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.

Thank you very much, operator. And hello, everybody. This is Claus Ehrenbeck. And also on behalf of the entire team, I would like to wish you a very warm welcome to our conference call, which is today on the Q4 numbers and the fiscal year. The presenters today will be Martina Merz, our CEO; and Klaus Keysberg, the CFO. And before we start with the presentation, please allow me to make just a brief -- a few housekeeping remarks. I want to say that all the documents here used for this call and for this release are available on the Investor Relations section on our website. As always, there will be a replay after the call, later in the day. And with that, I can say we are finished. And now without keeping, of course, [indiscernible], I want to hand over to Martina for the presentation.

Hello, everybody. A warm welcome from Essen from my colleague, Klaus Keysberg, our IR colleagues here in the room and myself, of course, to our conference call on our Q4 and the '21/'22 figures. Let me start with a brief wrap up of what we are aiming at with our ongoing transformation at thyssenkrupp before we come to what we have achieved with regards to performance and transformation so far. Our primary goals are: first, to achieve a step-up in operational and financial performance at all of our segments to benchmark level, and further buildup of resilience to limit the impact of external disruptions and cope with ongoing uncertainty. And let me say that when I refer to operational performance, I mean productivity and efficiency even on the shop floor and the indirect areas. Second, streamline and develop our portfolio, crystallize value and evolve our businesses. Third, exploit opportunities from driving and enabling the transformation by utilizing our technologies to pave the way for the hydrogen economy and carbon neutrality. And of course, fourth is to reward the trust of our shareholders and thus return money to shareholders and pay dividends. I'm pleased to see -- pleased to say, sorry, that thyssenkrupp has changed and developed significantly also in the last fiscal year. Three years ago, we decided to transform the company from a diversified and integrated industrial group to a group of largely independent high-performance companies. At the beginning of this transformation, we presented a road map to you. We said that the process would take at least 3 years. This was before the COVID-19 pandemic, was before the semiconductor crisis, and was especially before the terrible Russian war against the Ukraine. Three external shocks in a short period of time, and all of these had a significant impact on the economy, society and also on our businesses. This has slowed down our transformation, but it has not stopped us. Despite the more challenging environment, we have been able to improve our financial KPIs and further strengthen our balance sheet with a clear focus on performance. By doing so, we significantly gained in resilience. 3 years ago, the company was in an extremely difficult situation. We had a weak balance sheet and with -- we had a large net financial debt, and also the operational performance of the businesses was unsatisfactory. Since then, we have cleared the way, we have identified our problems, initiated and also implemented overdue restructuring measures on an immense scale. The consequence, we have significantly reduced debt. We have scaled back the disproportionate year-end working capital measures and significantly strengthened the balance sheet overall. Instead of a net debt position, we now have a net cash position in the amount of EUR 3.7 billion, which is, by the way, slightly more when at the end of last fiscal year 2021 and positively impacted by proceeds from M&A transactions in the amount of more than EUR 800 million. Our equity ratio is almost 40%, which is a remarkable value, especially in these challenging times. Overall, we can say that we are slowly leaving the necessary restructuring phase behind us. A very large part of the restructuring is already finalized. Headcount reduction is close to 10,000. It is becoming visible that our clear focus on performance is paying off, and our productivity and efficiency really helped us to achieve the results that you can see on the right-hand side of the slide. Overall, the group achieved an adjusted EBIT of more than EUR 2 billion in the last fiscal year, and this is the highest operating profit since 2008. For sure, also supported by market tailwinds, especially at Materials Services and Steel Europe. But we have not only improved our performance, we have always also invested enormously into the future of our operations. In the past 3 years, we have always invested above depreciation even in difficult times. Let me please give you some illustrative examples. For example, at Steel Europe for the implementation of the Steel Strategy 20-30, we built in Dortmund, a new EUR 250 million hot-dip coating line. In Bochum, we are investing EUR 100 million in a new double reversing stand. A new walking beam furnace has just gone into operation in our hot strip mill in Duisburg. And this all will ensure optimized service quality for the auto industry. Those targeted investments will strengthen our position as a technology and quality leader, particularly in the downstream area, and that means processing and finishing. In addition, at Bearings we invested around EUR 60 million in new blade bearing production facilities in India and [indiscernible] here in Germany for the next generation of large wind turbines. In the forging business, we invested EUR 80 million in the new 16,000 ton forging line in Homburg. And this will not only make us faster and more flexible, but also allow us to manufacture more ICE independent components. At Marine Systems, we are investing around EUR 250 million in a new shipyard concept, including a new shipbuilding facility in Kiel and the acquisition of the Werften Wismar. And both steps provide Marine Systems with the churn to grow in a promising market segment. At Materials Services, we built a fully digitized service center in Rotenburg an der Wümme and invested more than EUR 100 million in the expansion of our Service business in North America, among others, for the automotive and aerospace industries. Moreover, we drove digitalization of the entire network in order to create efficiency gains and value for customers. At Uhde, part of our Multi Tracks segment, we currently invest in ammonia cracking technologies to enable green hydrogen import. Uhde is constantly improving its designs and technologies and working towards improved efficiencies -- energy efficiencies and higher capacities and certain more. Uhde has a long track record of building ammonia and even green ammonia plants. We could continue this list for a long time. And let me clearly state thyssenkrupp AG is leading in technology and first-class solutions, and we continue to strengthen them. After 3 years of transformation, we can say today, we have achieved a lot despite of the earlier mentioned disruptions and challenges. Our more than 96,000 employees and business partners worldwide have good reasons to be proud of this. And I would like to take this opportunity to thank all of them, and of course, you and our business partners to thank you once again. However, an honest overall picture also includes the fact that due to the external impacts, we have not made as much progress on some issues as we have planned. Currently, our day-to-day business is marked by new additional and capacity consuming tasks arising, for example, from ongoing supply chain constraints, or preparations to bring forward our planned DRI investment at Steel Europe in addition to modernizing the downstream network in order to implement the Steel Strategy 20-30. However, in the case of Steel Europe, we remain convinced that an independent positioning offers good future prospects for the business. And as long as we have low visibility on how the framework conditions are developing, we cannot make any reliable decisions on the concrete design. Here, we need more certainty about the future development of energy and raw material prices, but also about the development of the economy, the governmental support for green steel and as a prerequisite, the infrastructure for hydrogen supply, which at the end, of course, determines the price for hydrogen also. Nonetheless, we have a detailed and substantiated decarbonization plan with DRI technology in place. For the thermal development at thyssenkrupp nucera, we are also dependent on external factors and an IPO remains our preferred option to be the best positioned for the growth opportunities in green electrolysis plant and thus be best positioned to enable and benefit from the upcoming hydrogen economy. A decision on a potential transaction depends primarily on the situation of the capital markets. Now overall, we consider a potential stand-alone solution and our partnership at Marine Systems. However, also the environment has changed in such a way that we can continue this project with great composure from a strong position. And last but not least, we would like to be one step further towards our target of a sustainably free cash flow before M&A. Thus achieving a free cash flow before M&A, a positive free cash flow before M&A of at least breakeven is now our clear target for the current fiscal year. However, I would like to emphasize that taking more than EUR 800 million proceeds from M&A into account, we already had a free positive free cash flow -- sorry, a positive free cash flow in the fiscal year '21-'22. We will do everything to achieve it even in the environment with economic expectations are further deteriorating. In spite of this, there are also opportunity arising in the current environment. The formerly mentioned progress in restructuring in the past fiscal year is reflected not only in the figures, but also in the way thyssenkrupp is perceived. We observed this regarding our customers, employees and also on the capital market. As an earlier performance indicator, our expanding [indiscernible] funnel reflects tangible increase in interest from existing and new customers from old and new regions, focusing on our world-class technologies and know-how. This is also driven by great opportunities arising from the green transformation. In the next few years, we expect the world's largest industrial renewal program since the industrial revolution. And within a few years, we want to make our fossil fuel-based global economy CO2 neutral. With our hydrogen technologies, we are one of the pioneers of this green transformation, because we, thyssenkrupp, cover the entire value chain. Let me start with demand. By converting our steel production, we will be a large and reliable consumer of renewable energies and hydrogen. The decarbonization of the steel industry is a very big lever to quickly achieve significant progress towards line neutrality and consequently also achieve the national and international climate targets. And in addition, of course, the -- simply the volume demand by the steel industry plays a more -- very important role to the overall scaling and by that, the price changes and the lowering of the prices with hydrogen being bought by Germany. Now coming to the second crucial point of the green transformation, supply. With our hydrogen business, nucera, we are one of the few suppliers in the world being able to offer already today technology for the production of hydrogen on a gigawatt capacity scale. And last but not least, we're also active on the infrastructure side. Our plant engineers at Uhde are experts in the construction of ammonia and methanol plants, most likely the future transport media for importing green hydrogen from other regions of the world to Europe. And as mentioned earlier, they have the know-how and technology to engineer and build state-of-the-art ammonia crackers. Now overall, with our innovative slewing bearings, we are enabling the further expansion of wind energy in the first place. But even beyond these 3 deciding factors of the green transformation to [indiscernible] businesses are full of opportunities. In all our segments, we focus on future trends. There are opportunities for world -- value-creating development. And before we go to the next slide, let me please briefly give you an idea of what I'm referring to. Material Services, digital offerings for a resilient supply chain solution, automotive technology, supporting E-Mobility and automated driving with leading positions in rotor shaft or electrical steering, and Marine Systems changing the environment with increasing need for national security. And these are just some selective examples. Sustainability has become an integral part of our strategy in the last 3 years, and we are constantly working on further improvements. Sustainability at thyssenkrupp is in the responsibilities of the CEO and the CEOs in the businesses, of course, and that shows the importance of the topic for us. We are not only seeing ourselves as member -- as being responsible for becoming CO2 neutral for thyssenkrupp, but as said, we see ourselves as an enabler for the entire industry. And as you can see on the chart, we managed to improve our KPIs in all 3 dimensions. Regarding environment, our CO2 emission intensity decreased in the last 3 fiscal years by 28%, of course, also supported by the [ priced ] mill expansion range. The same is true for the waste disposal, which we are able to reduce by 56%. On the social side, we further increased our share of women in management positions, which has been slightly above 13% in forward year -- fiscal year, for '21-'22. And honestly speaking, I would rather see this trend progressing even faster, and I will personally commit that it actually does going forward. And nevertheless, we are well on track to achieve our target of 17% by '25-'26. Furthermore, the accident frequency rate decreased by 23% in the last 3 fiscal years and amounted to 2.3, which means that the target for fiscal year '23-'24 was already achieved ahead of schedule. Regarding the governance topics, we further expanded our internal compliance department and increased the number of employees by 7% in the last 3 years. And last but not least, we have integrated for sustainability targets in our long-term incentive, which demonstrates the higher elements of ESG topics within our company. For the past fiscal year, we had already forecasted a significant increase of the free cash flow before M&A to breakeven then the [indiscernible]. So today, we are basically providing you with the same guidance, but now with a potential recession in site. We have, therefore, agreed on concrete measures to ensure that we can meet our cash flow target, even in the event of deterioration in the overall economic situation. And the plan is based on 3 pillars. First, measures to preserve earnings and cash flow. This includes programs within the businesses to cushion headwinds and to achieve their targets even in case of a recessionary environment. Second, improvements in capital productivity, in other words, achieving more with less. The main aim here is to reduce net working capital, which has been inflated by price increase. Third, a flexible approach with regard to capital expenditure. We are planning to invest well above depreciation in the current fiscal year as well, which improves and widens the range of our high-quality offerings in products, technologies and services. However, the release of funds will be restrictive and gradual, depending on how the overall economic situation develops and what progress the businesses make in preserving respective returns and capital productivity. So we are taking athletic portfolio approach here. The businesses have to earn their investments by themselves. And Klaus will come back to our cash flow guidance later in more detail. However, the fact that we are releasing investments restrictively for the time being, should not prevent the businesses from continuing to work on their plans for the best possible future development. This is kind of an ambiguity that we have to manage in the most efficient way. Every business should be prepared to seize opportunities as they arise. And this includes, for example, partnerships as in the potential joint venture with NSK in the steering business. And what we always have said about the transformation of thyssenkrupp applies here too. The best possible development of the businesses is more important to us than the ownership structure. Coming now to the summary and outlook. Now today, after 3 years of transformation, we are taking a positive but also a self-critical interim summary. We have not achieved everything we have set ourselves as a target. But we have made progress in transforming thyssenkrupp into a group of largely independent, high-performance businesses with a strong tech footprint in the respective business areas. And this has enabled us to successfully cope with the external impacts I have mentioned before. We assume that the intensity of competition will continue to increase in the current environment. And that is why performance and productivity will remain our top priorities. And that is why we must resolutely continue on the path of transformation we have embarked upon. We will continue to consistently position our businesses as enablers of the green transformation and prepare for growth opportunities. And we will continue to improve the operating performance of the businesses, for example, by further implementing the Steel Strategy 20-30. And we will continue to drive the portfolio streamlining and the development in the portfolio with full commitment. But if you ask me, is it now the right time to do M&A transactions, then the answer is quite clearly, no. There are currently very few activities in the M&A market. So not much is happening in the uncertain environment at the moment. So we are making the best possible preparations and keep our options open. And we will also continue to develop the organization to further adapt our structures to the decentralized setup of the company. Sorry and thanks for the long speech and intro, and thank you very much for your attention, for your support. And with that, I'd like to hand over to Klaus, who will present our financials to you in detail. Thank you very much.

Thank you, Martina. And as outlined by you, Martina, our operational improvement and our performance has our full commitment. And despite of all the progress we have made, it's clear we are still not where we want to be. However, it is absolutely fair to state that our segments and thyssenkrupp has substantially gained in resilience. I would like to back this up with figures at this point and provide an overview on further visible improvements on the financial KPI side. This slide summarizes the key highlights in the past fiscal year and Q4, thus provides some context to the numbers that Martina already referred to in her presentation. I'm pleased to report that our performance is significantly up year-on-year on the back of strong earnings, particularly from Materials Services and Steel Group. We recorded fiscal year sales of EUR 41.1 billion, a plus of 21% year-on-year. In Q4, we have been able also to increase our sales by 12% to EUR 10.6 billion. Simultaneously, we have been able to generate a significant increase in earnings for fiscal year and EBITDA adjusted of roughly EUR 3 billion with an increase of 73% year-on-year and an EBIT adjusted of roughly EUR 2 billion with an increase of 159% yield. In Q4, we see a decrease in EBITDA adjusted and EBIT adjusted mainly driven by price normalization and one-time off on inventory valuation at Materials Services. The positive overall development of our company is also reflected in the free cash flow before M&A, which was improved substantially year-on-year to minus EUR 476 million with a plus of EUR 800 million year-on-year. And I would explain the free cash flow [ before a minute ], particularly the strong positive free cash flow in Q4 in more detail during the course of the presentation. To summarize our performance highlights, we achieved our latest guidance, which was adjusted in cost of the last fiscal year. We generated about EUR 0.5 billion efficiency and productivity gains for performance measures in addition to cost pass-through to the customers. And we will propose a dividend of EUR 0.15 per share at our Annual General Assembly in early February. In the context of our greater resilience, the next slide highlights the strength of our balance sheet. Our net cash position benefited with more than EUR 800 million from M&A transaction and stood at EUR 3.7 billion. Our equity ratio is up by 9.8 percentage points year-on-year to 39% on the back of significantly increased net income year-on-year. And moreover, pension liabilities significantly decreased by roughly EUR 2 billion year-on-year to EUR 5.6 billion. Those figures are based upon our strong operational performance, successful portfolio management, including the sale of mining and AST, and of course, some tailwinds from external conditions, such as higher interest rates regarding the valuation of pension liabilities. Last but not least, to mention in the context of balance sheet highlights are valuable shareholdings such as, for example, our stake in TK Elevator and in the growth company nucera. Let us now jointly take a look at the performance in the past fiscal year at a glance and by segment, reflecting our year-on-year upswing in EBIT adjusted of EUR 1.3 billion. This figure includes about EUR 0.5 billion of productivity and efficiency gains, as I said before, from stringent performance programs in addition to cost passed on of significantly increased factor cost and was offset by energy cost that has significantly increased. Materials Services was able to register record earnings with significant higher margins due to higher prices despite lower volumes. This resulted in a significant increase of EUR 250 million year-on-year. Industrial Components reported an overall decline in earnings of EUR 88 million. The Bearing business was impacted by higher after cost, as a temporary decline in demand in China in the wind energy sector. In the Forging business, adjusted EBIT was slightly above the prior year level. This was helped in particularly by passing on of higher factor cost. Efficiency gains and cost cutting measures introduced in both business units also had a positive impact. At Automotive Technology's earnings, in the fiscal year were impacted by volatile capacity utilization due to continuing disruptions in the transporter supply chain at our customers, which caused a fluctuating demand as well as the sharp rise in factor cost that resulted in a decrease of EUR 156 million year-on-year. The negotiation of new price conditions and performance measures partly offset this development, and it is important to state that in performance benchmarking with other peers, Automotive Technology ranked in the upper end of the range. At Steel Europe, newly concluded long-term contracts in the course of the fiscal year led to a significant increase in earnings of EUR 1.1 billion year-on-year. Here, the favorable price development was reflected accordingly. In addition, restructuring effects had a positive impact. This was partly offset by lower volumes from auto customers, higher energy and raw material costs. Marine Systems maintained a positive trend with a plus of EUR 6 million year-on-year, mainly through the continuous focus on performance improvement and stabilized margins in the order backlog. And Multi Tracks reported a significantly reduced loss in EBIT adjusted with an increase of EUR 125 million year-on-year. Moreover, we have continued the stringent execution of our headcount reduction and have reached over 80% of our overall reduction target. Despite a more than challenging external environment and market conditions, we have been able to achieve important milestones regarding our portfolio and our performance in the last fiscal year. And looking on our portfolio milestones, sales of AST, Infrastructure and Mining were completed at the MT segment with positive effects on our net cash position, as we said before, of more than EUR 800 million. At nucera, we reached IPO readiness, and it goes without saying further decision of a potential IPO depends on development of the capital markets. At Marine Systems, we acquired the shipyard in Wismar and there we could capitalize on a growing project funnel and expand their strategic option room for a possible stand-alone solution or consolidation. On the performance side, I already pointed out the highlights in the previous course of the presentation, reached our performance milestones, the sequentially progress in our defined restructuring measures and significantly stepped up in earnings and free cash flow before M&A and further strengthened our balance sheet. In the last fiscal year, there were exceptionally many and strong external influences. The post pandemic situation and particularly the war in Ukraine, including its consequences, were major factors influencing businesses and markets as a whole. The short-term economic consequences are, above all, sharply increased energy and material costs and the threat of further supply bottlenecks in the already tight global supply chain. However, with the transformation of thyssenkrupp, we have created the conditions of our businesses to withstand such external disruptions comparatively well so far. Stringent management actions in all businesses -- at all businesses were taken early on the -- on to tackle challenges and also capture opportunities where possible. And for example, as a direct impact of the war, we also are confronted with uncertainty for natural gas supplies. Though only accounting for 10% of the energy consumed in the group, gas is clearly a crucial topic also for our Steel segment. So the management teams took early action, have defined action plans for different scenarios for potential gas shortages to ensure that the operations can be maintained most efficiently and damages of our aggregates avoided. The development of energy prices clearly has an impact on the momentum of our performance progress, in particular, if we consider that related costs dramatically increased year-on-year. But in the medium and long term, we also see opportunities for an accelerated shift in industry towards green technologies in which thyssenkrupp can make an important contribution with its technologies and products in the areas of hydrogen, green chemicals, renewable energies and e-mobility. At the same time, we ourselves are pursuing ambitious climate protection targets and optimizing our own energy and climate efficiency. Another example for stringent actions is that we, as a group, were able to pass on the mentioned increased factor cost to the customers to a large extent. Summarizing all of above, I can only highlight once again what Martina said earlier, our transformation process has made thyssenkrupp more resilient. And also with regards to the risk of further external shocks, our businesses recounter potential challenges with targeted measures to minimize the effect on operating performance. Moving on. Let us now jointly take a brief at the performance in Q4, more specifically. Across all segments, sales have grown overall by 12% year-on-year, mainly driven by Steel Europe, benefiting, of course, comparable longer-term contract structure. For EBITDA adjusted, we recorded a slight decrease of EUR 77 million year-on-year to EUR 391 million in Q4. Similar for EBIT adjusted, which is down EUR 72 million year-on-year to EUR 161 million. I will explain our earnings in more detail in a second, but with regards to the free cash flow for M&A, we announced with Q3 figures that there will be a release of the strong net working capital buildup of at least EUR 1 billion and also a prepayment at Marine Systems. This has been delivered, of course, now. As expected, free cash flow before M&A is significantly up and positive with a year-on-year increase of EUR 1.9 billion, resulting in a EUR 1.6 billion free cash flow for M&A for Q4. Let me now walk you through each of our business segments and briefly highlight some major developments regarding EBIT adjusted in Q4. Overall, our group earnings in Q4 included improved contribution from Automotive Technologies and the auto components related business also on the back of higher callers from OEMs. On the flip side, Materials Services came in with a negative EUR 104 million in EBIT adjusted, year-on-year EUR 329 million lower, given effects from a pronounced price correction, including a negative onetime off from inventory valuation of roughly EUR 100 million just in Q4. Industrial Components reported an EBIT adjusted of EUR 64 million, a slight increase of EUR 8 million year-on-year. Bearings developed flattish, whereas Forged Technologies benefited from increases in volumes as well as cost pass on to customers. Automotive Technologies with EUR 61 million, significantly higher year-on-year by EUR 32 million, mainly due to catch-up effects in auto production, especially in China, driving higher volume. Additionally, price and efficiency measures effectively tackled cost increases. And Steel Europe generated an EBIT adjusted of EUR 221 million with a plus of EUR 192 million, significantly higher year-on-year, mainly due to longer-term contract prices. This, of course, was partly offset by higher costs, particularly on the energy and raw materials side. Marine Systems came in with EUR 20 million in Q4. This is EUR 8 million lower year-on-year, but EUR 17 million higher quarter-on-quarter. Focus at Marine Systems is on performance improvement and also by stabilizing the margins of all the orders in the backlog and driving the execution of the newer and higher quality [indiscernible]. Multi Tracks with negative EUR 77 million in EBIT adjusted, losses are higher year-on-year, driven by lower contribution due to sale of AST and higher nonconformity costs at plant engineering. With that having said, now let's have a view on our outlook for the fiscal year '22-'23. However, I would like to point out, given the prevailing economic and geopolitical uncertainties, at the current time being, the operational developments cannot be reliably assessed yet. Our outlook for the upcoming fiscal years is under underlying assumption that fossil fuels, especially natural gas and other raw materials remain available. And we'll still -- and we still expect ongoing volatile market environment, especially with regard to price levels for raw materials, energy and other factor costs. Hence, there might be slight decline in GDP investor markets that are of relevance to us. For our sales, we expect a significant decrease mainly due to normalized price developments at Material Services and Steel Europe. On the earnings side, we project EBIT adjusted in the range of a mid- to high 3-digit million euro figure. This is particularly driven by the absence of dynamic price effects, which provided strong tailwinds in the prior year and are the main reasons for declines at Material Services and Steel Europe, as well as higher factor costs such as energy. Improvement in earnings, among others, we see at Automotive Technologies and Multi Tracks, of course, this is contracted, this trend. Overall, if you just consider an expected depreciation of EUR 1 billion, you can conclude a sizable EBITDA adjusted figure for fiscal year '22-'23. For free cash flow before M&A, as mentioned on the previous slide, we are striving for an increase to at least break even. This development already takes into account the planned higher investments than in the previous year, including extraordinary and mainly noncash out of IFRS 16 effects with regard to long-term leasing liabilities in a low to mid 3-digit billion EUR range. Let me shortly provide you with some granularity for our outlook for free cash flow before I end here. Coming to EBIT adjusted expectations of a mid- to high 3-digit million range, we plan with higher investments year-on-year, mainly related to Steel Strategy 20-30 but also the green transformation. In addition, and as mentioned before, extraordinary and again, mainly noncash IFRS 16 effects, particularly in connection with the long-term service contract at Materials Services, which are referring to long-term leasing liabilities that will increase the value of capital spending. Investments are also planned for targets and growth initiatives in our business. Of course, the release of investments will be restrictive overall and dependent on the development of the businesses on the group. Furthermore, we expect continuous and significant releases in the net working capital. And lastly, inflows from order intake and the payment profile in the project businesses as well as further payments for restructuring will have an impact. Overall, we are aiming for an increase to at least break even in free cash flow before [ earning ], including the extraordinary IFRS 16 effect, which I was talking before. Let me conclude our presentation today with our investment highlights. We delivered today further results of our comprehensive transformation plan for our group, our company's approach with execution track record, thereby having a full commitment to both performance and benchmark level for each segment and sustainable free cash flow. thyssenkrupp stands for strong materials engineering expertise as well as digital competence has made for profitable growth. At the same time, with our long-standing engineering expertise, we are an enabler of and benefiting from the global energy transition and at the same time, in a position to really move the needle when it comes to decarbonization and green transformation. As Martina pointed out earlier, we made ESG a CEO priority and an integrated part in all of our businesses. And last but not least, rewarding the trust of our shareholders is of high importance to us. Therefore, the resumption of a reliable dividend payment is a clear target. This commitment is clearly reflected in our dividend proposal of EUR 0.15 for the past 15 years. Having said that, first of all, thank you for your attention. And of course, we are now happy to take your questions.

[Operator Instructions]

And before we take your questions, we would like to briefly draw your attention to our Capital Market Update that will take place next week -- next week, Friday. It will be a virtual event, and it will start on 1 p.m. Central European Time and will take about 2.5 hours. So the registration is still open, and we really encourage you to register and we look very much forward to seeing you there next Friday, well, at least virtually. And now I would like to hand over back to the operator for the first question.

The first questions come from Bastian Synagowitz at Deutsche Bank.

My first one is on free cash flow. And I think you're very confident on your free cash flow guidance. And I guess that's also backed by the working capital release of all of the working capital, or at least some which have been building in the course of '22. I'm wondering, will we start seeing some of that working capital reduction already coming through in the course of the first and the second quarter? Or will that effect be more back-end loaded, like it usually has been in most of your business years? And I'm also wondering if your guidance on that front is sufficiently robust also in a scenario where iron ore and coal price may potentially continue to rebound? That is my first question.

Yes, I think I'm going to take this question here. So as you said in your question, the normal development in our business. So if you look at the whole fiscal year, of course, we are expecting a release in working capital overall. But you know our normal seasonal patterns. And you know that in our first quarter, we see lower volumes. But of course, we also see some kind of restocking to be able to deliver higher demands coming through the year in Q2 and Q3. And therefore, we will see, of course, as we also indicated in our Q1 guidance here, we will see not this development already in the first quarter, but it's starting trend within second quarter. And if you say how robust is our guidance. I mean, as we said, so at the moment, we can only make adjustments from [Technical Difficulty]

There seems to be a small technical difficulty. We go into a quick break and come back to you when everything is fixed. We are back after small technical difficulty. We're back in the question-and-answer session, starting with Bastian Synagowitz. I think we cut off in the answer to your questions.

Yes, I think we left one part open.

Yes, which one is open. Can you -- I don't know what you get all with it.

No problem, sir. Actually, the one on, I think, the robustness of this working capital component in your free cash flow guidance in a scenario where iron ore and coal prices are rebounding, that was the open part of the question. [Technical Difficulty]

We seem to have again the issues in the conference room. We will go back to a break and come back to you with your answers. We are back to the question-and-answer session. Sorry for the inconvenience and back to answering your questions.

So Bastian Synagowitz, I don't know what you got from the answering of the questions.

Not much yet.

Not much yet. So as I said before, the robustness of our free cash flow guidance is, as Martina said, we defined several measures to react again, potential issues, which could arise from further increases of raw materials. This has something to do with, of course, raw materials management. This has something to do with workloads. This has something to do with CapEx and things like these. So we are able and we are ready to react. So this is the only thing I can say. So you know that we are quite willing to deliver.

Okay. Then my second question is actually also on the CapEx part of your guidance. And I guess, you clearly state some flexibility with your approach of managing the budget basically as the year develops pretty much in line of what you have been doing this year as well. Could you still be a little bit more precise and give us the actual number you're aiming to spend and what you see as your base case scenario?

I mean what we were telling is that we are doing more than the last fiscal year, right? The last fiscal year was EUR 1.4 billion something, including a portion of IFRS of roughly EUR 100 million. So it's EUR 1.3 billion. And in our base case scenario, which excludes the IFRS number this year, this year, it would be mid- to high 3-digit number, yes. And we will then, of course, our original plan is to invest, let's say some percentage more. Let's say, 20% more, something like this. But as we said before, we are definitely looking what's going on over this year and we'll react and we will approve accordingly.

Apologies. I did not understand what you wanted to tell. So basically, the 1.4 baseload you did last year before IFRS, that will go up by 20%. And then the IFRS part will go up as well. Is that what you're saying?

Yes. In the last fiscal year, the IFRS part was EUR 100 million. And in this fiscal year because of one special service contract we have with Material Service, we know this IFRS is something which is looking for that long-term lease liability is in IFRS 16 sales that you have to consider as a net debt. And this is the reason why in our -- let's say, in our guidelines, it goes into the cash flow element. So therefore, in the current fiscal year, this IFRS effect is higher than the previous year. And if you exclude both effects from the CapEx we showed, then it could be 20% higher, something like this. But it's also including some CapEx also for reinvestments for in the...

Martina Merz speaking. Can you hear me?

I can hear you well.

I allow myself and hope you agree to add a perspective beyond the view on the already ongoing fiscal year. What we try to describe in today's presentation is that one aspect of an improving free cash flow in an intensifying competition is pricing power. And pricing power has a component, which is described and determined by relative market position. So the strengthening of our technical capabilities in our operations and with the product offerings and the coverage of market is also increasing and improving our strategic resilience as mentioned. I think there is an aspect, which should not be overseen. We are -- why we -- as Klaus described, I would say, why we keep our powder dry, we, of course, at the same time, prepare and this is embedded in the investments as described, but it's also embedded in the product development, technology development and the portfolio moves to step by step improve our relative market position in order to drive pricing power as said at the beginning. This will not pay off short-term, but we see already a strengthening in the relative market positioning in early performance indicators. And I think it's visible already in the perception of thyssenkrupp in the market becoming more relevant for clean transformation. It was not your question but allow myself to think beyond one year.

Absolutely. I think that makes sense, obviously, if you -- if those investments you want to take -- you better take them now than later.

Exactly. So we have to think in resilience in longer term than just next year.

The next questions come from Jason Fairclough at the Bank of America.

Just a couple of questions. First one is following up on working capital. So we've released EUR 1.5 billion so far. Klaus, I think we've spoken about this previously. It feels like there should be about another EUR 1.5 billion at least of surplus working capital in the business. So half your market cap still to come out in terms of surplus working capital. Just wondering what your thoughts are on a number like that. And then secondly, just on inventory. We've seen some of your European steel peers taking write-downs on the carrying value of steel inventory in their steel business. Is that a risk for you?

Yes. To the first question, yes, your question was that there should be a EUR 1.3 billion potential for working capital really. So I don't want to be that precise, but I would not contradict so much of this number here. So I can follow what we are telling. So we are coming out of bit different number, but it's -- I would say I understand what you're saying and you're not totally wrong. So regarding the inventory, the valuation in the inventory, if you look at our steel business, we don't see a risk here to be very clear. I mean, we went through this in our year-end procedures here in the steel business. In the materials business, we -- and I think you wrote this that we had in Q4 a lower cost of market issue in the inventories of roughly EUR 100 million, which is already digested in the numbers. And we do not -- at the moment, we do not see further risk for the ongoing quarters to come.

The next questions come from Alain Gabriel at Morgan Stanley.

I have 2 questions. My first question is a follow-up on Jason's and Bastian's questions on working capital. So given that none of your peers is able to guide 1 quarter ahead, what makes you confident in almost EUR 0.5 billion working capital release that you are forecasting for the next 12 months, I would say? That's my first question.

Yes. It's not only about working capital release. I think we did not really gave a number on how much working capital we are going to release. We just gave you an indication of [indiscernible] development. And of course, it also consist of a working capital release. I mean, we are, of course -- can't look at the situation what is -- the volume is going, what kind of inventory movement we have. As I said before, of course, it is difficult because the visibility goes to January, February and March and to look further. But this is -- we looked at it quite clearly. And of course, we looked at it also at let's say, from our point different scenarios, and this is the picture we are coming out. So we are quite confident that this will be the most likely outcome. And as I said before, if there would be negative, I think more negative effect we are able to have countermeasures to do something.

That's my first question. My second question is around your Q1 adjusted EBIT guidance approximately EUR 160 million or annualized figure of EUR 640 million. What are the moving parts or building blocks that would get you from this EUR 640 million towards the upper end of your full year guidance, which is where consensus is at the moment? Are you baking in any improvement in the macro environment in the second half of the fiscal year?

So I don't know whether I really got your question right? So for the first quarter, we guided a more, let's say, flattish amount. And then you were asking how it is coming and what has to happen if we have to come to the development of our 3-digit number. So I mean what we are seeing is that -- I mean, it's very clear that if you look at our Materials business -- if you look at Materials Services, we see compared to the last fiscal year because of prices of a lower EBIT dynamic. This is very clear. This is something we can also see in our guidance here. And this is, in a way, counter -- the counter effect is that we see better results in Automotive Technologies and also in Multi Tracks business. And these are the main moving parts here in this area. So yes, these are the most ones. So, anything to add from you?

The next questions come from Tom Zhang at Barclays.

The first one, just to -- just on Materials Services again. So you mentioned it's EUR 100 million of inventory write-downs in Q4. Would you be able to provide the same number for the full fiscal year, including sort of the inventory gains from Q1 to Q3?

You know that these gains, we are not providing for to do something in the balance sheet. This is the key. And only if the market is going in the other direction, then we have to do something in the balance sheet. So of course, we had no negative effect. This is very clear and a positive effect...

Yes. Sorry. I'm just -- so I mean, the windfall gains versus windfall losses. You're saying windfall losses, minus EUR 100 million, right?

We don't comment on the windfall gains here. So I mean that's -- no, we don't comment on the windfall gains. So we have not prepared -- we have not -- give information on that.

What that you said in the past is that if you would assume a normalized margin, it's up to 3%, yes.

Yes, of course, if you would assume a normalized margin as is said, then you can make your own calculation. But this is truly what you already did so far.

Okay. Perfect. And then the second question just on the pensions. So it's coming slightly lower versus Q3 given slightly higher discount rates. I'm just interested because one of your German conglomerate peers today has also given full year results, and they've actually raised their pension obligations because of much higher inflation expectations. I know, of course, in the background, you also have IG Metall negotiations ongoing. I mean how do you see the risks of pensions moving back up in the next few quarters? Or do you think your accounting is already sort of sufficiently conservative?

I mean since the accounting of this is not necessarily, only done by us not the auditor. So we are pretty much sure that our accounting service is quite proper and of course, the right way to do. Interests are moving this -- the value of the ability. And this is what you can see in the balance sheet.

But you would not expect higher pension liabilities to be much of a risk going forward or TBC?

No. Only if interest rates are going down again, then we will see higher numbers, but at the moment, not.

The next questions come from Christian Obst at Baader Bank.

I have two questions. Also one -- in the end you have the EUR 3.7 billion net cash position, and you're guiding for a breakeven free cash flow at even difficult times, this business year. So -- but it then comes to some kind of a nominal net debt ratio. You have funds available of between EUR 5 billion and EUR 6 billion at least going forward. So first question is, how to use these funds going forward? So, so far, you can -- it seems that you can going forward invest or finance your investments out of the operating cash flow as such. So how would you get back more of your money to the shareholders going forward? Because in the end, it makes more sense to run long years with such a positive net cash position, right?

Are you're talking about something in liquidity?

Yes.

Yes. I mean if you look at our debt structure, you know that we have -- of course, we have debt more than EUR 3 billion, which we at one point of time have to pay back. This is clear. This is [indiscernible], this is also clear. And in this kind of uncertain time, we are quite happy to have this security on the balance sheet, this liquidity. And if you are paying what is regarding the dividend to pay it out. We, I think, gave a good decision here to start with dividend payment. And of course, we are clearly looking forward to do this on a more reliable basis. But at the end of the day, it is determined by the operational capability to do this year by year. And of course, this is also something to do with the free cash flow performance we have. And therefore we decide this year by year and...

Sorry, but in the end you're saying that the restructuring is more or less over and you are aiming for a breakeven free cash flow at times when things are quite tough going forward in the next business year. So this means in some kind of a normalized world, whatever that is going forward, you should reach a positive free cash flow. And if this is the case, then you will not decrease your net debt position currently, but increase it going forward. So it could make sense to make additional plans with how to use these funds.

Yes, of course. I mean if we come to a situation, to the point of time, where we see that the overall economic environment do not have that much risk, and we are clearly done with -- we will never be done but we can really prove that we are able to show a reliable positive cash flow. Of course, then we have to look at our balance sheet and our financial position. And there are several things which could be done. And I think we would also discuss some things we could do with the pensions and other things, we could. But this is at the moment, not our first priority, we definitely have our ideas that we'll come to some kind of decision if we go more into a more normal sales growth environment. Whatever we will not leave it as it is.

Okay. What is the current position on share buybacks?

I mean this is something we -- I cannot be sued to do something like this. But at the moment, we are not discussing it.

Okay. And next question is concerning nucera. So you were pointing, okay, I can understand that, the current capital market situation which is difficult. Nevertheless, can you give some kind of a framework, what are your KPIs when you are going to an IPO? So is that a certain value? Is that a certain time frame? Is that just certain KPI from order intake and the demand for your products? What is the main KPI, where are you looking at?

So first of all, if you look at KPI like order intake or something, you know that we considered an earlier IPO in early time, in these 15 years. And since then, the situation with order intake improved a lot. So we were already some months ago, and we are, I see already from the performance of the business anyway at the moment. This is very clear. So it's the situation. I think the assets improved into a very positive way. So the assets in itself, the situation improved, first of all. The second is, we do not have such a time pressure, because the financing of the development of the business with -- for the moment or for the next couple of years, let's say, this way, we do not necessarily need this money to finance the growth of this business. And therefore, I mean, we clearly look at what kind of value crystallization is able to reach in a potential ideal, this is something we look at it.

I just want to remark on that. Of course, but in the end you also don't need that money so far. So if you would place a stake of 10% to 15%, you don't need that money so far. We discussed it earlier. But it could be some kind of a motivation for the people within nucera saying, okay, we are now IPO, then some people of the top management, they have their stakes maybe in that IPO. So it could be a motivation for [indiscernible].

You are clearly right. And the team is highly motivated to do so. But we, as a shareholder, have also something to, let's say, to consider what kind of argument is now higher, but it is very clear. Our -- this company, our first priority is to IPO this company and time will bring the right time.

[Operator Instructions] The next question is coming from Rochus Brauneiser at Kepler Cheuvreux.

Yes, a few left from my side. The one is kind of a follow-up on this, remarks on the dividend. What I'd like to understand is how we -- what we shall read into this dividend resumption of the EUR 0.15? Is this now already the time where we should think this is now continuing, even though there is still uncertainty whether you are creating a positive net income this year? Would you be ready to pay it from substance and you have it, if necessary, if the macroeconomic headwinds will be greater than anticipated? That would be my first question.

I mean, -- we -- as we said also earlier today and some other occasions too, we think that the EUR 0.15, we are now proposing is very good number and very balanced number. So we increased our net financial position, we increased our equity, we increased our EBIT and also, which is, of course, relevant, you know that, not the IFRS. [indiscernible] is relevant, but also in the result of the TK AG in the local balance sheet. And here, we got also a big amount, which can be used for distribution again for dividend. So therefore, it is clearly the right time to do so. If you're telling is this the beginning of a reliable dividend payment, we obviously said we want to do it, but we are also very clear, if we do not have the room to do so, then we won't do so. So -- and you're saying are we going to pay dividends if we have -- against our values or our against -- you said it, if we could not allow for it, if we would do it and destroy value, no, most likely, we would not do so. So we have to be able to do so. And this is something we are going to realize every year. So -- and therefore, I cannot tell you whether we are going to do this next year again. But I think the decision why we -- that we do this, this year also reflects that the likelihood to do so, we think, is going to be higher and higher.

Also a reception of our commitment that we have given that we want to get back to being -- going forward, a dividend payer. And that we want to make the dividend a sizable part of the investment case in business growth. And that's the one to return, of course, money to shareholders. And with all the progress that we described, we believe that it's now the right time to show this commitment, and of course, with more improvements going forward this will also be reflected in our decisions.

Okay. That's crystal clear. Then the second question is looking at your stake in [ e-Elevator ], I think there, again, negative -- there's an impairment again on your stake. Can you help us to understand this -- the financing of this asset. What is -- I think it's a levered -- we know it's a levered vehicle because it's private equity finance. Is that financing structure on a fixed rate or shall we consider there's anything popping up as a risk factor in an environment where interest rates are going up?

Well, of course, we are not commenting too much on the financing structure of this company. And you know that we have shares in this company, and we are not going to disclose by the way, the value of the shares or how much our share is. The impairments we see here is an increase in interest rates, an increase in capital of cost and then discounting makes the value lower. This are the main reasons why we see it in this [indiscernible]. And I think nothing else to -- unfortunately, I'm -- even if I would, I cannot disclose more information about it.

Fully understood. Then portfolio changes. I think you reflected again as a lever and driver in the transformation process. Specifically, how should we think about the concrete plan or a possibility to get rid of some of the noncore assets within, let's say, the next 12 or 18 months? What is on the cards in a more concrete way? Maybe also on an M&A basis like NSK in Japan. So any update would be very interesting.

Martina speaking. Thanks for the question. And I mean, the headline remains the same for the short and midterm -- for the short and midterm as we said portfolio decision, but currently uncertainty is high and visibility low. In such environment -- in such a market environment, of course, as we mentioned, regarding a possible [ deal ] independence, it's the same on all other portfolio developments. We have thoroughly thought through what might generate value in our portfolio. And while we are and can even become a better owner to the business. And you know that we have defined a group of businesses where we clearly mentioned that we do not consider ourselves being the best owner and that businesses are still part of the Multi Tracks portfolio, and we have not changed our opinion regarding that group of businesses. So we are preparing this transaction, once it's promising that we can execute on them. Because everything else would destroy value. So we maintain -- let me say, that we maintain productivity and quality and supply to our customers on a good level in order to improve the value -- the intrinsic value of these businesses. However, we have not changed our view on the portfolio development and streamlining for the group. So once it's becoming possible to execute, we then would start for these businesses an official process. You know what I mean. There is a difference between a pre-sounding and an official process and such office process would then be promising that we can execute it to a timing. And before that, we would not question the performance of the business. And our responsibility to lead and drive performance as long as we are the owner of the business. So -- and the other question is, of course, you -- the question regarding our partnership agreement, our possible partnership agreements with NSK in Japan. That follows more or less same principle. We are still in talks. We -- both companies have their business depending on the automotive industry. We still see the strategic rationale being valid. So we are not questioning the approach. And we are still working towards an agreement. But we are all professionals in this call. We know that things can happen. But for this point in time, we have no reason to question the strategic rationale of such partnership.

The next question is come from [ Dominic O'Cain ] at JPMorgan.

I have two questions, but they're interlinked. So if we -- I wonder if you could help us on the bridge for Steel Europe in 2023. In terms of some of the -- maybe the macroeconomic assumptions that you're embedding into your guidance. Obviously, coming out of Q4 from EUR 221 million EBIT to a guidance that's in the mid-single digits. I wonder if you could just maybe give us some clarity on how you're thinking about maybe H1 versus H2? And then the second part of the question, it relates to where we are in terms of energy pricing. With current steel prices and energy prices, are you expecting further capacity curtailments through your business in 2023?

Yes. So the first question, I think, was -- give us more guidance from the guidance. So you know that -- I mean -- I think what we see now is that our sales per tonne at the moment is comparably quite okay because we are, let's say, we have this long-term contract. And the next relevant date will be the first of January where we do negotiate quite a substantial portion for the next coming longer terms. Too early to say something. But of course, it is very crucial to -- even in this price environment we are in here to reflect on the factor cost and energy cost we see here. So I think I cannot go more into detail. Of course, we had our assumptions here. And of course, we see -- you know how these things come together. So at the moment, in this current, let's say, quarter of the fiscal year, and of course, we are -- as expected, and as you know, we are -- our price base is somewhat -- some kind of quite fixed. During the year, of course, your question regarding this capacity, I think you are referring to that some of our competitors already shutdown their blast -- not blast, to be clear, not the blast, it is the electric arc furnaces, some of them did. And this is not something we are going to do because we have the availability to -- we could -- we can reduce our blast furnace capacity to a certain extent. And therefore, we can also [indiscernible] with the capacity. And at the moment, of course, that it is a typical time of the year where the volumes are not so high. And of course, you can make some assumptions of what it's going to be in the next fiscal -- what is going to be in the next calendar year. We will -- we have our opinion on this. And it's fair to say that if we consider energy prices, if we consider our expecting prices to the customers' and if we consider also the volumes, we see in the rest of the year, we will come to that what we guided to you. So -- but to be honest, and I have to -- excuse me, I cannot be more precise on this at this point at this time. So -- but of course, volume will not be that high as we could do. This is also there. And would be -- you know our guidance.

Yes, there is one more again from Rochus Brauneiser from Kepler Cheuvreux.

Maybe on your sales guidance, I think you guided for a decrease. And I think on Reuters, there was something -- you said something like about nosediving. Maybe you can put it in a bit of a more narrow range. Shall we think in a dimension of more like a 5% decrease or is it more like a 10% decrease? And in this regard, where shall we think about the greater growth opportunities? Is it more on the AT side? Or is it more on the Marine side in terms of year-over-year growth?

So if you look at the sales development, I think we guided a reduction -- significant reduction. First of all, we have to consider that in the last year, we also had some divestments, which is something we have to consider in the lower sales front. And the other thing is if you would exclude this, if you would compare apples-to-apples, it is -- it only has something to do with the price development of the steel and so we do not consider lower sales in the other businesses, to be very clear. And therefore, it's not a 2-digit number reduction we see. So I think we should be [indiscernible]. And I mean as you can see in the guidance, this will be a difficult year. If you look at growth potential that -- we think that our Automotive business will do more business, it is clear. We also see in the Bearings business that there will be some dynamics. In the Marine business, I think order intake is going to be in a very proper and comfortable volume, but turning this into sales will take time. This is not something we definitely be too much in this year, it's going to increase, but the big amount of the roughly EUR 40 billion order intake -- order in hand we have you see in the years to come.

Okay. Very good. And finally on HKM. I think we know for quite some time that [ Velvac ] has signaled interest to exit. How should we think about the time line until this shareholder structure is being reorganized and until when you plan to take a decision on how to decarbonize that asset?

I mean this asset, you know that there are 3 shareholders. And you're right regarding these Velvac addition, but there are contracts. There are contracts, every shareholder has to fulfill. If you are going to create these contracts, there are some consequences on the time line. And I'm not going to comment on what the shareholders now are going to do with this situation, because one shareholders [indiscernible] or the other -- don't return the other as well away. And therefore, I cannot comment on it. There will be, at one point of time, a decision, but I cannot tell you when. And the same is regarding the destabilization is something these 3 shareholders have to do. And they are in talks, but I cannot give you information about it because it's not relevant, not only relevant for us to...

Thank you. And operator, I think there are no further people in the line, is that true?

Exactly. There are no further questions.

Okay. Thank you. Then we would like to -- we would like to conclude the conference call. And also, of course, thank you for the participation and your questions. And as always, if you have more information, the IR team is available for you. And please keep in mind that next week Friday, there is our Capital Market Update for which you can still register and we would very much like to continue our dialogue also there with you. Thank you. Goodbye, and have a nice day.

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