thyssenkrupp AG (TKA) Earnings Call Transcript

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

Yes. Thank you very much, operator. Hello, everybody. Also on behalf of the entire team, I would like to welcome you to our conference call today. The conference call will be on Q4 numbers, fiscal year numbers and, of course, the outlook for 2021. And we will also have a section in our presentation, which -- in which we will go through the value levers that our businesses have identified to drive the structural improvements going forward. The presentation will be held -- the conference call will be hosted, of course, by our CEO, Martina Merz; and our CFO, Klaus Keysberg. Both will share the presentation. And all the documents for this conference call, you can find on the IR section on our website. And with that, I would like to hand over to Martina to start with the presentation. Martina, over to you.

Thanks, Claus. Hey, all. Martina speaking. First, thank you for your participation in the call today. We'll be leading you through the presentation, which is a rather long one today. And I'm looking very much forward to having a good discussion afterwards. First, with the presentation, we want to provide a recap what we've accomplished in the last 12 months. First and foremost, and by far, the biggest step in the strategic realignment of the group was at the beginning of the year, the sale of the Elevator Technology business, which we closed successfully on July 31. This has, of course, transformed our balance sheet substantially and turned our net debt to a net cash position of EUR 5.1 billion. In addition, we significantly increased our equity up to more than EUR 10 billion. With this, we pave the path -- the way for more restructuring and business development going forward. And I can ensure you that we continue to focus all our energies on substantially improving the performance of our business. Moreover realizing the best-owner concept for our earmarked businesses is also progressing. As you are all aware of, we received nonbinding offer from Liberty Steel for Steel Europe, which we are examining at the moment with an open mind, of course, and ensure -- and we are ensuring we achieve at the end of this process the best possible result for all stakeholders. That means we continue to explore options for industry consolidation. We narrowed already the range of options. And at the end of the day, we believe that we can come to a final decision in spring 2021. For Plant Technology, we received indicative offers for different constellations. The due diligence is almost complete, particularly for mining and cement. It's a bit different. I would say it's different for the chemical business, as we've observed in the last month, very strong dynamics in the market for hydrogen technologies, which we will not -- let me say, which we have not seen before being this strong, but yes, now consequently, we are currently examining how we can strengthen our fundamentally strong starting position in this growing market through partnerships. I think I can go step first or by saying, we believe that in the part of hydrogen technologies we are in -- I think we have a very strong competitive position, in large-scale water electrolysis plants. For AST, our steel -- our stainless steel operations in Italy, we have been approached by numerous parties. This does not come as a surprise to us because the business is well positioned. Nevertheless, for AST, it is far too early to draw concrete conclusions. But together with an investment bank, of course, we will thoroughly evaluate the expressions of interest received. On top of that, we are also making visible progress in restructuring of our business. Last year, throughout the entire organization, we reduced personnel by more than 5,700 FTEs. And to cope with long-term market developments and the effect of the pandemic, we have accelerated our initiatives and thus ended our restructuring target now in the next step from 6,000 FTEs to 11,000 FTEs. Besides our restructuring and portfolio initiatives, enhancing performance is the essential part of our new Group of Company concept. Together with our businesses, we defined value levers, which Klaus will later on -- he will lead you through in detail. And also, of course, we define then together with the businesses structural improvements fiscal year going on and beyond. We will provide you more details on that in the second half, as said in the presentation. All of this steps paves into our performance in this fiscal year and beyond. It reflects a step-up in our operational performance on the back of the execution of our value levers and also, it reflects, of course, a market recovery. Alongside, we will leverage our leading steelmaking expertise for ultimately working towards climate neutrality and green steel offerings with our strong concept, TK hydrogen steel and water and H2 electrolysis. So on the next slide, it's a little bit complicated. But actually, the slide you should see in front of you, now these 4 phases, this is actually our transformation plan, which we follow very stringently and disciplined. With this plan, we have a plan how to make thyssenkrupp ready for the future. And we use, of course, this plan constantly for internal and external communications. Let me illustrate now what the sideways you, as we call it, what this means in detail. We divided our transformation into 4 phases. In the first phase, which we called fight, we dealt, in particular, with the impact of the coronavirus pandemic. We sold in a consequent the elevators business as a prerequisite for everything to come. In the second phase, focus, we are now restructuring our portfolio. We made fundamental decisions, as said before, with the announcement of our new target portfolio in May. And we are on the way to implement this portfolio structure, which will make our company smaller but more profitable. And in addition, of course, with this focus, we can much more disciplined allocate our capital to promising businesses, generating value going forward. In the third phase, which we consider -- we are on the way to this phase now, the third phase, improve, will run in part in parallel now, which it is about increasing competitiveness in all areas, regardless of whether we intend to develop the businesses as part of the group or not. The restructurings we have initiated and in part already implemented as well as our value levers are an example of this. And let me say a few things in more detail. Of course, leadership makes in such a turnaround the difference. And in this first part, of course, either leadership approach, it means that we try and we are working on beating the odds. We uniquely and ambitiously reframe what it means to win. We make multiples, and we are making really multiple bold moves early and methodologically in this focus step. And we reallocate constantly, frequently to focus our resources on priorities. So leadership, as said, is absolutely key in this phase we are in. And after all, when once we have achieved our path to competitiveness, of course, after that then, we can start about the process to scale the business up that requires having competitive businesses in order to achieve profitable growth again. Size in itself is not a relevant measure for us. It's profitability, of course, and the cash and value generation of the company. And as you can imagine, the phases mentioned will not necessarily run sequentially as our businesses. Our business segments are different and the phases they are in, of course -- are different with that too. But one thing is clear. We will make further substantial progress along the curve over the next 12 months. We all know -- and let me mention this point, too. Of course, the question can be central on the long-term why, for thyssenkrupp, everybody is asking for that. We believe -- I believe it's very important for the organization to focus now, to clearly focus, on delivering a positive free cash flow at this point in time and not using too much resources for thinking beyond. That's our clear priority, and this is why you do not hear us talking constantly about this long-term why. We want our people to understand that we have a clear priority at this moment in time. This is to optimize all what we are doing towards profitability and positive free cash flow. So we really focus fundamentally and with all we can our resources on turning the company around. So in bonds, we are through this part of the process, of course. As that -- everybody in this market is well aware that thyssenkrupp has from its technological capabilities everything needed to scale up the businesses. At that moment, once we are there with our competitiveness, we are totally committed, of course, to making a positive big picture impact and then we would prioritize, of course, our internal resources towards profitable growth again. But at this point in time, we believe it's about beating a dead horse. So then now we can be a little bit quicker. And you saw the documents talking about on the next page in order to make a difference on the leadership of the company, of course, we formed below the Executive Board and executive company to drive the transition from a centralized group to a powerful group of companies. And I think you read it yourself. I will not lead you through the details. I think it speaks for itself. What's very important to us here is we, of course, have -- we have a comprehensive multiyear agenda. We want the CEOs of our units that they own the total company performance of their group company, and we expect an experience in transforming their business and a relentless focus on priorities in leading the companies, as said, back to value generation. So with this, I come to the implementation of our initiatives. And this is then, Klaus, your part of the story. Thank you.

Okay. Thank you, Martina. So let's have a closer look at the milestones that we have achieved of the restructuring completed or initiated in the past fiscal year. When we started the transformation, we said that we will turn around every single stone in our company. And as you can see with the numerous initiatives across all segments, we kept our word. About a year ago, we initiated restructuring at Systems Engineering involving 550 FTEs. However, with the market situation in automotive system engineering remaining extremely challenging, further restructuring was needed. Hence, we recently commenced the operational realignment, splitting the businesses into true independent companies for battery and powertrain and bringing structures and administrative costs in both parts businesses in line with market levels, resulting in additional restructuring of around 800 jobs in the current fiscal year. Moreover, with the presentation of the Steel Strategy 20-30 in March, we announced cost reductions and job cuts of 3,000 jobs, and of which 1,000 will already be achieved until the end of 2020. This was followed by an extensive restructuring plan for the German Springs & Stabilizers sites. Under the plan, around 400 jobs will be impacted by closure of Olpe by the end of 2021 and realigning the Hagen site in [ Hohenlimburg ]. At corporate headquarters, restructuring also progressed as planned. As of April 1, around 200 FTEs decided to join a transfer company or leave directly bringing us closer to our target of a lean holding. One of the last announcements in August affected adjustments in our cement business, including the reduction of 460 FTEs worldwide. Despite the substantial programs that are finished, underway or announced, all of our businesses will have to accelerate their initiatives going forward. Consequently, we increased the previously announced target of 6,000 FTEs to 11,000 FTEs to be accomplished by fiscal year 2022-'23. Another important step was the introduction of our Group of Companies concept in May, sharpening our target portfolio with a clear focus on industrial logic, competitive, profitability and cash flow. With that, we also announced the newly created Multi Tracks segment, including businesses, for which we see no substantial future prospects within the group, who might do better in partnerships or for which closure might be the best solution. But Multi Tracks will also be an entity for managing our investments in businesses such as our stake in our former elevator business. And last but not least, a big step was the termination of our disproportionate balance sheet date driven net working capital measures towards an ongoing continuous management which is an essential contribution to turn around our cash flow. As already said, we only accept targets from our businesses if there is a consistent and solid concept behind. And in the past 12 months, we already cut some 3,600 jobs in the previous fiscal year -- I mean in our existing restructuring framework. There are roughly 1,600 jobs in Germany and around 2,000 jobs in the rest of the world. And in fact, we have actually gone further. As of September 30, a total of 5,700 employees are no longer on our payroll compared to the previous year. With simple math, we will have to cut another 7,400 more jobs over the next 3 years to reach our new target of 11,000 FTEs by '22-'23, with the majority of cuts, specifically, 5,200 FTEs in Germany, and the remaining 2,100 in the rest of the world. While at first we have to incur the costs and payouts, this will ultimately support our performance through sustainable savings ramping up from a high 2-digit-million euro amount in the past year to a low to mid 3-digit amount in the current fiscal year and in a total mid- to high 3-digit million until fiscal year 2020. Again, let me be clear. The target of 11,000 employees is only a snapshot from today's perspective, heavily depending on our further course of businesses. Hence, this figure can also change upwards. This is the largest restructuring process and the largest planned reduction in the number of employees since thyssenkrupp was founded. And we will work permanently on further measures and also add them during the year, if necessary. Coming to the financials for recent fiscal year of our continued operations. Unsurprisingly, the pandemic had a clear impact on the top line, especially pronounced in absolute terms at our materials as well as on our car and truck components business. However, we see indications for an ongoing demand recovery, especially from the automotive side, giving us reasons to be cautiously confident. Q4 already showed sequential improvements at almost all businesses, which is very likely to continue in fiscal Q1. Unfortunately, this is not reflected in last year's bottom line with EBIT adjusted significantly weaker year-on-year despite extensive measures to reduce cost and safeguard our business, including short-term working. With slower development prevalent in the materials and automotive components businesses and the beginning of the fiscal year, the impact of the pandemic on demand and capacity utilization additionally burned. Added to this were the structural changes in the steel sector. To quantify the Steel Europe, ex Heavy Plate, accounted for EUR 820 million EBIT adjusted loss in fiscal year '19-'20, while the new created Multi Tracks segment added a further EUR 593 million EBIT adjusted losses. Consequently, free cash flow before M&A was sharply down year-on-year. Besides the operating performance, the normalization of the net working capital up to EUR 3 billion as well as a cartel fine at Steel Europe weighed down. Again, Steel Europe and Multi Tracks were the largest drags with together EUR 2.5 billion negative business cash flow in the past 12 months. Here, you can see where our programs lie. And with that, let us have a look at the development of our balance sheet that experienced a strong push by the realized value of proceeds of the elevator sales by far outweighing the loss incurred by our continuing operations. Thus net income for all -- for the full group jumped to EUR 9.6 billion. The continuing operations were, besides the operating performance, heavily influenced by provisions for restructuring. In addition, we took risk out of our balance sheet through asset and goodwill impairments amounting to roughly EUR 3 billion, especially pronounced at Steel Europe and Automotive Technology, considering a potentially slower than so far anticipated development in the auto sector. At year-end, our equity stood at more than EUR 10 billion, which now is more than ever important, resulting in an equity ratio of 28%, up from 6% 12 months earlier. At the same time, the cash inflow from the transaction turned our net debt to a net cash position of EUR 5.1 billion, providing us a decent safety cushion and will be an enabler for our operational and portfolio restructuring, aiming at returning thyssenkrupp to sustainable positive financial KPIs. Looking at our operational performance in more detail, especially in Q4. As the automotive production was restarted in many countries towards the end of third quarter, the fourth quarter saw a sharp quarter-on-quarter growth in order volumes, thanks partly to state stimulus packages and other initiatives -- and other incentives. Consequently, EBIT adjusted Automotive Technology marked a gradual improvement quarter-on-quarter at almost all businesses. And we also saw some one-timer, which negatively impacted the results of Automotive Technology. However, Springs & Stabilizers and Systems Engineering were still significantly negative. Industrial Components delivered a positive earnings contribution, yet lower quarter-on-quarter, while components for heavy-duty engines increased their EBIT adjusted significantly by recovering sales. Earnings in bearings were temporarily slightly lower, but on a high level. EBIT adjusted at Plant Technology came in stable quarter-on-quarter remaining negative on the back of lower utilization and ongoing construction site costs that couldn't be charged to customers. However, we see improvements year-on-year since the robust service business and stringent G&A cost reductions are bearing fruit. Marine Systems came in positive and up year-on-year as well as quarter-on-quarter as efficiency measures and cost reduction and project execution continue to take effect. Nevertheless, earnings continued to be held back by low margins on all our projects build. In line with recovering markets, Materials Services saw an increase in its main product groups quarter-on-quarter with significant higher warehousing shipments, especially in auto-related service centers in both regions, Europe and North America. Overall, utilization at the mix remained below prior year level with respective effect on margin. And at Steel Europe, we saw stabilizing market prices in the fourth quarter, while shipments were significantly higher quarter-on-quarter. On the back of an improved utilization and better product mix, EBIT adjusted improved quarter-on-quarter, yet remained negative and lower year-on-year. Last but not least, costs of the corporate headquarter was stable quarter-on-quarter but with significant improvement year-on-year, mainly due to lower G&A costs. With the pandemic still dominating and implications and durations of the second wave still uncertain, forecast for global economic growth and the impact on our business, particularly materials and components for cars and trucks, are still subject to major uncertainties. For fiscal year 2021, we expect sales growth in the low to mid single-digit percentage range, well below the pre-pandemic level. Our expectations are, of course, dependent on the recovery of the global automotive market. But to make it clear, with this level, we anticipate, for 2021, we are more than 10% -- so to repeat, we are more than 10% below pre-corona level. EBIT adjusted is expected to improve significantly with structural advances being by far the biggest driver, additionally supported by sales growth on the back of the recovering market and as I explained before, with the assumptions I just made before regarding the top line development. All businesses are expected to contribute positively with the exception of Steel Europe and Multi Tracks keeping the group's EBIT adjusted in the mid 3-digit million euro range negative. Across all of our businesses, the strongest driver for the envisage upside for 2021 and beyond are the value levers that the leadership teams of our business have developed and committed to. These value levers are aiming at pushing bottom line as well as top line in addition to the expected recovery of our markets. A summary of these levers are exhibited on the right side of the slide. We will walk you through each segment in a minute. Before that, I would like to touch free cash flow before M&A, which is expected to be significantly better, but still negative in the range around EUR 1.5 billion. Determined, of course, by the step-up in operational performance in all segments and the elimination of the burden from normalization of working capital as well as defined in the arbitrations proceedings, ongoing payments for restructuring and depending on the payment profile from incoming orders as well as milestone achievement in the project at Marine Systems and Plant Engineering and considering higher payouts for restructuring, as already shown before. Important to mention here also is that, as of October 1, we tightened our guideline for the recognition of special items by aligning it more closely with IFRS rules. So it will be more conservative, strict to make here adjustment to the EBIT. Now let us have a closer look together at our segments and how they will drive the uptake we've proved. Here on this slide, just for your reference, you can see how we transitioned our portfolio into the new group of company structure, which will also be our reporting structure for the current fiscal year start. Let's start with Materials Services, which will return to positive territory in the current fiscal year. For the segment, excluding AST and some other small companies, infrastructure, we expect EBIT adjusted to improve to a mid- to low 2-digit-billion range on the back of clearance from market, meaning higher volumes, albeit from a low level and not yet returning to the pre-corona crisis to be more precise. Also in Materials Service, with this assumption of top line will be more than 10% below pre-corona level. However, the largest contribution will come from structural improvements. For example, we will drive G&A efficiency along the value chain by optimization of our footprint and logistics concept. In addition, we want to further reduce complexity by streamlining our portfolio and closure of sites. In order to push the top line, we will roll out sales initiatives with materials processing offerings, aiming at becoming a more service-focused business. Especially our new growth strategy, materials as a service, will provide us with additional revenue streams, bearing higher margins and lower volatility. That's why we also target small-scale M&A activities in the North -- attractive North American market where customers clearly recognize and appreciate the extra value from our processing or supply chain management offering. Nevertheless, our traditional materials warehousing and distribution activities will always be a substantial element of our business. Overall, having all these measures in place makes us very confident for the new fiscal year. And as always, if market turns more dynamic, we will see what's happened. Industrial Components. At Industrial Components, we want to foster our leading market positions on the back of an efficient cost base on the one hand and with the support of a robust growth for our markets. For the current fiscal year, we expect a slight increase in earnings, coming mainly from a significant improvement in our Forged Technologies business and also from a stable high contribution of organics business. Industrial Component is expected to grow slowly, but steadily, mainly driven by 3 markets. First, the wind energy sector, which shows promising growth potential longer term. However, we will see a temporary slowdown in 2021 as a result of pull forward effects in China from expiring subsidies. Second, the auto market, which is expected to recover significantly, however, not yet back to pre-pandemic levels. And last but not least, the market for construction machinery, which probably remained stable globally, the only exception being China expected to grow. Besides the potential from the, by nature, uncontrollable market, Industrial Components will work on the controllable internal drivers such as offering an improved product mix and new products and services. For instance, at bearings, by extending our existing production lines, mainly in low and best cost countries and continually through improving our products together with our customers and at our Forged business by capturing additional market share with the introduction of new services line for undercarriage components or with our new and powertrain independent products for trucks, the front axles. Industrial Components leadership teams are fully committed to continue their path of constant and consequent cost control over the next years by improving everyone's productivity and, therefore, reducing personnel costs, which is -- which also includes restructuring program, optimizing production costs and preparations with a debottlenecking or reducing purchasing costs by securing flexibility via multiple suppliers. Let's turn to our automotive components business, Automotive Technology, which is now operating in a new setup, excluding the Springs & Stabilizers as well as the powertrain and battery solutions business, of the former Systems Engineering business, which moved to the Multi Tracks segment beginning October the 1. Automotive Technology was hit hard by the pandemic and will, therefore, do everything in their power to return to profitability supported by stricter cost control and comprehensive effective measures. If you take a closer look on our expectations for the current fiscal year, you will see that we are targeting a mid- to high 2-digit million earnings contribution, which represents a significant recovery from last year. As fiscal year '19-'20 was severely affected by the significantly lower demand from customers, we had to reflect these new market circumstances in our business plan, leading the revaluations and impairments, not all being adjusted and thus included in our EBIT adjusted figure, as I said before. We, therefore, expect earnings also to improve by the omission of these nonrecurring effects. In line of the currently highly uncertain environment, also in the global automotive market, we are cautious about the upside from the market recovery at the moment. And to also give you indication, top line we estimate for the current fiscal year will be more 20% or in the direction of 20% below pre-corona level. And therefore, concentrate more on the levers as we actually can influence being the further ramp-up of our new projects and plant, mainly at steering and continuous and consequent cost control by improving personnel productivity, for example, via restructuring. Here, we are planning to reduce about 800 FTEs in the next or current fiscal year. And with that target annual savings in a low 2-digit million range and also by enhancing the operational excellence, for instance, by reducing production costs, while improving the quality or by carefully choosing the best quality but also best cost supplier. Marine Systems. We are quite positive on the operating perspective also on the back of Q4 order intake with frigates for the Brazilian Navy, as you already heard, giving us top line growth over the execution time of this order. Moreover, a further perspective will open from a submarine program for the Norwegian and German Navy and as a subcontractor to the Italian shipyard, Fincantieri, where we are also part of the promising bidding process for an Italian submarine program. We expect to receive both orders in the current fiscal year. In order to safeguard our margin, we won an even more diligent calculation and strict cost control over the construction time of each and every new order. And in addition to that, we implemented a number of efficiency measures addressing, among others, performance in naval electronic systems, push performance and service, excellence in procurement, utilize efficiency gains from integrated projects. For the current fiscal year, we will see a first slight uptick in EBIT adjusted for Marine System from both kind of levers, top as well bottom line, which will become more dynamic going forward. Steel Europe. Steel Europe will also show a significant improvement in the current fiscal year. However, they remain negative. With Heavy Plate now being part of Multi Tracks, we expect EBIT adjusted to be negative low 3-digit-million figure. Main drivers will be the expected market recovery, leading to about 10% increase in shipments year-on-year, but also, of course, being far behind the pre-corona. With a clear ramp up, of course, also more high-margin focused products for the auto sector. However, despite a substantial recovery in volumes, pre-crisis levels will be far not yet be reached, as I said before. This, in turn, will result in a better utilization of aggregates with a significantly improved cost base in up and downstream operations as well as an improved raw material consumption. Moreover, the still high level of the iron ore prices could be likely potential push for steel prices. In addition to market tailwind, we expect already sizable effects from our Steel Strategy 20-30 with priority on accelerating of restructuring leading to a savings of mid 2-digit million range this fiscal year. Moreover, we identified additional efficiency measures with additional savings potential on top of already identified measures related towards Steel Strategy 20-30. Much more important, all these levers will provide substantial upside also after 2021. And alongside, of course, we will work towards climate neutrality with strong concepts, like our in German mid-car upside. So taking about -- talking about new concepts, we see ourselves well positioned to capture opportunities arising from the green transformation as we are competing and partly leading in attractive future markets and areas. Our bearings business, for instance, is technology-leading in rolling bearings in wind energy turbines. By this, we contribute to the energy transition. In addition, we intend to make full use of the enormous greenhouse gas reduction potential of hydrogen and steam making processes to be able to offer green steel to our customers. In order to transform towards a climate neutral steel production, we plan to use hydrogen in direct reduction plants and electric melters. Also our powercore nongrain oriented electrical steel is a high-tech core material used throughout the entire energy value chain from generators to electrical engines for e-mobility, thus offering as attractive growth opportunities. We are pioneering not only the use of hydrogen, but also play a leading role in its production process, as Martina said earlier. Our joint venture, Uhde Chlorine Engineers, is technology and market leader for high-efficient electrolysis plant and specialized on hydrogen production via alkaline water electrolysis. Demand for hydrogen is growing significantly, and we intend to profit from the expected expansion of production capacities. This year alone, project announcements for our hydrogen technology has doubled. In light of these facts, we are currently evaluating the continuation of the business with one or several partners. From the dates effective, we believe this to be a valuable option. Before we jump into the Q&A, let's wrap up and see what lies ahead. In the current financial year, we have 3 strategic priorities. First in Europe, where we explore all options for industry consolidation and secure financing to carbon neutrality production transformation. This is flagged by our restructuring initiatives, securing and pushing fundamental value. Of course, restructuring and enhancing performance is not limited to 0, but applies to the entire organization, our second priority. We will stringently improve performance across all businesses into high-performance group of companies supported by the defined value levers that are to be consistently backed up by concrete action plans. Moreover, we will work towards realization of the best-owner concept for our Multi Tracks business, as Martina already explained, and towards climate neutrality, including our hydrogen based steel climate strategy taken at heart still, while exploring financial options. To sum it up, we cannot drive the market, but we can drive our own performance, and that's what we focus on. And with that, we are ready to take your question. Thank you.

Yes. Thank you very much, Klaus. Thank you very much, Martina. And with that, we want to go over to the Q&A session. And for this, operator, please take over for the moderation.

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

The first one would be on the next steps that we should expect for the Steel Europe business. I think on the press call, you were saying that you expect clarity on the way forward by spring next year. Just wanted to understand what that means in case of a stand-alone solution, where you would decide to develop the business on your own? If that's the way forward would that imply that by spring next year you would give us a more comprehensive announcement on your green steel strategy, including an exact price tag and size of investments and source of financing and explanation? Whether potentially the state would inject equity or silo participation or guarantee more debt? Or would it rather be that in spring you would announce that you keep it and then develop a new stand-alone strategy on the back of that?

Yes. Well, thank you, Mr. Schachel, for the question. Let me -- I think let me start with answering because it's a big question. It's a big one. As I said before, as we said this morning, you know that we are in the process of examine what kind of industrial concepts would fit best to our steel. We have this, of course, the stand-alone strategy. And to be honest, we have the Steel Strategy 20-30, which we think is a good one. We, of course, believe in it. But of course, with the corona going forward or, let's say, having corona in place, we have to face with strategy maybe with lower volumes and at least for a certain period of time. And this is something we have to work on. So this is the one thing. The other thing is, of course, we always said that we are looking for the best concept to create value. And this is, of course, the reason why we are talking also to other producers for potential cooperation. And this is the status where we are in. And we think that we cannot do this too long because we have to have clarity for capital market, for ourselves, for our employees. And therefore, we decided that we have at least in spring next year that we know in which direction to go. The precise question you asked whether we are then able to give you a number, what kind of subsidies or what kind of money you get from states to finance the transformation, this is not what we intended to say when we said we will be ready at spring 2020. It's more to give you a direction and a decision, which direction it will go.

Maybe -- thanks, Klaus. Maybe, Schachel, 2 more comments to avoid misunderstandings. In order to focus our teams, we consider it being 2 steps for the time being. Step number one is to restructure the steel business as is in today's environment, more or less. Step number two is to transform our steel plants to green steel production. For step one, of course, as Klaus mentioned, we have to realize that the capacities required in the market might not be the same after corona as they've been before. This will lead from today's perspective in a stand-alone approach to a questioning of our today's capacities installed, which you can imagine is a kind of holy cow discussion. But in this holy cow or as we called it this morning, no taboo anymore, of course, the steel team is evaluating such options now, which they have not done before. With such an approach, of course, we compare external offers for our steel business. And then at the end of the day, by March, we can come to a conclusion whether we believe a thyssenkrupp focused stand-alone restructuring is more promising than another one. Because as we always said, we consider this book as a very valuable asset. And of course, to generate the value, which can be expected from such an asset, we will decide then do we go in the Dual Tracks approach, will we follow the external approach or will we follow the internal approach. That we will be -- that should be delivered by March, including then, of course, a kind of rough business plan, but that covers the restructuring phase, not the green transformation, as Klaus mentioned. So this is the step 1 approach. The green -- the transformation to green steel will then follow.

Okay. That's very clear. And maybe then just a shorter one on Steel Europe, and I'll skip the free cash flow questions for this time. But on Steel Europe, I think, you are saying you want to ramp up the shipments of focused products by 20%. And the way you said it sounded quite simple, but it's probably not. Can you explain a bit more? I guess you're trying to tell us that you are aiming to regain market share in automotive steels. Which drivers are behind that? Is it really specific client wins, quality initiatives or more aggressive marketing and pricing push because our impression was probably that you lost market share in the last years? And now you're -- seems quite confident to regain. Just wanted to understand what's changed or what is changing here?

I mean, in the first place, it is that we invest in our equipment and that we are able to go in the niches, which customers are asking us to do. And so we will be one of not so much the producers who can really produce then this kind of grades and this kind of products. And that's the reason why we -- why our -- let's say, why our investment program goes into this direction. But also, we -- of course, we see -- this is one thing. If you look at the development of the last fiscal year, volume development, we had a big reduction -- a very big reduction of more than 30% roughly like in this area of products. And I think the main reason why we now think that we can go in this direction is that we clearly only catch up more or less the volumes we lost last year. And in the first case, I understood your question to go more in the midterm range. In the midterm, I think you know our strategy and, of course, we will also increase our, let's say, share in automotive special grades. And this is, of course, the reason why we do the investment here, but this is not, of course, in the current fiscal year. This is going more midterm.

And as you mentioned, Klaus, I think we are somewhat convinced in all the discussions that this was, for sure, mentioned, probably in one of the previous call. The relative market positioning of thyssenkrupp in these high-strength steels required for electromobility going forward is a relatively good one, stronger than -- so this is, let me say, this is our ground tool. And the market demand for this ground tool is growing.

I mean compared to other competitors, we lost quite a lot of volumes and quite a lot of margin, and it's because of our automotive exposure and what we see now is coming back. And if I look at the current situation in the current fiscal year, we can commit that we are on a good way here.

The next question is from Bastian Synagowitz.

I've got one question and just again to follow-up on the steel business. So if I just try to keep track with the restructuring effort here, I guess, relative to the size of the business, the amount of restructuring, if needed -- the amount of restructuring as needed, I guess, the restructuring provisions in the business still appear pretty low. Just considering the headcount impact as well, which you had maybe from the corona measures, I think there was not too much change on the employee side either. Now I guess, for a business, which is burning EUR 1.5 billion in cash and more than 50% of the company's market capitalization, the speed of restructuring here doesn't seem to be so high. So is the reason for that, that you're basically waiting for the possible strategic solution for the business? Or is the union pushback, which you're facing at the moment, still just too strong and does not allow you to basically pick up speed?

I think if I would say no to your question, you would anyhow not believe it. So I'll call...

So what is the answer?

So I do not want to create unnecessary tensions. But I think we feel normally -- and this is the case, of course. We consider -- so we consider managing through a fundamental crisis like we are in require in a certain way co-management between the key stakeholders. And I think the past shown -- in the last year showed that we were able to go in relatively high-speed through this entire program. On the steel community, we had to face -- and I say it myself because I was new with the company in a way. The steel guys -- they went through this catastrophe of 5 years standstill almost in the negotiations with the Tata joint venture. And this led to difficulties when we wanted to renegotiate the Steel 20-30. We signed the contract directly after the sale of elevators. And we were all in the Executive Board, together with the steel board, totally convinced that up -- that in order to upgrade our steel production to a more valuable product portfolio to market and to -- of course, to a much better operational efficiency in the plant, that that's the right thing to do, but we did it with 11.5 million tonne capacity. And of course, our guys in this book, they try to protect this capacity. And as I said before, we are now on the way to renegotiate these contracts, which we discussed yesterday with our Board. And this is a kind of breakthrough, yes. And you could say, yes, we will, in a way, bound by this discussions about external options for steel. But we, the Executive Board, felt to investigate a consolidation in Europe makes sense as a first step before we decide what kind of capacity we would want to invest in finally. This might not be -- this might look now as if it was the union, which led to this -- let me say, to this time needed now. But actually, it was a matter of prioritization, to say, okay, we have to accept that capacity will not be needed anymore, maybe. But it's valuable to investigate whether a consolidation is -- creates more value than a stand-alone path. So it was not the union. It was also us. But it was not so easy after the 5-year standstill, yes. So maybe we could have been a month quick, but not 1 month. I mean it could have been 1 month quick or 2, but not 5 or 6. And now we are there. It's now okay.

Okay. That is very good color. I have 1 more question on CapEx and capital allocation. So if we just look at your financials on a high level your depreciation line, obviously, now drops towards like 2 -- like EUR 1 billion post the write-downs and your CapEx obviously rises to EUR 1.6 billion. And I guess, if we look at the situation overall, the spending above the depreciation level or significantly above the depreciation level, obviously, lifts the bar for the businesses to generate any cash. Is there just any prospect as to how the CapEx line -- and I'm talking about the current structure before any further portfolio reviews -- is actually coming down in the next, say, 2 or 3 years rather than in the next 12 months? Or is just the EUR 1 billion depreciation level maybe slightly misleading in terms of what will be the sustainable requirements of CapEx spend for the next 2 to 3 years?

Yes. This is a good question. First of all, of course, the EUR 1 billion in depreciation is after the write-down of the assets and so on. This is clear. And what we see so far is the following. So we said we will divest the elevator business to enable the rest of the business. And not the whole bunch of the rest of the business, but the focus business we described. And I think it's -- this is why we started. So we now see good investment opportunities. And this is what we, let's say, considered in our way forward in the plan. So -- and in the number you said, there are some structural issues in -- we have IFRS 16 effect of EUR 100 million, and we have, let's say, other effects so which, of course, is -- which leads to another view on it. But of course, we also have in these numbers the additional investments from coming out from Strategy 20-30, which we want to do and other investments, also, for instance, for bearings. And we released recently quite huge amounts in investments for further -- let's say, further investments in China and other countries to really serve the growing market here. So -- and of course, we know that this is, let's say, more or less critical in the situation where we are in, but this is the reason why we said we have the elevator deal, and we are investing in this because most of the businesses in the past were underinvested. They were in the past underinvested and they invested less than depreciation. It's not for steel, but for the other business we are talking. So -- but then we come to the process. Our process, of course, there is a number now. During the year, we will have a close look on this. And if a business is not performing, if the business is not performing, the cash ones and the cash plan, they will not receive this amount of money they are planning. This is very clear. So we will be more strict to do so. But in principle, we want to enable the businesses to do their logic strategic investments. And -- but the thing I want to make clear to you is that we will be very flexible in adjusting these numbers. And what is the amount of investments -- the normal amount of investments, I mean, having in mind these investments for Steel Europe, you know that it is EUR 800 million in 6 years. You can imagine that this -- if you divide it by 6 years, that this is, of course, an on top investment. But if you, let's say, deduct this, we will come to a quite normal level of depreciation or a bit more also in other businesses.

Okay. Okay. That is helpful. Then one more question on the -- on your hydrogen business or electrolysis business, which, I guess, you started to talk about more just in the last couple of quarters. But generally, it's obviously still a business which is probably not just underappreciated within your group, I think certainly underappreciated in terms of valuation. I mean, if you look at a couple of the hydrogen companies out there, they are obviously trading at pretty crazy valuation levels now. However, at this point, I guess, it's still been falling very much below the radar when it comes to thyssenkrupp and yet you're obviously world market leader in water electrolysis by installed capacity. So what are the options you're basically looking into to maybe create value for investors from this side? Because it is absolutely clear that there is a lot of value potential in that unit.

Yes. So I think we took just recently the decision, because you know that we -- that the water electrolysis business is part of our CPT business segment, and we will -- let me say, trying to find out what is the value we might get for that business. So it's part of our Multi-Tracks. Interestingly, I have to say, we are somewhat surprised by the offers we got, considering what value people see in this business. So this all led us to the conclusion that we do not sell -- that we will not sell this business, instead we will develop this business with us remaining at least a significant shareholder, not to say the biggest shareholder. So -- but we are going to investigate several options how to develop the business or possible ownership structures for the business. Because as you said, this is definitely a tool and we are -- we will come back with more details on this also. To say, in the spring, we have projects running now to evaluate. But yes, we believe we have a significant value upside in this business. We -- our investigation tell us that this is far beyond the EUR 1 billion business value already now. So -- and we are asking ourselves in what direction we could lead this business to really get this value uplift to its maximum. And to create a bit fantasy for all of you in discretion for thyssenkrupp, the long term why. Thyssenkrupp would be -- would have -- if we would form a green tech segment, we would already have a significant sales amount in the green tech segment. And you can imagine that Klaus and I have this in mind. But we believe that we, at this point in time, have to focus our entire organization to the restructuring process and push the organization through this painful process before we talk about a possible future in other segments. So we really definitely believe that we are not -- it's not a good time to share, let me say, our ideas. We want our organization to focus on the top priority, and that is free cash flow positive and competitive and margins in the business we want to hold. And next year, in May, we will come back to you at latest with this long-term perspective. But yes, hydrogen is for us -- is a value driver, a significant one. Let me know if you would not share this decision that we should prioritize on performance and restructuring now.

Does this answer your question, Bastian? Okay. With that, I think then we can go over to the next one in the row. So, operator?

The next question is from [indiscernible] Exane BNP.

So I think this was Seth Rosenfeld at Exane. If I can ask a couple of questions on autos, please. Your commentary on demand conditions, strike me being a bit more cautious, what we've heard from many of your peers, impacting both Auto Technology and then, of course, Steel Europe. You touched on earlier from the challenges within steel, but for Auto Technology, in particular, can you walk us through what perhaps contributes to this relative caution? And particularly, I think you said, earlier you expected top line 20% below pre-COVID levels. If you can give us a bit more color on demand and your feedback from customers and that'd be great place to start, please. And I do have a follow-up.

I mean, if I start, this 20% below -- I said in the direction, it's not 20%. It's a bit better. This is something like -- but we are below pre-corona level that I've indicated before. Do you want to say something in the order of magnitude?

Yes, I think the automotive market, we are -- as Klaus mentioned, first I think our overall positioning is a relatively good one with our business segments in the automotive market, we are really -- we have a share of market in several regions. And with this, we showed already, even in the last fiscal year, growth beyond the market growth. So it's always difficult to provide the details on -- compared with corona because, yes, our -- we were below the previous year, but still better than corona figures indicated. So we gained -- relatively gained market share actually. So at the end, the growth of the business is satisfying. And we believe, as Klaus mentioned, that for the time being to plan with moderate growth for the future is necessary for us because our first and highest priority with you as our shareholders is we promise what we deliver. So we did not want to now, let me say, pump sales into our figures, which we would believe might be too high. So we have a relatively cautious planning going forward, as promised and deliver, and with that regaining trust with our stakeholders is a high priority for us.

Yes. I mean when we made this planning, I think it was spring or summer or something like this. And in that time, we were, of course, like everybody, a bit cautious. And I think it was good that we were cautious. And now after the summer, you know this volumes develop better than expected. And this is also a trend we actually see that it's a bit better than expected. But -- I would say, really but we are now in the, let's say, last quarter of the calendar year. And we know incentives and things like this. And -- but nobody of us really knows what will be the demand in next year. So therefore, we have to be cautious, still cautious. And that's the reason why we stick with these numbers.

Okay. And 1 follow-up, please. Within Auto Technology, I believe there was a quite large one-time charge recorded in Q4. My understanding is this might reflect some quality issues in the business. Can you give us a little bit more color on what drove that charge? And how we should think about the ramp-up progress of various facilities that should oftenly be something of a growth driver moving forward?

So this is -- the one-times was -- this was an effect on a percentage of completion. It was depreciation and it was an R&D depreciation and the provision for quality issues, but this was the minor one.

But maybe the correction on the R&D depreciation.

Which we did in the light of the, let's say, of the -- reflecting of the synergy items we saw at the last fiscal year-end.

Yes. So I think you all know that we had a very kind of cleanup of our balance sheet, which was clear to us since we sold the elevator business that we use this once in a lifetime opportunity to clean up all these extra items within our balance sheet. And one of this was the R&D depreciation Klaus mentioned. So this was no surprise to us.

Nothing which should worry us in the future.

Yes. Yes.

The next question is from Caio Ribeiro with Crédit Suisse.

Two questions from my side. The first one on the free cash flow outlook, 1.5 -- around EUR 1.5 billion for fiscal year 2021. Looks rather cautious, did you include any potential order from marines and the prepayments for it, just to hint on the Norwegian submarine order? And what step-up in CapEx did we talk about in 2021 from Chart 38 that suggest somewhere around EUR 200 million, but I might be actually wrong. That's the first one.

Yes. So first question, yes, potential payments are included in this number. And they are also included in this number, higher CapEx volumes than in the current -- than in the previous fiscal year. But as I said before, this is something which we will have to develop over the way. So this is something we, at the moment, plan, but let's see how it will develop. So this -- your estimation was quite okay, was quite good. But we're cautious or not, we will see at the end of the day.

That's fair. On the -- the second question was actually on the electrolyzer business, the other business. Because my original question was where you want to put it, if you want to develop it yourself. But hearing now, it could be a own segment. I'm just thinking whether it would be a wise decision to do the second step before the first step could be -- strategy wise, you need to clean up the portfolio before you add, because what the market needs to see is actually a turnaround in the cash flows. And that would be a nuclear, and it could be developed, but we don't know yet. So it's not too early to think about this, and do the second step before the first step. What is your view here? Because I believe even if you get something for the business right now and for the other business, I think the market doesn't actually reflect anything in your share price for any of the disposals of the Multi-Tracks businesses. So I would say, executing on the Multi-Tracks business should be right now, the most important one. And then once this is done, we can think about what is left? And do you develop it yourself or do you wind it down or whatever you do with this?

I think you're probably right. We are executing on the Multi-Tracks businesses where we look -- where we are looking for what we call the best owner concept. And the only exception is now -- are now two: one is the participation, our share in the elevators business. And the second one is the CPT business, means the water electrolysis business. These 2 businesses are not in the process to be prepared for joint venture or sale. And what we do exactly, as you said, with this other business, we will see, but we are sure at this point in time that the value we can create possibly alone or together with somebody as a minority or majority shareholder has to be assessed. And of course, as you said, to push these businesses under the line is one of the top priorities for this year. You mean the Multi-Tracks businesses to develop the M&A processes going on to a point that we push them below the lines before the end of the fiscal year is, of course, our -- one of our top priorities. But it's uphill battle, this corona. And we do not want to have fire to do fire sales as there is no need for fire sales.

The next question is from [indiscernible]

I have a follow-up on steel. I guess you talked in length about the strategic evolution and the stakeholder -- influence of the stakeholder in the further development of this steel business. What I'd like to understand is the relative preference for consolidation or stand-alone option in steel. So you're saying you plan to have a decision by spring. What we have seen in the last couple of weeks and months in the European Steel industry that there has been a growing dynamic in terms of consolidation. Obviously, some of the companies you talked to -- or talking to each other. How shall we think about this Liberty bit? If this has only been finally decided in spring, what is the risk that this offer is not there? And would that point that in spring, we would rather talk about a kind of a stand-alone concept. The second question is on the guidance you're giving for this year. Is this given under the current scope of consolidation? Or are there any certain asset deposits already implicitly considered? And following the impairment this year, do we then need to consider further impairment risk of these Multi-Tracks businesses or for Steel Europe?

So let me start with the risk. So you know that these asset impairments -- I mean you know the system behind. And they are, let's say, evaluated by the current planning and the auditors are in discussions with us, whether it makes sense or not. So we do not see a big risk to further here make writeoffs or something like this. This is a very actual evaluation. So this is on how the numbers are at the moment. So -- and this is how it is. Then the other thing you asked, what is the preference, and what is the overall situation in steel. Of course, every European player, I guess, has his own option like we do. And everybody more or less is talking to everybody. This is how it works. And we also say that we really do not comment, and you have to -- I think you will appreciate it and that we do not really comment or, let's say, make a comment on what kind of, let's say, option is now the best one or which we prefer because it really depends on how it develops. So of course, yes, we have this liberty. But we have also other options here. At the end of the day, we also have a stand-alone option. And we will see during the time till spring next week, what kind of option will be the month one who creates most value. And then we are going to decide. This is the plan. So it's really too early to say so. And this is everything I can say to this. Yes.

Okay. On this impairment question, I think I understand that when you do the planning for the next years, and you have lower expectation that has impact on the valuation of your assets. But when you are in a disposal mode and many of these Multi-Tracks are potentially up for sale. So there could be still a difference between how you see the business on a stand-alone on a constant lining basis versus potential exit routes. So I tried to understand whether these impairments were closer to the next 3 years' business planning or to what you currently see as a price tag in the market?

Yes. So the impairments are more on the -- as every time, impairments are made -- are more on the 3-year business plan models. And at the end of the day, when we are talking about Multi-Tracks divestitures, it's very open to say whether we will have a hit in equity or not. So this is something we clearly cannot say at this point of time or even a gain, nobody knows.

Okay. That makes sense. Maybe one final follow-up on this accelerated staff cuts to 11,000 and the incremental 7,400. Can you give us a rough split? How is this impacting the divisions or at least how steel is being affected by that?

The line was quite bad. Can you please repeat that?

So the impact on steel, 11,000.

Okay. The impact on steel -- yes, would be 11,000 people. Out of the 11,000 FTEs, 3,000 are coming from Steel Europe. And so this is the number which is included there, is the one we already identified or defined during the strategy 2030 whether this is a part of Steel Europe which is included in this number. Say it's an old one. So as we said before, we are in discussions. And as you know, when we are in discussions, we are not talking too much about the potential outcome that we can confirm that we are in discussions for further measures.

Your next question is from Luke Nelson, JPMorgan.