thyssenkrupp AG (TKA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the webcast of thyssenkrupp AG. 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 through this conference. Please go ahead.

Yes. Thank you very much, operator. Hello, everybody. This is Claus Ehrenbeck speaking. Also on behalf of the entire team, I would like to welcome you to our conference call today. It's on our Q2 numbers and the outlook for the year. Here in the call are our CFO, Martina Merz; and also Klaus Keysberg -- our CEO, Martina Merz; and our CFO, Klaus Keysberg. It's a pleasure that we have Martina today with us in the call. All the documents for this call are available on our website, and Martina and Klaus will guide you through the slides that you can find there. And we start with Klaus then followed by Martina and then there will be a Q&A session. And 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-on-year and also quarter-on-quarter due to a continued upswing of the market, particularly in the materials and automotive 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 we'll 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 EBIT adjusted of EUR 298 million in the first half year, a significant improvement vis-à-vis the loss of a 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. And last but not least, the free cash flow before M&A has improved substantially by more than EUR 2 billion from a minus EUR 2.77 billion during H1 of last year to a minus EUR 718 million in this year so far. But let us now jointly take a look at the performance in Q2 more specifically. In terms of EBIT adjusted, our segments have contributed positively apart from Multi Tracks, and virtually all segments have recorded major improvement year-on-year, with MX and IC as overall top contributors resulting in a positive EBIT adjusted of EUR 220 million. In terms of free cash flow before M&A, the higher EBIT 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 144 million (sic) [ EUR 140 million ], mainly due to Steel 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 results in Q2 and therefore, H1, we are raising our full year EBIT adjusted forecast to a positive mid-3-digit EUR million range and expect all segments to contribute positively with Multi Tracks being the sole exception. Besides, we would like to confirm our free cash flow before M&A guidance of improving year-on-year towards a negative EUR 1 billion, mainly affected by temporary high spending in net working capital and CapEx well above G&A and, of course, also view of 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. But 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 material businesses in the form of substantial price increase, which also had positive effects on the margin. By execution of the further optimization of our network, for example, via the closure of 5 logistics sites in Q2 as well as a 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 the form of lower personnel and purchasing costs. Moreover, at Forged Technologies, costs were further reduced by measures focusing on lowering the cost of purchasing for direct production materials and administrative expenses. And furthermore, bearings benefited from stable high demand and economies of scale in the production of their key components for wind turbines. Looking at Automotive Technologies, the 6.4% margin was supported by a continued market recovery while receiving first headwind from supply chain constraints, particularly for semiconductors and 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 Steel Europe, the favorable pricing environment is now starting to be reflected in our customer contracts, where average revenues per tonne has started climbing higher. Higher selling prices and more favorable product mix were partially offset by higher raw material 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 FTEs year-on-year. Moving to Marine Systems. Performance program measures focusing on procurement and project execution are yielding their desired effects. And last but not least, Multi Tracks has considerably reduced its losses, in particular at Springs & Stabilizers, automotive engineering, mining and Heavy Plate. Stainless has been negatively impacted by market-related developments on price and cost side. Overall, the operational improvements has been realized with a total of EUR 640 million 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 1 year ago. We have stringently continued our performance for first initiatives and have achieved a significant operational turnaround as I described to you earlier. Simultaneously, by the previous sale of our elevator business, 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. Therefore, at the same time, we have initiated our largest-ever restructuring program with a reduction target of more than 12,000 FTEs until fiscal year 22/23 from our previous 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; therefore, 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 substantiated 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 Steel Europe's Strategy 20-30, 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 stand-alone 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 business 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. And 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 and the alkaline water electrolysis, we have already been nominated 3x 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 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% 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 expect it to be a low 3-digit million EUR amount in the fiscal year or in the full fiscal year. Looking forward to the next 2 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-3-digit EUR million range until the end of this fiscal year, which is set to increase to a high 3-digit EUR million 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 EBIT adjusted outlook again is justified. Therefore, we now expect to achieve a positive mid-3-digit EUR million EBIT adjusted with positive contribution from all segments, except Multi Tracks, with performances to improve significantly, yet it will still record a substantial negative EBIT adjusted in the low mid-3-digit EUR million 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 to towards negative EUR 1 billion versus the minus 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-3-digit EUR million figure. In this context, we considered some network capital buildups due to the strong demand and the likely high raw material costs. Also, the payouts for restructuring in the low to mid-3-digit EUR million range I referred to earlier has to be taken into account. Another influencing factor is the variability of cash profile in 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. And furthermore, we are enhancing our production, resulting in an investment significantly above depreciation. As mentioned earlier, this applies in particular to Steel Europe, where planned investments will strengthen our competitive advantage and shift 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 development this morning show that we will not -- we'll have an interesting discussion after this, so I'm looking forward to that. But as Klaus said and the figures show, the transformation of thyssenkrupp is making progress, although we have not yet put the corona pandemic fully behind us. However, it's also clear that we have not yet reached our goals. Additional efforts will be needed to 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 important task, and we are continuing to work hard on future -- on further cash flow improvement in all our businesses. By doing so, we reach a point in our transformation process where we have evolved the focus of our efforts from transform to perform, to 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 focus, 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 so we can calmly but forcefully work on our tasks. What that means in the first place is, of course, speed, speed and again, speed. And 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, but in order to shed some light on what we are specifically working on, let me share with you some thoughts on our businesses and the respective priorities. We know 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: Material Services. At Materials Services, it is about further implementation of the materials-as-a-service strategy. With advancing digitalization and the expanded use of artificial intelligence, the aim is to offer enhanced supply chain management and integrate ourselves more deeply into our customers' value chain. 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 markets 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. And 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. However, such a stand-alone solution is subject to a number of conditions. The adjustment to the 20-30 Steel Strategy are important steps in this respect. Today, I can say that steel has a robust business case. However, 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 stand-alone 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 but we have -- sorry, but 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 field order book. Performance measures are defined and 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 18 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. And yes, I know that you expect me to say something about hydrogen. The last -- the latest order for engineering and supply contract with CF Industries for 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 this reason, there will be no groundbreaking decisions in the short term. Accordingly, we at the Executive Board will provide the Supervisory Board on May 19 an update on the current situation, and we will continue on our transformation path step-by-step, dauntless and determined. So much for my outlook and looking forward to your questions, and Klaus, too, by the way.

Of course.

Many thanks to both of you. And with that, we can now hand over to the operator. And operator, could you please take over for the Q&A session?

[Operator Instructions] And the first question is from Ingo Schachel, Commerzbank.

And the first 1 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 20-30. Nevertheless, I think if we compare it to the EBITDA per tonne or margin improvement compared to the previous quarters, I think your rate of improvement falls quite a bit short of what competitors have shown. I was just wondering whether you see any specific operational issues, things in dealing with supply chain bottlenecks or so where you feel that maybe you're not entirely happy with your performance in the quarter or whether, in your view, the performance can only be expanded with other factors such as contract mix and material prices?

Yes. Maybe I can take this question, Martina. Yes, if you look at the performance of Steel Europe, of course, you have to look at several things here. First of all, we always said that in the past, we are -- regarding the performance -- behind the performance of the -- our competitors or the benchmarks. You know that we initiated this heavy restructuring program. And we have a very good view and we have a very good long-term view on the performance perspective of this business. We have a long-term investment plan and we have measures, far-reaching measures. But we have to admit these measures are not fully implemented at the moment. So that's the reason why we, of course, still, at the moment, are a bit behind our competitors. This is the one thing. But by the way, everything is on track on our plan. So -- but you know that -- and you also saw the numbers that making the people redundant takes a bit of time. So we started. We already have more than 600 people made redundant so far, but not 3,000-plus, 3,700-plus or 3,750. So this is the first explanation to this. And 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, spot market business but more in the fixed contract business. It's clear that it takes, let's say, more time to convert the high spot market into our contracts than maybe other competitors have, which do have other contract structures. So 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. Yes, that's helpful. And of course, especially in context of the strategic importance. It's, of course, very important for us, I think, to track the profit trajectory of this segment in particular. And my second question would be on Multi Tracks, and I'm glad to hear that sort of you're progressing well on the mining side, and of course, it seems to be a good time to sell it so hopefully, allows you to focus more [indiscernible]. But 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 what -- whether it's a favorable business or it should be a favorable deal or not, so you have understanding that we are not commenting on conditions at this point of time. So let's see what the outcome will be. So we are quite -- looking quite optimistic into this scenario. Regarding AST, we had some interest expressions to AST and to negotiation with this. But it's also -- you have to understand that we are not commenting on who it is, but this is not only one, there are more.

Okay, great. And I appreciate that you're obviously not trying to over-promise at this point. I think that's a good approach, obviously. And 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, you mean a down payment from Marine?

Yes.

This -- there is 1 down payment included so that's something which is not surprising. So this is what we have already considered into -- always into our projection field. Maybe one thing on Steel. If you look at the full year outlook, you know that we will have a, let's say, shutdown of blast furnace 1. This is not a shut -- it's a...

It's a relining.

Relining of -- planned relining of our blast furnace 1, which is technically necessary. And therefore, it's been long planned to do this and it's also not an option to do it in another point of time. And it's specifically planned to do this starting from July also because of the upcoming also holiday months for our customers, our car producers. So this is something we have to bear in mind.

The next question is from Seth Rosenfeld, Exane BNP.

A couple of 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 of disruption is currently baked into your forecast for second half of the year? And then to follow up on the earlier question for your Steel business with margin progression. In a normal cycle, lower sales to your auto customers would be viewed as margin dilutive, but 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, the reallocating from auto to distributors is helpful. Are you seeing that in your business as we look ahead at the coming quarters?

Maybe to the first question regarding our outlook on the automotive demand. Well, I think it's clear we saw a really uplift of the demand in our first fiscal year quarter, which is, of course, last -- fourth calendar year quarter, and we also saw some effects in, let's say, fulfilling again, fill up the supply chain. We saw -- but what we saw or what we estimate is if you look also in the media, you know that some OEMs are really shutting down. And this is, of course, has to do with the shortage of the semiconductors and logistics programs. And 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. And therefore, we see that -- we estimate that in the second half year, the automotive demand -- not the automotive demand but the supply to automotive will be lower than in the first half year. But we do not see, let's say, a problem with the overall demand. It's more a logistics problem, which we hope that will be, let's say, better after the summer holidays or, let's say, in the direction of the end of fiscal year, something like this. This was the first one. The second one was, if I recall right, whether we participate from the spot market. And yes, as I said before, we have some issues with -- not some issues, we have some positive on the spot market business. But since most of our business is with contract-related higher-margin business, it's not that we are so much, let's say, have so much profit out of this. So -- but we are quite happy. Nevertheless, we are quite happy with the situation because our shares in high-margin business is increasing in this contract business. Hope you understand.

We're benefiting in Material Services surely from this.

Yes, of course, yes. Of course. I thought it was independent on steel, but in Material 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 we, as you 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. But of course, this has one good effect because spot prices went up and, of course, this is good for the EBIT for materials.

Just to clarify the last question, what I was trying to get at was, I understand your contract exposure is quite significant and therefore more [ laggard ] than your peers. But if your second half guidance is for lower sales to auto OEMs, does that not imply actually a better exposure to the spot market temporarily in terms of your mix? Should that not be positive for your margin realization as a result?

You mean for the Steel business or...

Yes, exactly for Steel.

For the Steel business? Yes, you know that it's so that, of course, if you have, let's say, a remit of 1 blast furnace, you have limited capacity. This is also one thing. And then you have to take into account in which direction do I send my material now. So -- and we will do this wisely. So we will, of course, go for the automotive volumes but also then for the industry volumes if the demand is there. So we will see what the outcome will be. So yes, the margins should be better at the end of our fiscal year, very clear. But also take into account, I don't want to be pessimistic here at this point of time but you also see the iron ore development at the moment. So this is something, of course, which is not helping. But yes, you have to take into account.

The next question is from Bastian Synagowitz, Deutsche Bank.

So my first question is on Auto Tech and Industrial Components, where like last quarter, you're basically guiding down sequentially. And I guess the situation around semis is well flagged for autos, obviously. But your order intake in none of the businesses so far indicates a major slowdown. So is it fair to assume that your guidance on these businesses at this point is really more preemptive cautiousness, so just being very conservative? Or are you seeing like an actual indication that we are for like a major deceleration in those businesses? Because overall, the indicators still, at least, for Industrial Components, in particular, look pretty supportive.

If you -- as I said before, if you look at Automotive Technology business, we think that we will have quite a good half year but not with the dynamic of the first. This is clearly how -- 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 in the semiconductor product. Not a real demand. So if -- and this is something where we have a question mark on. So if this is going to happen, then we will deal with our guidance. If the numbers -- if the volumes are better, then of course, we have also room for improvement on this. If you look at the IC business or the Industrial Components business, when I got you right, you also said that we might have, let's say, lower performance in the second half, yes. You also have to take into account the bearings business where you -- where we clearly see, if you look at bearings for wind energy in China, this was a booming month, booming quarter. The first quarter was also subsidized by Chinese government. And this dynamic is definitely not going to be this high dynamic in the second half year but still a good dynamic. So we are happy with this but this is something which is happening.

Okay, perfect. My second question then is a follow-up on Ingo's question and your contract exposure in Steel in particular. So I'm wondering how far you're convinced that the current contract structure in Steel is still really the best way to run the businesses in an environment where raw material price volatility has become very high and where we've seen steel prices obviously in an unprecedented rally. So I'm wondering whether you're maybe not running the risk of missing out on these cycles in general on the price side while you then may get squeezed on raw materials on the other side, and whether it wouldn't make sense to better split your contract exposure over the years versus very much 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, in fact, is the case because you know that we have, let's say, a big amount of contracts where we have these contracts, but we have, let's say, different situations. So there are such contracts which start first of January, goes 3 months or 6 months, some go also 12 months. And then we also have, let's say, the next phase where we have negotiations for orders, which are starting at first of April for 3 months. And it's going on and going on. So we have, let's say, every quarter, we are able to negotiate something in the order structure here. And overall, this is okay, this is fair. Every quarter, we are able then to really also negotiate with some customers, the new raw material situation. So if we are now talking about increasing raw material prices, then you are asking the question, if the raw materials price -- or if prices go down, then maybe we should have -- then we have other questions. You know what I mean?

Yes. No, I can imagine, of course, then you'll be benefiting in all ways. Just thinking that your overall contract exposure is still very much January heavy in terms of the point in time when you negotiate, and that obviously makes it pretty dependent on sentiment and the cycle at that point in time. But...

It's more balanced than you think, it's not so much January heavy.

The next question is from Carsten Riek, Credit Suisse.

My first question also on Industrial Components because as Bastian mentioned already, last quarter, you hinted on the normalization but here we are again, close to EUR 100 million in EBIT. Is that the new normal or is it finally more normalizing? And why is that the case? That's the first one. And the second one on stainless steel. I haven't found any numbers in the report. Given that the biggest unit in the Multi Tracks, would it be possible to at least give us some shipment numbers, EBIT and sales to make it a bit more transparent how this unit develops in order to make our judgment whether it's actually improving or not?

Maybe you'll start with stainless. So there's a sense that we have not, let's say, distributed this number so far. I can tell you that as a stainless business, as you might see in other stainless businesses, we -- since the beginning of the year, we are ramping up in volumes. This is clear. Let's say, in the first quarter, we had, of course, the nickel development and scrap development was not in favor of the industry. But now we are, let's say, seeing increasing volumes and better also price conditions. So maybe just to give you an idea of what the business is going on. The other question was regarding the IC business, whether the EUR 100 million is a new normal. Hopefully. Sorry, probably a simple answer. I mean, we really think that the businesses which are, let's say, combined in this Industrial Components business unit, there will be very strong business also in the future. So it's -- you don't expect for me now to give you a number for quarter-to-quarter, but this will be strong businesses. I mean, this is, at the moment, clear, wind energy is supporting and also other things. But if you also look at the cost structure, Forged Technologies and the order structure and also at the order structure from bearings business, how much of this is really related to wind energy. And if you then look at the future possibilities for wind energy is also what maybe the government is now going to decide in the next couple of days, then we really see big growth potential in this business, in the bearings business.

I think on the Forged side, something on the Forged side, I think the bigger part of the business in combustion engine is still with trucks. And our market share in that business is, I would cautiously say, significantly higher than 50%. And the truck business is first going at this and you know that, truck business is currently a very good business, high growth rates and it will remain stable for a relatively long time now. So it's -- so Forged is combustion engine but in the right part of combustion engine.

And also in construction business also. This is another playground.

One quick word on multi structure. Martina, would you be disappointed if multi structure -- Multi Tracks. 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?

I would say no, 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. And 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, let me say, of -- with the view that the corona pandemic is coming to an end. So we see positive signals on the order intake side. Yes, there is -- I'm relatively sure with that one of the business, this will not be part of the Multi Tracks anymore by the end of the fiscal year. So Klaus mentioned it. So we are, at least say, all discussions on the mining business, let me say, progress very well. And excuse me. Yes. So let me say, it's still in the structure. So this is why I said before the question, it's not an issue. But what counts is how far are the projects developed in order to make us believe that 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 road map to value creation for thyssenkrupp. And this road map to value creation is to us a kind of holy Bible. So in this creation of value, of course, we have -- we have defined a full potential plan for ourselves and we have created a program to capture this full potential. And all what counts is to execute on this plan. And so far, I have to admit we have not deviated so we have not deviated significantly from this plan. Our problem was corona but not a significant deviation to our own execution plan. So Klaus and I, we have a kind of approach to everything and we call it the regain trust approach. We are not overpromising and underdelivering. That's very important to us. We really, as all the years, where people lost confidence in thyssenkrupp, it will take time to really develop solid, solid confidence into the capabilities of these companies -- of this company. This is why we are very cautious to make promises, we can possibly not live up to it. So this is why you might find us, from time to time, a bit conservative. But to us, it's very -- we really want to -- people understand our road map and our value creation plan. And that we here and there, reprioritize a bit in terms of timing, of course. I think that's life in the nature of a business environment which is monetized. But we are not deviated from the activity and from the execution plan in total.

The next question is from Alain Gabriel, Morgan Stanley.

The first one is, Martina, you mentioned -- you spoke of being conservative in the way you look at things. Your EBIT guidance for the full year is implying the quarterly profits of almost EUR 100 million for the next 2 quarters, which is half of what you achieved during Q2. You clearly referred that auto disruption is to be blamed for part of this forecast. But what do you think about the projected improvement in Steel Europe? Is it not going to be enough to offset the risks in autos for the next 2 quarters? What are the different moving parts that we should be thinking about?

Even Klaus has stepped out of the meeting that this is describing Martina as the CFO, but I will not go into the explanation of figures because that has a significant risk that Klaus, afterward tells me that I'm running around in his garden, which is definitely not my job. No, to be very honest, especially on the steel side, what counts to us is the realignment of thyssenkrupp means we really totally -- we believe that the best thing we can do is to develop a stand-alone pure-play out of our steel community. What counts for that is, of course, to implement for steel a plan that they can achieve competitive EBITDA per tonne and competitive performance and not only for 1 year, not only for half a year, there must be an outlook because steel is a business we have where it takes years to improve the, let me say, to improve the performance bottom up. There's always how you react on market up and down. But the fundamental performance is driven mainly by your equipment and by your operational capabilities in your plants and our plant is a rather big one. So in order, you have heard that we decided last year when we sold the elevators business that 2 months after that, we provided capital in a significant amount to the steel business to develop its business. And in order to implement these investments, it takes years. So that means to us, it was clear from the beginning that the steel business will need some time in order to improve its fundamental performance. But 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 2 in Europe in this business. And that, I think -- I do not want to execute or -- I do not ask you for patience. I just tried to explain, challenge us for speed. Challenge us for -- but please understand that we are not overpromising and underdelivering. That's the last thing we want to do.

And as a follow-up to this question, clearly having steel as a stand-alone can mean different things to different people. Can you elaborate a bit more on what -- how do you define having it as a stand-alone? And 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 -- this is, of course -- and now, Klaus, I'm walking through your garden.

Please go ahead.

No, because as Klaus is responsible for the steel business. So on -- we based on the -- on our financial situation, of course. It is a quite courageous approach to discuss about a stand-alone business, potential spin and IPO of a steel business. So of course, we have developed milestones. A first milestone, a very important milestone will be the upcoming Supervisory Board where we try to make sure that our plan to try to make this happen and to try to make it possible means the feasibility study for a full stand-alone of steel with then possibly next step, so means a spin and then following possibly an IPO that this should be then supported by the entire Board. But the final decision and the final result of the feasibility study, we expect them to be available only possibly second quarter calendar year '22. Klaus, right?

Absolutely. We do our own, let's say, milestones and things like this, but we do not have -- we have a, let's say, an ambitious time table, but we are not talking about this ambitious time table. So we have our -- there are so much homework to do if we talk about the potential spin and IPO. And there are so much things to do, which we are, at the moment, starting to do so we have different projects to look at it. But of course, we have to do our own homeworks. And 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. And therefore, we will, let's say, look at this very closely. We have this project, and we will inform you if there is something new, but this is not going to happen for the next couple of months.

Just on additional explanation, I think this is valid for everything. But what, of course, is important to us is to provide to you and to our team in the company kind of fact-based optimism. It's not just about optimism, it's fact-based optimism. And on this -- based on this approach, of course, to us, that the alignment throughout the different leadership levels in the company, starting with the 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 the speed of change in the transformation. This is why we are -- at this point in time, we are exactly in this realignment activity, but we are quite confident, not realignment, on this alignment activity, but we are quite confident that the first transformation of thyssenkrupp will be supported by our Supervisory Board.

The next question is from Christian Georges, Societe Generale.

Can I just clarify something on the steel side about this relining of BF1? You said that normally is that you would build up inventories ahead of the quarter -- ahead of the closure in July. And so when we look at your costs in that division, excluding raw materials, we're seeing an increase over Q1, and that would be consistent with the higher level of production into Q3. I mean, is it something you've been doing or have you not built up any inventories before the relining?

Yes. We are doing the normal things now. Of course, we try to do what you are saying, the demand is high. But of course, this is also something you normally do. If you have something like this, you try to make plans also in, let's say, purchasing not only raw materials but also slabs and things like this. This is something you normally do in this circumstances, and this is something which is ongoing to prepare this phase of relining this blast furnace 1.

Okay. So that's why you're guiding for Q3 maybe in Steel Europe higher than Q2?

Most probably.

Okay, makes sense. And other question on steel on your distribution. You're guiding for a flat performance Q3 versus Q2. So I mean, this is a great, obviously, performance you've achieved at EUR 126 million in Q2. Is it something which was just onetime occurrence? Or do you feel that the business actually can generate this kind of profitability, given the right conditions as you're having now?

Your question was whether we expect, let's say, can happen in Q3. So is this something?

Yes. On the steel distribution, is this something which is recurrent?

No, if you look at the business model of this business, of course, you have to take into account that you know that in this kind of market period where the prices are going up, you're realizing so-called windfall gains. So this is a matter of when you purchase the material, and when you, let's say, sell the material. And this kind of market we are in, of course, this is supporting. And you know that we are working very much on performance here, and -- but the amplitude of this effect is, of course, a big one and you can see this also on the competitors. So we think we will have a good Q3 and also quite a good Q4. But if the price development is going into another way, we'll also see this in the development of the margins. This is something you have to bear in mind that market conditions are favorable at the moment for this business.

Okay, value of inventories. Okay. And last thing is on your hydrogen, as I think you're implying, you're looking at carving out hydrogen from the rest of the Plant Technology. I mean, does it mean that you would be considering a variety of corporate option with it, [ little ] A? And B, what's the outlook for mining within that and the rest of chemicals?

For the hydrogen business plans -- for hydrogen business, we are considering and you have heard about it probably already, we are considering a partial value crystallization. And we have already mandated a bank, and we know that we -- we don't know but we expect the bank and process to deliver results in the summer. So based on that then, and in order to allow this partial value crystallization if the offers are good enough to us. If we do that, then, of course, we wouldn't -- we would then talk about only the hydrogen business unit. And the plant, so means that Uhde or probably know it as Uhde CPT earlier, would then still be a part of thyssenkrupp until we would start the next process to sell it off. But we are actually assessing -- we have already casted out from the -- as a business unit from the plant segment from the chemical plant technology, so Uhde segment. But yes, we are investigating on 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, investigate how to -- but for -- at this point in time, we are considering only a partial one, not a full one.

Okay. And for the rest of chemical, because obviously, mining is well advanced on divestment. But the rest of the chemical business has got some great operation as well. I mean, are you closer to divesting that or is it on hold for the time being?

For the time being, I think you know that market is developing quite favorable because there is still, besides hydrogen, there is still ammonia being -- so because we can, of course, provide full ammonia plant and we have a good reputation for doing so. And that's the next big wave. So we are enjoying, for the time being, let me say, lots of discussions with customers for potential projects to come. So we are actually -- in this area, we are observing a bit what the market development before we would take a final decision.

Perfect. Sounds logical.

The next question is from Christian Obst, Baader Bank.

First question, I have 3. First question is on CO2 costs. What you currently have to buy? And can you give us an idea about the proximate -- about the impact on costs you expect for the next 2 to 3 years? That would be the first question. Is that okay to 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 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. And going forward in auto, you are still looking for cooperation or partnerships, at least for some parts of the automotive technology? And the last one is on industrial, especially in bearings. Of course, there will be a strong demand for windmills in the years to come. So how do you plan your capacity for the next 3 to 5 years, let's say? So forget about the short-term incentives from the Chinese. But the longer-term view in bearings, how much do you intend to invest? And what is your capacity planning there? And what is the current bottleneck there?

So I'm going to start with the question to auto. Yes, I think you hit the nail on its head. I think we utilize -- the question regarding the utilization of our auto plants, thyssenkrupp has invested a huge amount in order to develop a global footprint, which is absolutely must-have in an automotive business. But for the further time being, we believe we have now finalized that buildup phase for the global footprint, now we grow into the given plants. So there is still capacity, so we expect the auto business to invest, let me say, below previous years. That's the first thing. But I think also important for the profitability improvement of our auto business, mainly the steering community. You know that they enjoyed really significant growth in the early years. And at that time, and this is now something we try to correct going forward, they developed the significant product complexity. Product complexity is something very expensive. In order to develop, let me say, very competitive office, you need to have a very simple product architecture with lower complexity. With such a change, you have a second positive impact on your investments in the future because you can reuse better what you have already implemented for previous orders. So yes, we expect, I think, the investments to be lower than in previous year. And your question regarding alliances, that, I think that is something the auto industry has always done on a level, let me call it, order per all. Sometimes, a customer wants somebody to cooperate with somebody else in a system. So commodity A is combined with commodity B into a system, so the 2 companies providing these 2 parts, for example, they are being asked by the customer to join forces for certain orders. So to develop alliances is a totally normal process in the automotive industry. And, of course, developing bigger alliances now for system businesses is, I think, always something to be questioned. I would never say we don't do that because there are 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 further discussions beyond that. But joining alliances is a key success factor in the automotive industry, I think, going forward.

Maybe I have a direct question on that. So -- but you're not -- you're talking about a system approval, which I understand, but you're not investing by yourselves to really to enlarge your system approach. You're looking -- if you are looking for cooperation partnership alliances to get the system approach but they're not heavily investing into that.

Right. We are not heavily -- we are not, let me say, thinking about an acquisition or something. We are not thinking about this. But I give you -- can give you a small example of what we are doing from time to time, for example, active dampers. Active dampers and steering are both part of an active vehicle motion system. So from time to time, we invest ourselves a bit in system capabilities when it comes to a point that a customer is interested in 2 or more parts out of our portfolio. Then we are investing in engineering resources.

I think Mr. Obst had some further questions. Maybe I can -- maybe very quick. So bearings, you asked about capacity and actually, we are investing in increasing the capacity. Also, we did this at the beginning of the year, and we have some other projects which we have coming up. So this is something where we are definitely going to increase capacity. The other one was emission rights with steel. So well, you know that so far, we have this reallocation of emission rights. Together with some planning we did, we were covered, let's say, this way. Looking into the future, it's a bit difficult. So we know that emission rights will be -- we don't know. But there is a likelihood that emissions rights will go down. And then we will come into a, let's say, a situation where we have a shortfall in that where we have, let's say, that we are to a certain percentage, not covered. But this is not a problem of thyssenkrupp. This is a, let's say, structural problems of the steel industry, in the European steel industry. So nothing more to say.

The next question is from Rochus Brauneiser, Kepler Cheuvreux.

And apologies if the question has been already asked because I'm late to the call. On these comments you made on the hydrogen partial value crystallization, 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 be right in the long term? That's the first question. The second question is how shall we think about the earnings impact in the fourth quarter from the Schwelgern reline in terms of underutilization and shipment loss? And certainly, on the steel spinoff, can you help me to understand your current thinking about the ability to offload that in pensions? Is there a kind of a mechanism that all the pensions which are currently associated to steel would ultimately 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?

So I'm going to start with the question regarding hydrogen. This partial value creation, the main object.

Mrs. Merz, at the moment, we can't hear you any longer. One moment please, I will get back to the speakers shortly. [Technical Difficulty]

Yes. Sorry for the interruption.

No problem at all, yes.

Most of the things you might have -- you might have heard what Martina said?

No, I think it was cut off from the beginning.

From the beginning? So then I'll repeat briefly. What I said was this partial value crystallization could lead into several, let me say, to several solutions like a subsidiary, IPO or a SPAC. But the main objective behind it is to fund further growth in this business. So we would want to dedicate the potential funds into growth. And that can, of course, mean also to find partners in order to grow. For example, in terms of regions, it might make sense to us to work together with somebody. But as said, the main objective for us is to potentially fund further growth.

And there were some other questions regarding steel. The first one was regarding the capacity shortage because of the revamping of the blast furnace. Yes, there will be -- this is a technical nominal one-off, up to a low 3-digit tonnes number. And the other question was regarding the pension liabilities. So there's some kind of flexibility? Yes, it is. So normally, it goes with the business. So where it is and there's some kind of flexibility. But clearly to say nothing is, at this point of time, decided or something like this. So we have a pension liability, which is dedicated to the steel business, and this is EUR 4 billion, full stop.

Okay. And the earnings impact of the -- this underutilization and potential shipments also in the first quarter?

Well, too early to say, too early to say. Yes, it's really difficult to make a number on this. There will be an impact but very, very difficult to say.

And can you -- sorry, the question...

Go ahead of course.

You said you -- obviously, you might have built some inventory. So in this market, it's probably a difficult situation to either stock for the reline or just sell into the market and realize the higher price levels. So something to think about.

The revamping or the relinement is technically -- it is not possible to do it on another point of time. It's -- technically, it is a must. This is not an option to postpone it or to make it at another time point. Yes, and therefore, we do this, and this is -- as I said before, we do this by intention in summer because we see most of our customers shut down their production facilities in August, and this is the reason why we see it's also done there.

And I think with that, with those questions and answers, we have come to the end of our today session. And therefore, I would like to thank you very much on behalf of the entire team for your participation, for your questions. And as always, after the call, our Investor Relations team is available for you to discuss any further questions you might have. We look forward to staying in touch with you, and we wish you a nice rest of the day. And bye-bye with that.

Thank you, all. Bye-bye.

Bye.

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