thyssenkrupp AG (TKA) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the webcast of thyssenkrupp. At our customers' 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. Yes, hello to everybody. This is Claus Ehrenbeck. And also on behalf of the entire team, I wish you a very warm welcome to our conference call on Q3 and 9-month numbers. This call will be recorded and a replay of this call will be available in the course of the afternoon. All the documents for this call are available on the IR section of our website. And they are already available since this morning at 7 a.m., as always. And with that, I can hand over to Klaus Keysberg, who will lead you through the slides. And afterwards, there will be a Q&A session. So Klaus, please go ahead.

Yes. Thank you very much, and a warm welcome also from my side to today's conference call on TKA's Q3 and 9-month figures. And first of all, I'm pleased to report that our performance is significantly up year-on-year. On the back of strong earnings, particularly for Materials Services and Steel Europe. The strong operational performance in 9 months is reflected in a plus of order intake of 34% and 237% of EBIT, respectively. This major performance increases stemming from top line effects such as Materials Services and Steel Europe, benefiting from favorable price environment. Industrial Components and Automotive Technology being able to pass on higher factor costs. And regarding order intake, a big ticket order at Marine Systems of roughly EUR 3 billion in Q2, confirming our leading technology position, particularly in conventional submarines. On the bottom line, the step-up in performance is reflected in margin expansion at Materials Services and Steel Europe that was further continued in Q3. Additionally, underpinned by performance and FTE reduction programs after 9 months, we already reduced over 1,700 FTEs. Furthermore, TKA is well on track with its transformational progress, including its green transformation. Let me give you some recent proof points from Q3. Our green hydrogen business, nucera, has achieved a letter of intent with Unigel, Brazil from industrial trail hydrogen plant with an initial capacity of 60 megawatt. Marine Systems acquired shipbuilding capacities recently MV Werften Wismar, Germany in preparation for more order from its expanding naval funnel driven by rising governmental defense budgets. And Automotive Technologies is currently exploring a joint venture with NSK from Japan for steering businesses to potentially drive synergies and the regional footprint. Let us briefly take a look at some key financial highlights at the glance, reflecting our strong operational progress and year-on-year update. Our top line improved year-to-date with a significant order intake, and sales increase by EUR 8.6 billion and EUR 6 billion, respectively, year-on-year. Consequently, we recorded a 9-month order intake of EUR 33.9 billion and sales totaling EUR 30.6 billion. Simultaneously, we have been able to generate an EBITDA adjusted of EUR 2.6 billion in the first 9 months and an EBIT adjusted of EUR 1.9 billion with a 6.2% margin. This positive development is also reflected in the net income, which has improved substantially by EUR 0.9 billion year-on-year to EUR 0.8 billion thus far in fiscal year '21-'22, with the latter figure including impairments of EUR 0.5 billion, mainly at our steel operations and caused by the recent interest rate increase. It goes without saying that this charge is a noncash item. Free cash flow before M&A is significantly below the previous year and still negative, primarily driven by the temporary increase in net working capital of about EUR 3.3 billion. This is mainly due to higher raw material and material prices, and to some extent also by delayed customer colors in auto components businesses due to supply chain bottlenecks. Positively, to highlight is that free cash flow before M&A in Q3 is showing significant improvement compared to the previous year -- to the previous quarter. And on the back of significant net working capital release, Q4 will show a very positive number, leading to an improvement for the financial year. Let us now jointly take a look at the performance in Q3, more specifically. Across all segments, order intake has grown overall, by 30% year-on-year, mainly driven by MX and Steel Europe. Simultaneously, we have been able to lift the EBITDA adjusted by EUR 456 million year-on-year to EUR 951 million, mainly by strong margin expansion at our Materials segments, Materials Services and Steel Europe, more precisely at Steel Europe with an EBITDA adjusted of EUR 451 million, a plus of EUR 363 million, and at Material Services with a record EBITDA adjusted of EUR 420 million, which is an increase of EUR 155 million year-on-year. These positive performance effects are partly offset by ongoing supply chain constraints and rolling factor costs affecting our components businesses. With regards to free cash flow before M&A for the group, we recorded a year-on-year decrease of EUR 177 million, resulting in a minus EUR 412 million for Q3. This is mainly or purely due to the temporary negative price-driven effects on net working capital, particularly inventories and receivables. As mentioned before, we expect a strong conversion of net working capital into cash flow by lower receivables and inventories, and also by prepayment at Marine Systems, thus a strong positive free cash flow in Q4. Let me now walk you through each of the business segments, and briefly highlight some major developments regarding EBIT adjusted in Q3. As evidenced by the graph and figures, we see a significantly improved performance year-on-year, with all segments contributing with a positive EBIT adjusted, Multi Tracks being the sole exception. At Materials Services, with EUR 386 million, the performance increase is primarily due to record margin levels through favorable prices despite overall decline in volumes. Furthermore, Materials Services achieved continued progress with structural improvements. For example, network optimization with the closure of TKA Materials Vietnam and the development of the approach Materials as a services. Industrial components came in with EUR 49 million. This is EUR 19 million lower year-on-year with a decline at bearings, but an increase in Forged Technologies. Negative effects at bearings are primarily driven by the higher competition in conjunction with a temporary decline in demand in China and increased factor costs, partially offset by restructuring and performance efforts. Forge Technologies could pass on higher factor costs and continued cost-cutting measures, leading to positive performance effects. Automotive Technologies with EUR 65 million, significantly lower year-on-year by EUR 45 million mainly due to substantially higher factor costs, volatile customer demand and capacity utilization as a result of supply chain bottlenecks, mainly asset customers. This is partly compensated by further negotiations on new price conditions. Steel Europe generated an EBIT adjusted of EUR 376 million with a plus of EUR 357 million, significantly higher year-on-year, mainly due to higher spreads. Effects from higher contract prices are partially offset by lower shipments and higher raw material and energy costs. Additionally, ongoing restructuring and the performance programs support the top and bottom line development. Marine Systems with an increase of EUR 12 million to EUR 3 million higher year-on-year due to focused performance improvements through stability in existing orders as well as ramp-up of new orders. Multi Tracks came in with a negative EUR 62 million in EBIT adjusted losses are higher year-on-year, mainly by the deconsolidation of the positive stainless business already in Q2. In total, this could not be offset by positive effects from the closure of Heavy Plate. The next slide depicts and summarizes where we stand with the restructuring plans of all business. As you know, we extended our restructuring initiatives to a total reduction of more than 12,700 FTEs, which marks the largest restructuring program in thyssenkrupp history. As of today, we already accomplished roughly 75% of our target, which means in absolute terms, a reduction of roughly 9,500 FTEs. The majority thereof with 60% in Germany. In the current fiscal year, we already reduced more than 1,700 FTEs, which leaves us with the remaining number of roughly 3,000 FTEs to be reduced until midterm. Looking at the respective restructuring expenses and cash outs, we expect a full financial year cash-out figure on a broadly similar level to the previous years as the vast majority of the provisions has already been made with a total amount of roughly EUR 900 million. We will no longer see sizable negative impacts on our P&L figures in the next years. Based on these restructuring efforts, we have already realized sustainable savings in a low to mid-3-digit million euro range during the past fiscal years and expect that figure to rise to a substantial -- sustainable high 3-digit million figure in the midterm. Moving on, let me briefly give you a status update on current external factors for our businesses. At this slide, contains quite a bit of information. I would like to pick out just a few specific examples and show how we act upon the risk and opportunities we face. The first and foremost, and as a direct impact of the world, we also are confronted with uncertainty for natural gas supply. Though only accounting for 10% of the energy consumed in the group clearly a crucial topic also for our Steel segment. Here, we took early action and defined action plans for different scenarios of potential gas shortages, and ensure that operations can be maintained most efficiently and damages of our aggregates avoided. Moreover, we keep close contact to federal and state governance to raise awareness that an ongoing and sufficient supply of natural gas is mission-critical for us. As another example, we have to deal with an inflationary development across all businesses Therefore, it is of great importance for us to pass those cost increases on. And I'm happy to state that the salespeople in the businesses are doing a great job, especially at our Components business, Industrial Components and Automotive Technology, where we can see these effects in the Q3 numbers. At Materials Services and Steel Europe, the margins are clearly going strongly in the right direction, of course, also thanks to the very favorable trading conditions. However, we all are aware of economic uncertainties going forward. In order to mitigate potential financial impact, we prepare for counter actions such as temporary short-term work, cost savings and, of course, rigorous CapEx management before more severe restructuring and head count restructuring would have to be introduced. Regarding the longer-term consequences of the geopolitical situation and economic conditions in Europe, and on a global scale, it is today by far too early to make an assessment. However, it has become obvious already that the push for the renewable energy supply besides the multiple market transformation trends is arising, providing significant opportunity for our businesses going forward as oil segment CEO has already outlined at our Capital Market Day in last December. That is including the green trends where we are well positioned to have a meaningful stake and capture additional demand or respectively, growth potential. In renewable energy, the TKA Group is standing out in the technologies that enable the green transformation such as hydrogen electrolyzers green ammonia and also renewable energy. Nucera is a market leader in industrial scale plants for alkaline water electrolysis while our chemical plants business Uhde is market and technology leader for ammonia, production in large scale besides being essential for fertilizer production, and thus global nutrition ammonia will be a carrier in transportation of hydrogen. And the bearing business of Industrial Components has a leading position in its field as you know, for instance, in wind turbines. In advanced mobility, we are the forefront of topics such as e-mobility and automated driving, where TKA takes leading positions within the segments at Automotive Technologies in the Europe in important areas such as electric powered steaming and materials for e-engines, namely nongrain-oriented electrical steel. For lightweight solutions, particularly high strength steel, our colleagues in Duisburg build up capacities for steel that is making car bodies more energy efficient, while not compromising on safety. For decarbonization, Steel Europe is currently underway with the largest transformation in its history to meet steelmaker and has a clear road map to become climate neutral by 2045. In conclusion, we all know that steel does not have any meaningful substitute and plays a vital role in the transition to a decarbonized and circular economy. We also see the longer-term outlook for quite positive. This is also due to actions taken by China and the cause of its increased focus on decarbonization and the removal of sales tax rebates on exported steel. But Europe is not alone. Our MX segment also takes part in decarbonization being a first mover for the supply of CO2-reduced materials and CO2-optimized supply chains. Digitalization techs obviously plays in all of our businesses, particularly emphasize should be the digital services with the state-of-the-art digital offerings for resilient supply chain solutions, and the in-house expertise at Automotive Technologies since software-assisted mechanical functions are becoming increasingly important. Here to mention the electric power steering and the fully active temper for vehicle motion control. Overall, this shows that our businesses keep up at the forefront of the development in some of the most promising transformational trends. This also reflects our heritage on a relentless ambition to capitalize on our long-standing expertise in engineering and technology. With that having said, I would like to briefly comment on our key assumptions for the last quarter, and thus, give you an update view for the current fiscal year '21-'22. Quarter-on-quarter, we expect some normalization of pricing still on a high level, and we see effects from seasonality and materials environment for MX and SE. Besides price normalization, we expect effects on our shipments from destocking and customers. At the same time, we are getting positive indications from our customers from the auto industry, hinting towards higher production after the summer break. We will have a clearer picture once we will have gone through September. Furthermore, we anticipate a continued strong pass-through of higher factor costs for our components businesses, Industrial Components and Automotive Technologies, the latter leading to a sequential upside for earnings net automotive technologies and the stabilization at industrial components. With regards to net working capital, we expect the price and volume-driven release that will result in a significant positive free cash flow before M&A, as mentioned earlier. Please keep in mind that our view on Q4 is based in particularly on the assumption that necessary fossils fuels, especially natural gas and raw material will continue to be available without restriction. Leaving the quarterly perspective and looking at expected full year figures for '21-'22, the most important statement for me as the Group CFO is, by year-end, we will see significant improvements across all KPIs compared to last year. And that being despite the challenging market conditions we currently face. For the P&L statement, this means an EBIT adjusted in the range of at least EUR 2 billion, this means more than EUR 2 billion, which will carry through to a net income in the high 3-digit million range number. Taking into account the interest rate-driven noncash charges from impairments. Our TK Value Added will also be significantly positive in comparison to minus EUR 622 million in the last year. This shows we do not only generate significant earnings but also managed to earn our cost of capital and earn value to the shareholders. Concerning free cash flow before M&A, we do foresee a strong Q4. We maintain our guidance as of Q2 for a negative mid-3-digit million euro figure for the full year, still a significant improvement compared to last year's figures of minus EUR 1.3 billion. Looking at the balance sheet, and particularly our net cash position, for the year-end, we expect a value of more than EUR 3 billion, of course, also due to positive effects from M&A transaction at Multi Tracks. That will have an effect in the high 3-digit million range. And of course, with increasing interest rates or pension liabilities will also be significantly lower. Before I come to the last slide of today's conference call, let me shortly provide you with some granularity for our outlook of free cash flow before M&A for the year-end. As mentioned on the last slide, and evidenced here by the figures on the bridge, we experienced our best 9 months in over 10 years regarding EBIT adjusted. In the transition to free cash flow, we expect a significant release in net working capital of around EUR 1 billion in Q4, mainly price and volume driven in inventories and receivables, especially at Materials Services and Steel Europe. In addition to this, net working capital will benefit from prepayment at Marine Systems for the submarines order that we recorded in Q2. The before mentioned EUR 1 billion release will be allocated across -- the 3 main buckets inventories will be the main driver with a mid- to high 3-digit million positive effect, receivables are expected at a positive effect in the low- to mid 3-digit million range and payables roughly broadly have changed. Looking ahead, we forecast already today that in the fiscal -- in the next fiscal year, there will be another network and capital release in terms of value. Of course, that we'll be depending on the then prevailing price and volume conditions. At the end of today's presentation, I would like to quickly summarize the key aspects regarding our financial and our transformation part of number 5 buckets. First, strong balance sheet. As previously mentioned, by quarter end, we had a net cash position of around EUR 2 billion, and our total liquidity stood at EUR 7.5 billion. Both positions will improve at the end of the fiscal year. Our pension liabilities significantly declined year-on-year due to rising interest rates and thus a higher discount rate, contributing also to increase equity rate improved equity ratio of now 39%. Next, our value options from continuation of portfolio management for our nusera green hydrogen unit, we continue to see an IPO as a preferred option in order to crystallize the business value. And going forward, we will further enhance the structural fundamentals of our portfolio. Coming to performance, portfolio management and restructuring. On the backdrop of existing economic uncertainties, the management teams of the segments have prepared comprehensive contingency plans that can quickly be taken into action if conditions would require so. At the Multi Tracks segment, we can report further progress in the streamlining of the operations and important to mention for the mining business, where we strive for finalizing the sale before the quarter end. We are pleased to report that the required closing conditions were accomplished at the beginning of this week. And last but not least, our largest restructuring program in TKA history is well on track with 9,500 FTEs already reduced. Now leading technologies and ESG. Engineering tomorrow together, we are proud of our claim underlining more than 200 years of engineering excellence, and allowing us to capitalize on the transformational trends as I outlined earlier. With that expertise, it is fair if we say that we are a key enabler for the green transformation. And finally, we have a clear commitment to sustainability, which will continue to be a management priority moving forward. We have defined a clear road map leading to SBTi's improved climate targets, and our decarbonization from SE representing over 90% of as TKA's CO2 emissions is in place and will be driven continuously forward. Having said that, first of all, let me thank you for your attention. But before we jump into the Q&A, I will hand over to Claus Ehrenbeck.

Yes. Thank you very much, Klaus. And I would -- what I would like to briefly do here is to draw your attention on this slide here on the screen. It's about save the date, and the save the date for our next capital market event that we will host in November, exactly the 25th of November. So 1 week after we will have released our fiscal year number and the guidance for 2022- '23, and we will host this event in a meet management format. That means there will only be very brief presentations, and the majority of time will be spent on Q&A. So you have the opportunity to ask as many questions as you want to the management teams of our segment, and of course to AG management. And with that, I would like to now hand over to the operator for the Q&A session.

[Operator Instructions] And the first question is Seth Rosenfeld, BNP Paribas.

Certainly, I have a few questions with regards to Steel Europe, please. Thyssen saw a sharper sequential margin contraction than most of your peers last quarter. Can you give us a bit more color on what drove that relative performance versus the sector? Some of your peers have proven more able to find, let's say, a new home for steel, even at a time of weak auto demand improving volumes. Why has that been a bigger challenge for thyssen? And then looking ahead to Q4, obviously, spot prices have fallen significantly, but just doesn't have leading exposure to long-term contracts. How do we think about the scale of margin normalization expected? And is there any benefit to margins from contract exposure versus declining raw material costs?

Yes. Thank you for your question. So a few questions. The first question, I guess, was regarding our margin development quarter-on-quarter compared to competitors. Well, let me say it this way. So when we look at our margin development, of course, our margin is much better than the previous year. This is very clear. But of course, we know also a margin of our competitors. What we see in our sales reflection here is, first of all, you know that we are in a restructuring program. We are very much on plan, but we are still a way to go. This is the first one. If we look at prices per tonne, I think we are in a good position. I think that we here, at least in a position our competitors are also surprises from our opinion, okay? And you know that we are dealing with long-term contracts here. So this position, we assume to maintain at least for the rest of the year. This is the first comment on this. If we come to costs. Raw material costs. Raw material costs, I mean, you know that with the beginning of the war, raw material costs increased a lot. And at that point of time, we have to say we purchase raw materials. We purchased raw materials at higher prices, yes, and we purchased raw materials also to maintain the production. And what we also did after the beginning of the war, we changed our suppliers from Russian suppliers to other suppliers. And this was not for free. So of course, there were some cost effects on this. And coming also to energy costs, yes, of course, we also have energy cost increases, in Germany, maybe more than in other countries. I don't know so yet. So looking at all of this if I sum it up from prices per tonne, I think we are in a good position. Regarding raw materials, energy, I just wanted to describe to you what we are feeling here. We are not able to really make a comparison to the competitors. The competitors should have been in a similar situation, but it's also a question, let's say, these cost burdens, at what point of time will this come through in the balance sheet. So we have to, let's say, see the rest of the year and the rest of the quarters, whether we see some developments here. So this is more or less what I can say to the benchmark here. So much better than before. We have, of course, some issues with raw materials, and also energy. Regarding volumes, Yes. Regarding volumes, we -- in our Q3, were a bit behind previous year. If you look at the coming quarter. I mean you know that -- if you make a guess what is going to happen in the next quarter, what we see is that from the normal industrial business, we do not see so much, let's say, improvements. We see it more in a flattish way. But what we see is, and this is also due to our automotive business, we see potentially higher volumes if you look at our automotive business. So -- and this is -- I can tell you, if you know that the OEEs -- the big OEEs, not only the big OEEs, they do have still big order backlog. And since the supply chain situation is going to increase. the volumes in this sector are as opposed to going up. This is what we are estimating. Yes, this should be more or less the answers to your question. Question mark.

That's very clear. Maybe if I can use just one last time. When we think about going into fiscal Q4, is there any main sense of the scale of margin compression that you think would be reasonable? Is there any benefit from lower material costs now helping offset any price weakness realized in Q4?

I think this is -- I mean we are in a very volatile environment. If you look at the raw materials, we should have a bit of a better situation but not necessarily in energy. So this is in the mixture, we will have to see them compared to Q2. I mean it's also depending on the volumes. This is very clear.

The next question is from Carsten Riek, Credit Suisse.

The first one is on the steel impairment, which we have seen, the EUR 390 million. Could you give a bit more detail why the impairment happened in the current quarter? As far as I learned and you mentioned it, Klaus, the impairment became necessary due to the recent rate increases. Does that automatically mean we could see further impairments should interest rates rise further? That's the first one. And the second question I have is on your natural gas dependency. Could you reduce your dependency on natural gas in the reheating process in steel by changing the way your reheat means the introduction of induction furnaces?

So first question regarding the impairment. I mean you know that at least once in a year, you have to do this impairment test. And if you have some triggering events, then you also have, in some quarters, impairment tests. So in the way, of course, an impairment test is done, I think I do not have to explain you, but there is, of course, a certain planning scenario what you are underlying with some cash flows. And this cash flows, you are going to -- going to discount with a special discount rate. So I can tell you, we did this impairment test, of course, also last quarter because there was a triggering event, this Ukraine war, and we did this -- what I had to do this impairment test again this year, the triggering event was the increase of capital cost. And I can tell you, we had, of course, 2 things which could, let's say, influence the value and use of the business. This is the amount of cash flow, and this is the discount rate. And I can tell you that the cash flows we applied in this quarter's impairment test were not worse than in previous one. No, they are more or less the same. So the operational performance has not changed in our assumption of this impairment test, just the discount rates were the trigger and also the reason why we had this impairment here. Second question is, if there would be an additional increase in capital cost, could that mean that there will be further impairments. In principle, yes. But of course, if we do the impairment test next time, we will also have maybe another picture on our cash flows going forward if they would increase in our let's say, estimation they're not necessarily -- and by the way, if CapEx costs are going down, then there could also be the theoretical option that we are going to...

A reversal.

Yes. The reversal or [Foreign Language], I don't know the English word. Is it clear now?

Yes. Yes. That's very clear.

The second question was?

On the technology, whether we could replace existing technology for heating the air that we are blowing into the blast furnaces by another technology.

No. It's not the blast furnaces...

So at the -- the blast furnace is...

It's actually on the reheating process of the slabs because that's where most of the natural gas is used.

And what we are doing or what we are considering can imagine that every kind of -- every business has so-called road file plan, so emergency plans for this. And what we -- especially in steel, you know that we have gas consumption in the [Foreign Language]. We have some gas consumption in the heating of the blast furnace, and we have, of course, gas consumption in the downstream events. What we are actually doing and doing in so-called emergency plans is, of course, you know that there are [Foreign Language] these are process...

Top gases.

Top gases, which we normally use also to produce power energy. This is something we could reduce, and purchase power externally, and use this top gases -- or process gases to yes, to use this to -- for the production of the downstream mega [indiscernible]. This is something that is a very clear and straightforward option to reduce the dependency. And of course, what we are also looking at is that we can use liquid natural gas. At the moment, we cannot do it without some adjustments on the infrastructure, but we have a clear plan, and we know how to do this. And this is something we are looking at. So this could also reduce our dependency.

The next question is from Jason Fairclough from Bank of America.

Yes. Two questions for me. One on working capital and then one on nucera. So you're guiding to about a EUR 1 billion working capital release in the next quarter. I guess beyond this, how do you see surplus working capital in the business? Is it EUR 2 billion or EUR 3 billion or EUR 4 billion? Or is it more? Secondly, just on nucera, how should we think about revisiting the timing of the IPO of nucera? Is there a watching brief for -- is this something you're going to look at quarterly or semiannually?

Yes. I see that we have a problem in the line obviously. Can you hear us?

Now I can hear you. Did you hear my questions okay? Do you want me to repeat them, Klaus?

Yes. I think the first question was, I guess, regarding net working capital so that we are going to release some with some EUR 1 billion and [indiscernible]

Yes. The EUR 1 billion, and then how much surplus do we have beyond the EUR 1 billion? Yes.

Yes. I mean this is, of course, something which is which is difficult to answer precisely. But I don't really comment on this too much. So we see, of course, further potential because we saw an increase in this fiscal year, which was really mainly we're most purely price-driven. And of course, this is going to come back to that the first number we saw that we have an increase of EUR 3.3 billion. So if we now come back with EUR 1 billion, I will not say the EUR 2 billion come back, but some of this will come back definitely. So I cannot be more precise on this. So -- and the question on nusera was -- how do we look at this? At the moment, of course, we are watching the development on the capital market very close. We, by the way, think that our asset is going to be more interesting, and it increased because we generated more order intake. And yes, we are looking at it very constantly. So it could come quick, but it also could come later. So we do not have -- let's say, we do not give you an indication of the time line now. So this is -- we constantly look at the market now.

So just to come back on the working capital, if I could. So again, if we look at EUR 1 billion in the next quarter, and then if I pick a number, say, EUR 2 billion, I mean, you're almost returning your market cap in working capital? I mean, is that -- that's not crazy math, right?

Yes.

EUR 3.6 billion to [ EUR 8 billion ].

At the moment, if you look at the market cap at the moment, we are not far away from this, yes.

The next question is from Bastian Synagowitz, Deutsche Bank.

My first question is, again, another follow-up on free cash flow on working capital as well. And thanks for the color you already provided here. I'm just wondering, I guess, what we've seen obviously just across the whole view space is that most of your peers have actually started to basically prepare the market for slightly structurally higher working capital level, which may actually be also carried into the next year. So I'm just wondering as you feel very confident on the free cash flow you're planning to deliver in the fourth quarter. Do you still see that there is the risk that you may drag on some of that working capital, maybe a larger number into the next year?

I don't know whether I got your question right. So I don't know what you mean. I heard what you see that our competitors are guiding for higher working capital numbers. So...

I guess the question is, is there a risk to your free cash flow guidance as it stands? Or would you feel basically like 100% confident on it? Is it sacrosanct or you're really feeling very confident to deliver?

For this year, we are very comfortable with this.

Yes. Okay. Perfect. That answers my question. And then actually, staying on the guidance side, obviously, we all appreciate that a lot can happen between now and the end of the year still given the uncertainties. It could be a one-off impact but also the low end of your guide seems very conservative. So if you look into your order books and also the market framework, which you are currently seeing today. Do you still see the lower end guidance as realistic at all? And just generally, how much -- how comfortable do you feel with consensus numbers around EUR 2.2 billion, EUR 2.3 billion.

That's a good question. I mean, I got this question, by the way, also earlier. So our guidance to be at least EUR 2.2 billion. If I would be more precise. We are in a volatile environment, that's very clear. And we see also some general risks. But if we talk about our guidance, we are not considering any specific risks. And if I look at the quarter-to-quarter, I mean, you know that spot prices are coming down. This will definitely bring pressure on the margins of Material Services. On the other hand, we would see, let's say, better volumes in the automotive business. But taking all this into account, I think it's clear that we, quarter-on-quarter will reduce our earnings. But if we talk about the consensus or the capital market exception here coming to EUR 2.2 billion to EUR 2.3 billion. I think it's fair if we would say that we are running in this direction.

Okay. And then my last question is just on HKM. It seems like there may be some events coming up here. Wondering whether you could remind us just on the book value, which the business is currently having and whether there have been any impairments related to HKM on the EUR 500 million number which you reported? And also whether you see any scope to monetize it just in case you're pulling out from it?

The HKM, I think if you talk about this impairment and if you make an impairment, you are going to -- asset impairment, you are going to distribute these impairments to all of the assets also to HKM. This is, first of all, this is more a technical issue. The other things that I don't know what you specifically mean. So it is our daughter company, and we have 2 other minority shareholder here. So we, at the moment, do not see the necessity to talk about here, divesting this business or something like this, I think is -- I don't know whether you mean that specific specifically, but maybe you can, let's say, rephrase your question.

Yes. So I guess we just talked to one of the other stakeholders, and he suggested that 1 party may be pulling out and it wasn't your name, but I guess it seems very lucky that you could be the party who may be over time, and not in the next year or so, but with basically plan to withdraw from it. So I was wondering what is the current book value? And in case you're pulling out, I guess the question would have been like obviously, do you see a good chance to be monetizing that book value?

So we -- first of all, I don't have it by half the book value. I have to look at. But if I would have the book, but I don't know whether I would disclose it at this point of time. And -- but I mean we are not thinking about at the moment at major strategic changes in our stake in HKM. So I don't know what [indiscernible] referring to, but we, at the moment, are not thinking about this.

The next question is from Christian Georges, Societe Generale.

On your CapEx, you're guiding for a flat CapEx this year at EUR 1.4 billion. If you project to next year and the 2025, what kind of annual CapEx do you think we should be looking at given the investment you have to make to deliver green still?

You mean in the next fiscal year, '23 -- '22- '23?

Yes. And then also in terms of recurrent asset, what's your perception of -- are we looking at perhaps above EUR 2 billion in order to be able to invest in your blast furnaces?

I mean we are just preparing the plan for next year. So if we look at next year's CapEx level, there will be most likely a higher number than we see this year. The question is how much of this is CapEx for the green transformation. You know that the green transformation will be in -- will be due -- or will be ready in '25. So there will be not so much of this investment CapEx coming in the next fiscal year. So this is all I can say here. So -- but at the moment, we are thinking that the number of CapEx in the next year will be higher than EUR 1.4 billion. But since we are not ready with the planning, I cannot give you, let's say, a precise number here. Of course, we...

Okay. The first, second half?