categories. On the one hand, those whose potential, we will develop on its own, including Materials Services, Industrial Components and also eventually, together with partners, Automotive Technologies. And then we have the dual-track companies, the reopened Marine Systems, where we have a clear stand-alone strategy, and we also consider and are investigating potential consolidations and corporations. And on the other hand, those for which we will primarily pursue development path outside the group segment and the Multi-Track segments, including, amongst others, Plant Technologies, the stainless steel plant AST in Italy, Springs & Stabilizers as well as heavy plate. To put it into quantitative terms, Multi-Tracks consists of businesses with a total sales of EUR 6 billion in fiscal year '18, '19 and a significant cash burn. On top of that, we are making visible progress in restructuring our businesses. At the beginning of the week, we announced adjustments in our cement unit, including the reduction of 400 FTEs worldwide, therefore, approximately 150 FTEs in German site as has begun. Nevertheless, all of our business will have to accelerate their initiatives going forward and potentially also, I have to say, is adapt the efforts with regards to the economic development we see so far. And with highest priority on a stable cash flow, this is, of course, one of our highest growth here. Consequently, with the release of the fiscal year figures in November, we will then present financial targets and value levers for the special or for the businesses itself. Moreover, to enhance transparency and normalize our net working capital towards ongoing continuous management, we will reduce our balance sheet data-driven fluctuations in net working capital, including the use of factoring substantially. Coming to the financials for the third quarter, unsurprisingly, the pandemic had a clear impact on the top line, especially pronounced in absolute terms at our materials as well as on our car and truck component businesses due to a drop in demand, especially in NAFTA, and Europe, as OEM customers, temporarily shut down their productions, while Plant Technologies was also lower due to a high comparable base. Nevertheless, as Plant Technology, we see a rising interest for our water electrolysis plant designed for efficient large-scale production for hydrogen. On top of that, we signed a strategic partnership with the U.S. industrial gas company, Air Products and Chemicals, and agreed on a cooperation with the German grid operator, E.ON, stating that our water electrolysis technology qualifies as primary control reserve in the power grid and laying another foundation for potential participation in large-scale green hydrogen projects. Looking at the bottom line, EBIT adjusted and free cash flow before M&A were driven by significant sales decline and resulting underutilization. Looking ahead, we are quite optimistic that we will see an earnings stabilization in the fourth quarter, of course, depending on the speed of production restart by our customers. EBIT adjusted at most businesses is expected to be stable or slightly up quarter-on-quarter, resulting in an overall fourth quarter loss in the mid- to high 3-digit million range. However, with the first month of our quarter already behind us, we see indications for an ongoing demand recovery and also a positive trend regarding order intake, also from the automotive side, giving us reasons to be cautiously confident. Overall, for the full year, a loss in the range of EUR 1.7 billion to EUR 1.9 billion is likely for our continuing operations, with steel being a strong driver with a likely loss contribution up to a good EUR 1 billion. The aforementioned Multi-Tracks that we report as -- that we'll report as of next year will also account for roughly EUR 0.5 billion in EBIT negative adjusted in this fiscal year. Free cash flow before M&A for the continuing operation is now expected to be EUR 5 billion to EUR 6 billion negative, including a EUR 2.5 billion due to the absence of proceeds from factoring and net working capital measures that usually occur mainly in the fourth quarter, but also during the year. This means that we are guiding an operating cash flow between EUR 2.5 billion and EUR 3.5 billion. By terminating our disproportionate measures towards a better and a more continuous management, we provide an element for the cash flow turnaround going forward. Looking at our operational performance in more detail. EBIT adjusted and Automotive Technologies came in significantly lower in year and negative mainly due, of course, to the corona-induced drop in demand with production in plant shutdowns in Europe and NAFTA. And on the positive side, of course, we saw a lot of countermeasures, especially at Springs & Stabilizers. As an example, Springs & Stabilizers, they improved year-on-year on the back of extensive turnaround measures. Moreover, in April, we approved an extensive restructuring plan for the German springs and stabilizer sites. Under the plan, around 419 jobs will be impacted by closure of all plants streamlining of the Hagen side. Industrial Components delivered a positive earnings contribution, yet significantly lower year-on-year, significantly higher earnings and bearings due to sales growth in the high-margin wind energy segment couldn't compensate for the negative earnings effects from the decline in sales at Forged Technologies, also due to cyclically lower demand for components for heavy-duty engines and construction machinery. Due to the pandemic-related lower utilization with ongoing construction site costs that couldn't be charged to customers' plant technologies was lower year-on-year, thus remaining negative. The overall negative result was partly cushioned by a robust service business, and we have to say it's a successful and stringent G&A cost reduction that are bearing fruit now. Marine System came in positive and up year-on-year as measures for performance improvement are taking effect. Nevertheless, earnings continue to be held back by low margins on project builds. At Materials Services, plastics was the only segment being up year-on-year as the transparent plastic sheets are used as a protective measures against coronavirus. In challenging trading conditions, all other market segments came in lower due to volume and price developments. AST came in lower year-on-year and negative, overall driven by declining prices and volumes and the temporary plant closure in April. Significantly lower shipments and unfavorable product mix due to lower demand from OEMs as well as costs of lower capacity utilization led to significant deterioration in earnings at our Steel Europe. That could not be offset by stringent cost measures and lower raw material costs we saw. Last but not least, cost at the corporate headquarter were lower year-on-year, continued reduction of administrative costs in the corporate functions and regions and also a positive one-time we saw here. As already indicated earlier, our balance sheet will see a strong push in Q4 from the sale of the elevator, specifically, a EUR 15.4 billion effect on net financial position. Thus, a conversion from a net debt to a sizable net cash position, which now is more than ever important. Net of these proceeds are an additional EUR 1.25 billion that will be reinvested or we will have a minority stake in that business, in the elevator business. Furthermore, we will experience a significant uplift in our book value of equity of more than EUR 40 billion, while approximately EUR 0.4 billion of elevated pension provisions will also be deconsolidated. So overall, our balance sheet ratios will clearly improve. However, as the economic situation remains uncertain, we will retain the greatest possible flexibility in the precise allocation of funds. Nevertheless, we have taken first decisions. we will repay financial liabilities in line with the maturity profile. As a first step, we will redeem a EUR 750 million credit note, which is due in November, and we will repay it in September. Moreover, part of the proceeds will be used to terminate our year-end and net working capital measures and reduce our factoring volume in total by EUR 2.4 billion. In the past, as most of you are aware, our cash flow profile during the year did not always clearly reflect the operational development, as it was blurred by our disproportionate net working capital measures. We are committing to more transparency and much more predictability and also require and enable our business to really step up structure and continuous net working capital management. This is an essential lever to turn around our cash flow, and net working capital optimization will be of highest importance in the coming quarters. And here, we clearly see upside. On the one hand, this net -- this relief of the net working capital measures at year-end will, of course -- let's say, will, of course, increase our net working capital. But on the one hand, long term, we will decrease it again with long-term measures to come back to normal measures here. And without the huge backswing usually occurring in the first quarter, we have a clean start in the new fiscal year. With the transaction, we will also ended an undrawn EUR 1 billion credit line under the KfW special program that was concluded in May to secure liquidity in the coronavirus crisis until the closing of the elevator sale. Again, to notice, we had the line, but the line was not drawn. Since coronavirus have been eased around the globe and business is able to restart, we see a cautious resumption of production in the key industrial nations, such as the U.S.A., U.K., Germany and the Eurozone as a whole since May and in China since March. But with infection rates in many key regions remaining high, the continued risk of further waves of infection in the course of the year persists. Hence, with the potential of continued disruptions in the economy forecast for the global economic growth and the impact on our businesses, particularly materials and components for cars and trucks, are still subject to major uncertainties. Thus, in the third quarter, we expect a loss in the mid- to high 3-digit-million range, with almost all businesses stable or with a slight quarter-on-quarter improvement with a possible exception of Steel Europe. For the full year, a loss between EUR 1.7 billion, as said before, and EUR 1.9 billion for the continued operation is likely, with the year-on-year decline in earnings influenced heavily by the likely higher loss at Steel Europe of up to good EUR 1 billion and also as a result of current structural disadvantages at Steel Europe in the steel industry in January. Free cash flow before M&A of the continuing operations will be determined by EUR 2.5 billion from the termination of year-end net working capital measures and reduction in factoring as well. As said before, we are guiding a negative EUR 5 billion to EUR 6 billion. Operative, we are guiding a negative EUR 2.5 billion to EUR 3.5 billion. And of course, the operating performance with Steel Europe accounting for up EUR 1.4 billion net -- of net working capital matters already considered in the EUR 2.5 billion, and the business summed under Multi-Tracks accounting for EUR 1 billion. So all in all, from Steel and from Multi-Tracks, EUR 2.4 billion are roughly coming -- are making up for the guided free cash flow of EUR 2.5 billion to EUR 3.5 billion in this fiscal year. As already said in the beginning, we are cautiously confident on the back of our June, July figures indicating an ongoing demand recovery, particularly from the OEMs. And actually, regarding EBIT, actually, I see the fiscal year coming in more at the better end of the range we are guiding. Nevertheless, in the current environment, mitigating the economic impact of the pandemic throughout -- stringent cost -- through stringent cost control and preserving our liquidity remains our top priority. Therefore, we extended our countermeasures now summing up to expected cash savings of up to EUR 1.5 billion in the current fiscal year. Before we jump to the Q&A, let's wrap up and see what lies ahead. The elevator sale will significantly strengthen our balance sheet in Q4, providing us a sizable safety cushion and tailwind from restructuring and developing our business and more portfolio action and unlocking of value likely to come. Realizing the best owner concept for Plant Technology is also progressing. As we have said last time, corona had some implications. That's why we expect revised offers in late summer. Alongside, we will leverage our leading technology position in chlorine, alkaline, electrolysis for green water electrolytes for hydrogen. At Steel Europe, exploring all options for industry consolidation and securing financing the carbon-neutral steel production transformation are top priorities. This is flagged by our restructuring initiatives, especially with Strategy 20-30, securing and pushing fundamental value, and of course, restructuring and enhancing performance is not limited to Steel Europe, but applies to the entire organization, as I said before. Although pandemic uncertainties will prevail, we will tackle them with stringent cost and cash control. Performance remains our key priority. We will underpin our cash generation and value creation ambition with financial targets and value levers, which will be presented together with you -- with our fiscal year to you when we release these numbers in November. Until then, please stay safe. And with that, I'm ready to take your questions.

Yes. Thank you very much, Klaus. And yes, with that, we would like to hand over to the operator for the Q&A session.

[Operator Instructions] The first question is from Ingo Schachel of Commerzbank.

On the topic of net working capital and free cash flow, you've obviously done this big reset now and everything is quite cleaner at the end of the fiscal year. And you were talking about structural networking capital release potential in the next years. Can you already tell us a bit how much potential you see when you do your benchmarkings or whatever you do to determine how much upside you see from a net working capital perspective? And also tell us what timing you regard as realistic because also your predecessors spoke about net working capital focus quite a lot. So at this point, I think most of us wouldn't think the there's, let's say, a quick measure that you can take that your predecessors haven't done where you can suddenly release lots of net working capital structurally in 2021. So any perspective on magnitude and timing would be of interest.

Yes. Thank you for the question. But obviously, this is a difficult question because this is something actually, you know that we are in the process of doing the planning, and we, in some businesses, already initiated these net working capital initiatives. And this is something -- and you are right, this is something which we do not see so much effect in the next months or quarters. This is something which is -- if you will refer, it will take 1 or 2 years to come to an effect there. But you have -- please, please understand that I will not give you an amount of this at this point of time.

Okay. So that -- I'm talking about things that are in progress. I think when it comes to Steel Europe, you were making comments on the press conference call this morning, saying that you might sell it below book value, but it's not as a fire sale. I think you've done the impairment test now for the Q2 results. You've done your DCF, and it yielded, so let's say, positive value there. Just wondering how you would define fire sale in that context, given that you seem to be of the view that the business has a certain value according to your DCF, would you say that you wouldn't sell at a discount of more than 50% to book value or what's roughly, that I mentioned we should think about that you're willing to take a hit from a book value perspective?

Interesting is your interpretation because when I was talking about fire sales, I was talking about the Multi-Tracks company. And more or less, it also depends to Steel Europe. Now I can give you, let's say, a really percentage, with 50% of the book value. 50% of the book value is really at the lower end. So this is something we -- I would still consider as a fire sale, yes. So -- but at the end of the day, what I meant to do not fire sales is that we will -- especially at the Multi-Tracks companies, where we -- with Steel Europe, we have a stand-alone strategy. And we will -- we -- as you know, we are looking for consolidation corporation, whether it makes sense and whether we have the potential to create value. If we do not see a good alternative to this, then we will -- are not -- it's not necessary to be done. In the Multi-Tracks companies, we clearly said that we want to divest these companies, at least most of the companies. Some companies we will may keep with some corporations. But here, of course, it's also what I said this morning. We will take our time. We will take our time and see what the market is bringing. So we are not going and saying, we have to divest these companies in the next 6 months. This is not we are planning for. So we will carefully look at it. And at the end of the day, if we think the right time is to go into the divestment, you can also have a look on it whether it's -- we can have a look on the cash position of the potential deal and also on the equity position on the potential deal. And my focus would be on the cash position of this potential deal, as I said this morning.

Next question is from Seth Rosenfeld of Exane BNP Paribas.

You touched on earlier in your prepared remarks the outlook for hydrogen technology where Thyssen recently signed a quite exciting new deal with Air Products. Can you please give us a little bit more color on how that strategic agreement will develop going forward with regards to expected order intake? And when you consider the excitement focus on hydrogen today, does that at all change your plans for Plant Technology being in the Multi-Track category today? I'll start there, please.

Maybe I can start this regarding this Plant Technologies. Plant Technologies as a whole is, of course, part of the Multi-Tracks business. And you know that Plant Technologies consist of chemical plant and mining and cement. And we see really potential in this hydrogen business here, which is clearly -- and therefore, it's not wrong to have it in the Multi-Tracks businesses because we clearly are looking where we can, where are we able to develop this business. We have more coming from the technology side if you talk about this hydrogen technology. But of course, we need partner to have other competencies to really scale it up. And this is why it's not wrong to have it in the Multi-Tracks business. And it's really a question which comes over the time, what we are doing with this. So we can -- we are really looking at several options. And the best options, of course, is that we can develop the business. On the one hand, we as a sole owner or maybe in a cooperation with others or maybe also with other shareholders to this.

And regarding the cooperation with Air Products, the situation is that we will be the supplier of the electrolysis technology that Air Products will use to produce hydrogen and make business out of it. We have not yet brought into the public domain how large the potential business here can be for us because we are still in some negotiations here with our partner and we'll do so once the negotiations are finished. And besides this Air Products project, we also have an interesting cooperation with E.ON. And to really interesting thing here is that E.ON testified that our technology is suitable for integration into power grids. This is something where competing technologies, or let's say, where suppliers of competing technologies always had their argument that they said our electrolysis is not ready for grid integration. And now we see it in fact is, and we have the statement of a renowned grid operator here. So this shows really that we are well positioned here with our technology for this upcoming market for production technology for green hydrogen.

Great. And if I can shift track, please, to the second question on the outlook for Steel Europe, please. You guided to shipments up at least 10% Q-over-Q. Can you please comment on the expected product mix and how that might change sequentially? Obviously, we're still looking at quite severe raw materials cost pressure, but would you expect perhaps an improvement in mix to help offset that to support margins going into your fiscal Q4?

You mean in our Q4, so...

Yes.

Well, it's difficult to predict. Well, what we see is really an uplift in order intake and also coming from auto. This is something we see. And therefore, of course, we are, let's say, confident at the moment that margins are lifting up a bit. We see raw materials costs, not so much, let's say, developing in the fourth quarter. Maybe it's difficult to predict. So if you ask this, we are coming up a bit, and we are coming also up a bit with auto. And therefore, this will help a bit in this quarter and our fourth quarter. We predict that it may more help in the first quarter of the next fiscal year. This is something we are just looking at. And -- but the great question, of course, will be -- we all see -- and this is something you can also read in the newspaper. Auto is coming up again, yes. But we also know that there are initiatives from the government and also from the OEMs itself, which will take place actually now, and they will end at the end of the calendar year. And the big question is also what is happening next year with the demand. So this is something which is driving us at the moment in the considerations to the planning. So I hope you understand it.

Just your comments on government measures, are you referring to short-time work measures and the potential...

No. I mean this, let's say, incentives for buying cars indirectly to reduce the tax so-called [indiscernible]. This is something we see here. And then this is -- which was initiated in June or July to increase demand for all products, but also for cars. And most OEMs did additional measures for their own programs. And they also, let's say, do this for a certain period of time, so mostly until the end of this calendar. So we see the demand in the car, which we also see in our Automotive Technology business and also our steel business, where we see a slight lift-up. And this is okay, but it's also a question of how reliable is this increase in demand, if you not talk about quarters or months, if you'll talk about also the next calendar year.

The next question is from Carsten Riek of Crédit Suisse.

Two questions from my side. The first one, again, on the net working capital adjustments. First one, has it been your own decision to smoothen net working capital adjustments, including the factoring? You mentioned some of the positive moves. What I'm actually interested in is, what is the factoring volume we are talking about? Is it EUR 1.5 billion to EUR 2 billion per year? And what were the discount [ flush ] fee in the factoring? That would be the first question.

Yes. Okay. So I think not the normal one, but the factoring volume, which was done at the year-end in the previous year was roughly EUR 2.2 billion, EUR 2.1 billion, EUR 2.2 billion. We are now reducing it to EUR 0.5 billion, something that this, EUR 0.5 billion, EUR 600 million. This is something we are doing. And then you are asking whether we did this by our own will? Yes, who else should do this, but it was our intention to do this. And the others so we bring -- we brought that this volume by EUR 1.5 billion. The rest is other year-end measures, as you can imagine. So we simply consider this as a normal level of year-end measures, not to do more than 2 billion factoring in this case. So this is something which we really see as more normalization and also more predictability and also more focus on normal things you do in network and capital optimization.

A very quick follow-up on this one. And what were the discounts you're selling your receivables? Was it sizable? Or was it not sizable? Because I'm just trying to get a feeling what could actually get as a benefit.

Sorry, can you repeat the question? I didn't get the question. Sorry.

I believe factoring, you usually have a fee to the banks, and you also sell your receivables at a discount. So just can we get a magnitude what the discount [ flush ] fees were in that kind of factoring deals so that we actually can get a feeling, but it can outthink yourself.

Yes, the factoring was -- if you compare it to normal, I think, finance costs, it was not more expensive. So factoring or financing is more or less a wash. If you do factoring or you have more net financial debt, it is more a loss. So talking about finance cost is not an issue, not an issue, if you do normal factoring.

Okay. Perfect. The second question I have is more on the automotive. If you look at the spring and stabilizer system engineering during the third quarter, with your third quarter looked like they had some kind of earnings resilience during the COVID-19 crisis, while the rest of the automotive business has been more negatively impacted. What was actually the driver for the more stable performance of spring and stabilizer system engineering? Was it flexibilization of fixed costs? And if so, could you quantify those costs? And on the other automotive business, did you identify more underperformers during the crisis in automotive? Or will that actually recover again?

Okay. If you look at the stabilizer business and also part of the system engineering, which is -- let's say, we did a lot of programs here and also a lot of restructuring already started and also initiated. And therefore, our, let's say, development in this business against previous year, it's not good, but it's better than previous year, let's say, this way. And this is where you can see measures now take an impact. This is a positive one. And this is the reason for the development you mentioned, I guess this is what you meant. Regarding the other businesses from automotive technologies, no, we did not really identify more underperformance, clearly not. What we, of course, see is a dependency on the demand, and this is clear in this industry. But as I said, again, we do not see other businesses in the Automotive Technology business is underperformed in this business.

The next question is from Bastian Synagowitz of Deutsche Bank.

I've got a couple of questions. My first one is another one on working capital. And I know it will be a tough one to answer, but I'll ask it anyways. So we can probably split the working capital dynamics into 3 different buckets. Firstly, we've got the window dressing part, which is now reversed. And secondly, we do have the cyclicality, which is driven by the materials businesses. And then thirdly, the dynamics around prepayments and so on in the capital goods type of units. If you now look at the materials businesses, how would you expect that to move next year in the current scenario? of course, we have iron ore prices pretty high already, i.e., should we see some cyclical rebuild in working capital next year? Or you -- will you have that largely done already by the fourth quarter of this year? And then also on capital goods, is it fair here to assume that the working capital will likely be positive or potentially quite positive next year given the likely order intake in some of the businesses like marines? Any color on that would be great. That is my first question.

Yes. So yes, a difficult question, of course. You know that we clearly see that, first of all, it's -- everything is difficult to predict at the moment. And what we are -- at the moment, we see that we see an uplift in the next fiscal year in the materials business or for Materials Services and also for steel business, of course, compared to the current fiscal year. So we will be far away from the pre-corona level, but we see an uplift. That's, of course, something where we see that the net working capital volume. I think we should see an increase in inventories on the one hand, but also an increase in liabilities. And therefore, at a net effect, I do not see too much more net working capital position. This is something I see for the materials businesses. And I think I would say the same as well for the capital goods business.

Given the orders in the pipeline that Bastian referred to in the marine business and maybe also in Plant Tech, there could be some additional tailwind for the working capital situation from those prepayments on these orders.

Okay. So that's actually not been baked into the earlier comments then? okay. That's very helpful. And then my next question is on balance sheet. Are there any significant balance sheet legacies, which you may have to review by the end of the year in terms of impairment tests, given the environment we are in and also given that you obviously now have a bit more balance sheet leeway?

Yes. I mean, this is something which is clear. If you look at the planning, which we are doing now, and we are approving the planning, most likely in September or November and then we have a look at it and together with the auditor. And at the end of the day, we will come to a result. So I can really not make a forecast or an estimation of whether and how much impairment needs we do have. So sorry to say this, but I cannot be more concrete to this point.

Okay. That's fair. Then maybe just moving over to the implications of the elevator deal, you obviously now have injected EUR 1.2 billion from the proceeds into a stake in the elevator business. Do you plan to contribute that to a CTA? Or do you rather aim to keep it as it is? And what would be the time line for taking such a decision?

Yes. This is -- overall, you know that our net financial debt position increased by EUR 15.4 billion. So you always get the question, what is now -- what are we doing with the money now. So -- and as I said before, we said before, we clearly see us in a very unpredictable environment. And corona is not over, and there might be a second wave. there might be some other issues. And so our biggest priority is still having biggest flexibility and liquidity. And therefore, we do not take a decision like this. So the decision is -- what we take is that we bring back year-end measures. This is clear. And we also will repay financial liabilities according maturity line. It is also clear. On the other hand, this decision to bring this minority stake is EUR 1.25 billion in the CTA or even more in the CTA, this is a decision we do not have to take now. And we will not do the decision now because simply, it's not helping us. And first, we do this decision if we have really a clearer view maybe in the middle of next year or the beginning of next year when we see what this corona bringing on. Whether corona has an end or something like it, then we will take the decision. We simply do not have the necessity to do this now. As a target, I can tell you, as a target, we will do something with the pensions. But I cannot do say more at the moment. Is it okay?

Yes, sure. Absolutely. No, that's at least clarifying it. Then my very last question, I promise, is just on your operational performance and also cost-cutting. So you already mentioned that you will have to speed up cost-cutting a little bit given what you have done so far on the permanent cost improvements obviously has been largely drafted pre-corona. And we're now in a different scenario. So are you aiming to maybe make some of those temporary cost savings more permanent versus the 6,000 to 7,000 FTE reductions, which we are -- you were aiming for in your base case scenario?

No, no, no.

I think I will -- what we actually are doing is that we -- of course, this is clear. Everybody do this. We are determining [ 2B ] margin or target margin for the businesses. And the businesses, and we are in consensus about this, what has to be reached. And we are now with every single business in the process. What has to be done to get to this [ 2B ] margin and what is the time line to get to this [ 2B ] margin. And then of course, corona is not helping here. So we have to adjust a bit. And in some businesses, we have a new normal, so we have to potentially do more. And at the end of the day, I can tell you, I will not release a number now because it makes no sense. You have to release the number of FTEs. It makes a sense. You have to put your attention always to the respective business yields. This is important. It's that important. I can promise you we are aiming very much for the [ 2B ] margin, and we do what is necessary to get to the [ 2B ] margin for every single business. And the question is, is the 6,000 people enough? We are looking at it. And at the end of the day, it might not be enough or most likely is not enough. But this is -- I will not deliver another number today. So this is something we will see at the end of this calendar year.

So in other words, you're basically going to cut as long as you get to where you want to be?

Yes. Yes. Some businesses is cutting, but in some, business is also developing. In some business to get to the margin is also to go in the right products in the right regions. So it's a bit of mixture. But I can tell you, in very much of the businesses, we have absolutely need to also cut.

The next question is from Alan Spence of Jefferies.

Regarding Automotive Technologies, clearly a difficult quarter. When we look at the year-on-year comparison for order intake, down 38%. You mentioned some improvements since quarter end. But I was wondering if you could quantify those somewhat for us, either as a sequential improvement in what you've seen since fiscal Q3? Or where you see that year-on-year trending in July and August?

Well, first of all, you are hardly to understand. the line is not good. If I understand you right, you wanted to have a more, let's say, detailed picture where we see an uplift in Automotive Technologies, it's -- of course, we see, let's say, a slightly uplift from a really low level regarding our order intake and our, let's say, deliveries to the auto industry. So we see picking up auto volumes. This is something we see, yes. And this is -- but we are still on a low level. So it's not something which is where we really see that we are on a pre-corona level at the moment. No, no. We are far away from this. So this is something -- at the moment, it seems to be that our Q4 calendar, so Q3 -- our Q4 fiscal year, Q3 calendar year will be increasing a bit. And most likely, a more better effect will come in the last quarter of the calendar year. So this is something we are predicting at the moment.

Okay. And my second question is on current technology. You mentioned the revised indicative bids expected by the late summer. Can you just remind us on the overall time frame when perhaps the firm bids or a final decision could be known?

Yes. Of course, we did an update of the planning here. And actually, we are waiting, let's say, the revised bid. So this will be -- this will -- during autumn. And I think in the beginning of the next fiscal year, we might have a clear picture, but I cannot be more precise because our process are often difficult to predict. But we -- in this fiscal year, we are definitely expecting the revised offers here and then we will see.

The next question is from Rochus Brauneiser of Kepler Cheuvreux.

I hope you can hear me well. First question is on a remark you made in your statements today, where you said that the Steel Europe results are the kind of result of structural disadvantages. So I'd like to understand what you really mean by saying that, what is the kind of disadvantage of Steel Europe being the number -- or the second largest player in Europe? And what does that mean for the optionality in the kind of consolidation solution?

Yes. First of all, if we talk about structural disadvantages, this is something which is not slowly valid for Steel Europe. This is something which is valid for the whole European steel industry. And that this is -- at the moment, we see -- if you look at the safeguard measures, we do not see, let's say, really supporting versus the safeguard measures. So the safeguard measures are -- they are not working. So imports are coming in with a portion which is higher than ever before. And with prices, and you all know that in China, the steel industry is doing quite well, and the Chinese industry is -- has an influence on the raw material prices. And the structural disadvantage is, of course, if the raw material prices are high and the demand in Europe is low, then you have difficulties to really get the raw material prices into your sales prices. This is a structural disadvantage we -- all the European competitors at the moment see. So therefore, there is a huge effort to really work more on the safeguard measures. And this is something which is not easy to process, but this is something we -- all European steel producers are working on this very hard. Does this have something to do with the consolidation? well, consolidation makes sense if you are able with the consolidation to improve your cost position to be more competitive. And this is something if you do this, you can, of course, tackle these things better, maybe better if you have a good concept in the consolidation. This is the ratio behind the structural disadvantages.

Okay. I know it's early, but do you have any time line envisaged until you want to have a better picture what can be done or what cannot be done in the European arena?

Yes, this is really difficult because I have a wish, of course. The wish is that during 1 year, we have a clearer picture. And the aim is to have it even earlier, but you never know. So this is the only thing I can say.

And in terms of the performance, which hasn't been that great in the last quarters and also relative to your peers, would you consider to step-up this 20-30 strategy to prepare the unit for any solution? Because maybe you can, in this context, help us how much of the cost savings of the first 2,000 employees are coming by next year or the year after. Just to see where how quickly you're stepping up in your structural costs there.

Yes. So the first question you asked is, let's say, the competitive position of Steel Europe against the competitors. Yes, you are right. If you look at the release numbers here, if you look at least, for instance, at the EBITDA per tonne. So we are in the Q3 and also in the, let's say, previous quarters and years -- not years but quarters, we are behind our competitors. And the reason is quite obvious because we missed to do restructuring in the last 2 years or 3 years. This is something where, let's say, people are always talking about this Tata joint venture and missed to do the restructuring. This is something we have to do now. We have a concept. It's clear. And with this concept, we are very confident that we can really close the gap. And when do the effects come? they are starting now. They will, let's say, went up next year, and there will be full year then in the second year in the '21, '22. This is something where the effects will come up. The question is whether there will be an uplift of this 23 -- 20-30 strategy. You know that we have an agreement with the codetermination to do this Strategy 20-30. This has something to do with the layoff of 3,000 people and the investment. And if we consider this as necessary, we would, of course, first talk to the Works Council and the codetermination to do this before I would really something need at this place here. But I would never -- let's say, this is impossible.

Okay. May I ask another small follow-up question? I think you referred to the -- your stance on this elevator stake in this elevator vehicle. Maybe I got that wrong. I thought in the very beginning that the purpose on taking a minority stake is that this is being done through the CTA or through the pension fund. Is this now more that you leave it open, whether Thyssen wants to maintain the stake directly? Or is this still just this technical transition until you have taken a formal decision on the pension funding itself?

It's more the second one. So if we will do this decision to bring something in the CTA, we will also bring this minority stake in CTA. Okay?

Okay. And that does make absolute sense. And very, very final one on your remarks on the working capital. I understood that of the EUR 2.5 billion of structural changes in the working capital management, EUR 1.5 billion is the factoring and about EUR 1 billion is on this year-end window dressing. Shall I -- is the right view to look at this, that there will be still some volatility and some swings in the working capital, but not the EUR 1.5 billion -- EUR 1 billion to EUR 1.5 billion going forward? Or shall we not think about any major working capital builds and releases and builds around Q1 -- Q4 and Q1 going forward?

It's the one you mentioned. It's not in that altitude as before. So this is -- the conclusion you did in the first sentence is the right one. So also I mean, I released -- we released the number in our year-end statements that we do this factoring volume in EUR 2.1 billion, and we reduced this to EUR 600 million, we'd still do something. And at the end of the day, we do also something that in a, let's say, lower amount maybe in regard of payments or something like this. But this is really not our strategy or scenario to do this in this amount. This is something we want to get rid of. We want to be more predictable, and we want to concentrate really on constantly bringing down our net working capital. This is to have a constantly view of this and not only, let's say, year-end driven or quarter end-driven.

The next question is from Luke Nelson of JPMorgan.

First is just a follow-up on balance sheet and asset sales. Just given the free cash flow guidance, the uncertain macroeconomic outlook, which you touched on, and post elevators losing the cash flow that the balance sheet starts to relever again. My question is how comfortable are you of midterm outlook on the balance sheet in that environment? And as things stand, can you fund the strategic turnaround of the business without any asset sales? That's my first question.

If I got you right, the line is not too good. The question is whether we can fund our turnaround without divesting any kind of business here to do something. Yes, clearly, yes, we are able to do so. Of course, we will divest businesses, as we said before, but this is more strategic ratio behind. Yes, we -- and this is something I have to explain. We are clearly on the transition part. Of course, we now have the elevator money. But what our utmost goal is to bring the businesses to performance and to a reliable free cash flow. Independently, how much money is on the bank or something like this? The businesses has to be, let's say, in the position to be -- to have the capability to refinance the business here. This is something which is absolutely clear. And this is -- we are clearly on the way. And then -- and this is also a big issue to come to the [ 2B ] margin. And I can tell you, not all business, but most of the business do have a clear picture how to come to the 2B margin. We have to enable them. This is something we do, and we will do. This is something we do different from the past because in the past, there weren't enough funds to enable all of the businesses we have. This is the reason why we concentrate on some business, where we see huge potential. And we will have the funds to enable these businesses to get to the 2B margin. Is it restructuring? On the one hand, this is something which we have to do in most every business but also enable business to grow in parts where we see better opportunities to grow also better opportunities to grow into better margins and things like this.

Okay. That's very clear. And the second question is on short-time work. Is it possible to give a sense to what extent utilize short-term work? I know you mentioned it specifically in the slides, Steel Europe. But just trying to get a sense of to what extent that will be an additional benefit in Q4? or neutral Or a headwind in terms of profitability.

So actually, we do -- short time, we do 20,000 people at the moment in Germany without elevation and 7,000 people in the rest of the world, which are short-term equivalents or something like this. And this is something we do also expect, which will stay on also for the Q4, but these numbers will go down because we see a big uplift in our -- let's say, in our production or how you call it, in our business, yes. Is this how you expect it?

Yes, sir. I suppose just to dig into that a bit more in terms of sort of fixed cost absorption. If I look on sort of a per tonne basis, will you be -- will it still be sort of a neutral effect? Basically, will the fixed cost still just sort of run in line with the shipments that you guided?

We think that -- what a difficult question. So the effects on the short time work for this fiscal year, we see -- we started in Germany in May or something like this. And we see it to September coming in with a EUR 400 million, EUR 450 million, something like this.

Okay. Great. So a final question as well just on hydrogen and the JV. Is it possible to give an indication of what the capacity is of that business in terms of sort of gigawatts or megawatts, what the output is and what the current utilization is? And where it could potentially go?

It is a 1 gigawatt. Yes, I don't know the English name. Is it gigawatt?

That's right.

Yes, gigawatt. Yes. Yes.

1 gigawatt per year.

Yes. Yes, we have the supply chain in place currently to supply 1 gigawatt of electrolysis capacity to our customers.

Which is something.

And the current -- sort of what is the current output or utilization of that?

Yes, this is what we have in place for water electrolysis.

Yes, we did not have the, let's say, managed with output so far. We have the theoretical capacity. But what we did as output so far is, of course, below this. It's...

Small.

It's smaller. It's not even 50% of that.

The next question is from Alain Gabriel of Morgan Stanley.

Two questions from my side. If I can start with the first one on your Marine Systems and the Plant Technology. If you look at both divisions, they have burned between EUR 400 million and EUR 500 million on aggregate over the last 7 quarters. Is there a reason to believe why fiscal '21 will be different on the cash burn run rates? That's the first question.

Okay. If you look at the marine business, clearly, yes, there's a perspective to think that there will be a positive cash position because we keep simply look at the order intake. We see a big order intake from Brazil at the end of this fiscal year and potentially also another order intake in next year. Therefore, for the Marine Systems business, we are quite confident that we can really stop this negative cash flow. For the Plant Technology business, we will see. We will have to see what will be the development in next -- the next month. It's -- this is going to be more difficult. So -- but I cannot give you a precise number here. But for the Marine Systems business, we are quite confident.

Okay. That's the first question. On the second question, if I may go back to the factoring issue. And it's still not clear to me how reducing your factoring levels would help you better run your business. I just couldn't really connect the dots here. So it reduces volatility of your working capital. But how does it make your business a better business? That's one. And as an extension of that question, how come this initiative has never been flagged before while you were discussing the use of proceeds of your elevator sale?

I think I said it last time when I had this opportunity in the last conference call. I think I said something about this, but I'm not quite sure. So you are right. There is no direct link between reducing factoring on the one hand and optimization of net working capital on the one -- on the other hand, but the one of more transparency. So this is something which is clear. You can steer it better. But of course, net working capital initiatives are, of course, has something to do with payment terms of payables and also payment terms of liabilities. And the big issue is inventories. This is very clear. And this has not necessarily something to do with the factoring. This is also clear. But as I said before, this is -- we definitely think that bringing this down is something coming more to a normal level, which is more predictable on the one hand. And on the other hand, let's say, these net working capital initiatives, we started a few weeks ago is not directly linked to this, but we clearly see that the EUR 2.5 billion we lost with this drawing back the year-end measures, we clearly think that we can make up some of this due to constantly working capital improvement. This is clearly the goal.

All right. And I think with this question and the respective answer, we are now -- we're already over time, and we have come then to the end of this call. We would like to thank you very much for your participation. And all the remaining questions, of course, can be also addressed here at the IR department, and we are looking forward to continuing the discussions with you. Thank you very much, and bye-bye. Until next time.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.