thyssenkrupp AG

Claus Ehrenbeck - Head of Investor Relations Guido Kerkhoff - Chief Executive Officer

Ingo-Martin Schachel - Commerzbank Seth Rosenfeld - Jefferies Bastian Synagowitz - Deutsche Bank Sylvain Brunet - Exane BNP Paribas Cedar Ekblom - Bank of America Merrill Lynch Alain Gabriel - Morgan Stanley Carsten Riek - UBS Luke Nelson - JPMorgan Cazenovec Rochus Brauneiser - Kepler Cheuvreux Marc Gabriel - Bankhaus Lampe

Yes, thank you very much, operator. Yes, hello and good afternoon to everybody out there.

This is Claus Ehrenbeck speaking. Also on behalf of the entire time, I would like to welcome to – you to our today’s conference call.

As always, all the relevant documents for this call have been published already this morning at 7:00 AM and can be found on the IR section of our websites. Before we start with the presentation by Guido Kerkhoff, our CEO, I would like to ask you that later in the Q&A session, please limit the questions you ask to three.

So that many people have the opportunity to ask their questions in the call. Thank you very much for this.

And now, I would like to hand over to Guido.

Thanks a lot, Claus, and a warm welcome from my side. The last fiscal year and especially the last month were quite turbulent.

After signing the Steel JV with Tata Steel Europe in June, Heinrich Hiesinger offered his resignation, shortly afterwards Chairman, Lehner stepped down. As said last time, in this tough situation for the company and me, it’s now about staying on course and that’s what we did.

In August, we released free cash flow targets for our businesses and the group until 2021. For the first time also with a clear timeline, reflecting strong management commitments that needed step change in performance.

However, we also needed a clear decision and direction on the future of thyssenkrupp and Lehner at the top on how to move the company forward. This clarity has been achieved since September with the unanimous support of the Supervisory Board, we initiated the biggest transformation in the company’s history announcing the separation of the company into two more focused entities, tk Materials and tk Industrials.

The first steps to drive the organizational change going forward are the decisions on new PA leadership teams and setting up an ambitious execution timeline with separation readiness as of October 1, 2019. More information to come on this call later.

Talking about personnel. I’m happy to announce that with Martina Merz takes one of the three seats on our Supervisory Board, and so we will have one of the places therefore filled again pretty soon with an expert who knows and understands our industry.

With respect to the Steel Joint Venture, the ball is now in the corner of the European Commission and further jurisdictions. As of now, we already obtained amongst others unconditional approval from the US on November 7.

Moreover, we will announce the joint leadership team for the JV shortly. Despite this progress, we did not live up to our performance expectations in the past year.

Even though, order intake matched the higher prior year level, adjusted EBIT was significantly down year-on-year due to significant headwinds from FX and material costs, as well as one-time of more than €350 million on the back of additional project expenses at Industrial Solutions, risk provisions due to quality issues at Components and production restrictions of Steel Europe due to low water levels of Rhine and the introduction of WLTP in the automotive industry. Net income was also down year-on-year, mainly reflecting the development of adjusted EBIT and a provision for risk from a cartel case, as well as one-time non-cash impairment effects on tax issues.

Despite a strongly positive free cash before M&A in the fourth quarter, free cash flow before M&A remained negative over the full-year, mainly due to low order intake and high expenditures on projects from orders on hand at Industrial Solutions. But please keep in mind that our free cash figure always includes pension amortizations of around €150 million per year, as well as payout for the restructuring.

Nevertheless, in light of the strategic progress that we have achieved this year, we consider it appropriate to pay a dividend of €0.15 unchanged from last year. This also takes into account the further expected improvement, while relevant financial indicators through our continued operations, particularly the clear increase in EBIT-adjusted, correspondingly clearly positive earnings net after-tax, as well as a significant improvement of free cash before M&A.

And please always keep in mind the free cash before M&A always includes pension amortizations, as well as payout for restructuring. If you take these out, we’re round and close to break-even.

The order intake matching the higher prior year level, the profit remains highly encouraging despite heterogeneity of business area level. Orders at Components Tech are despite significant Forex headwinds, up year-on-year by 2% to €7.9 billion, marking for the second consecutive time a new record.

Generally robust growth in demand for car components in Western Europe offset declining demand in the U.S, while the climate in China became softer towards the end of the fiscal year. Market environment for heavy truck components of forged crankshaft and for construction machinery remained positive, thanks mainly to the good situation in the U.S.

However, demand for industrial components in the wind energy sector remained weak. Orders at Elevator Technology are despite adverse Forex effects on the high prior year level at €7.9 billion.

On a comparable basis, order intake increased by 5%. Overall, growth was driven by installations mainly from the Americas, supported by some major projects in the U.S., as well as in Canada in Q4.

Europe and South Korea was slightly lower in full-year. New installations in units in China were steady year-on-year, in value lower, but already high in Q4, showing effects from pricing increases, as well as positive mix effects.

Overall, the profile remains encouraging, with a book-to-bill of 1 and order backlog about €5 billion, excluding service and thus higher than the year before. At Industrial Solutions, the weak market environment and associated absence of major orders had a negative impact.

The order intake being clearly down year-on-year. Especially Marine Systems, which profited from two major orders in the prior year, booked only smaller and medium-sized orders.

At the same time, the market for cement plants slowed due to build up of capacities in recent years. While demand for mining equipment continued to pick up, chemical plant engineering orders were high year-on-year due to major contract for a chemical complex in Hungary and a medium-sized refinery contract in Germany.

However, situation for major projects remains difficult. Nevertheless, we see a big opportunity for a fertilizer plant from a U.S.

customer, who is about to get the financing for the deal. At System Engineering, order intake reached a new high, reflecting continuing high demand for production systems in the automotive industry.

Order intake at our Materials businesses were high year-on-year, mainly due to continuing stable and high prices on the material markets. EBIT-adjusted for the group was significantly down year-on-year, mainly due to recognition of around €200 million of additional expenses at Industrial Solutions identified through a comprehensive project analysis and plant construction shipbuilding in Q3, as well as risk provisions of more than €100 million due to quality issues at Components Technology in Q4.

Overall, earnings at Components Technology were significantly down year-on-year. Next to the aforementioned risk provisions, lower demand with strong price competition for wind turbine components, weaker productivity in Springs & Stabilizers and a flatter start-up curve for the new plants due to factors on the customer side direct on earnings.

In addition, significant currency effects and raw material cost pressures together amounting to well above €100 million dragged on the results not only at Components Technology, but also an Elevator. Despite the consequent execution of performance measures and G&A cost reduction programs at Elevator Technology, measures could not compensate for the significant adverse currency effect and higher material cost, particularly in China.

Nevertheless, margin development in comparison to peers who face the same challenges as we do was quite robust. Industrial Solutions was down sharply year-on-year besides the high expenses after a major project review and revaluation.

Earnings were additionally impacted by lower sales, weaker margin mix on build projects and partial underutilization. EBIT-adjusted and Material Services came in ahead to the already strong prior year figure, supported by positive price and volume trend and continued earnings securing measures and a high contribution from AST.

Earnings of Steel Europe was significantly above strong prior year. However, production restrictions also due to the low water levels on the Rhine and reduced shipments following the introduction of the new emission standard WLTP in the auto industry, together amounting to about a bit less than €100 million weighted on earnings in the fourth quarter.

Corporate costs improved significantly year-on-year. Next to lower expenditures for our group transformation initiative faster than planned reductions and G&A costs, we’re a big contributor for sustainable cost reductions going forward.

The group’s EBIT was again, impacted by special items, amongst others, Steel Europe recognized the provision for risk from a cartel case in the first quarter. For fiscal 2018/2019, we strive to increase sales of our continued operations in the low single-digit percentage range.

EBIT-adjusted of the continued operations is expected to be above €1 billion, driven by the progressive recovery in operating performance, but also the emission of project expenses at Industrial Solutions and Marine, and expenses for quality-related risk provisions at Components Technology. In addition, we will continue to systematically drive our restructuring initiatives across all business areas and capitalize on our growth opportunities.

The forecasts are predicated amongst others on the assumption that there will be no significant effect from exchange rate changes and only moderate macro slowdowns. Components Technology assuming a largely stable order market will see sales growth in line with the mid-term targets, while EBIT-adjusted will significantly recover following the omission of additional expense for quality-related risk provisions, and the further ramp up of the new plant.

However, first quarter will be impacted by the continued inefficiencies at Springs & Stabilizers. Sales of Elevator are expected to be up low single-digit, while EBIT-adjusted margins will expand, supported by efficiency and restructuring measures.

But also depending on effects of material prices, especially in China, in addition to tariffs on imports of materials to the U.S. That will have adverse effects on the margin development, which we expect to be reflected in the Q1 results for the weaker margin year-on-year.

At Industrial Solutions, we expect a minimal new order intake, a significant recovery in sales in the almost double-digit percentage range, supported by extensive transformation and restructuring measures. And without the additional expenses incurred in Q3 2017/2018, we expect a significant improvement in adjusted EBIT towards break-even in earnings with gradual progress over the course of the year.

However, the first quarter will suffer from partial underutilization and restructuring measures. At Marine Systems, we expect a significant recovery in order intake, supported by an extensive performance program.

And without the cost of the project analysis and reassessment, we anticipate a clear improvement towards break-even adjusted EBIT. And I’m happy to say that we are in advanced talks with Egypt to supply frigates.

As always, the visibility for our Materials business is low, despite the currently favorable trading conditions. However, with signs of slowing economy, we expect adjusted EBIT at Material Services to be slightly lower year-over-year.

Corporate costs are expected to be roughly on level with the prior year, where they benefited from some positive non-recurring items. In line with a positive EBIT-adjusted development, income net of tax of the continued operations would see a significant improvement and end up in positive territory, despite continuing restructuring charges.

While free cash before M&A for the continued operations are expected to significantly improve, however, remain negative, also depending on order intake and payment profiles for individual major orders in particular Marine Systems. Next we already mentioned positive income net of tax for the contributed group, our discontinued steel activities will contribute positively to group’s earning.

On top of closing of this Steel JV and the initial recognition of our share in the joint venture, we will realize a significant positive effect on the net income for the full group and correspondingly positive effect on total equity of, at least, €2 billion. At the same time, our discontinued operations will have a negative impact on free cash in the mid to high three digit range, also due to the typical seasonal increase on net working capital.

Free cash flow may potentially be further impacted by the outcome of the Federal Cartel Office’s investigation into alleged cartel agreements at tk’s Steel Europe AG relating to the product groups’ heavy plate and flat carbon steel. Despite the fact that the aforementioned effects will result in a sharp increase of the group’s net financial debt, the transfer of pension liabilities of roughly €3.7 billion to the Steel JV will relieve pension payouts and thus cash flow by more than €200 million per year.

The separation of the group will eventually result in a significant book uplift in fiscal 2019/2020, the cost of the creation of the transaction structures will significantly burn net income and free cash in the current fiscal. Based on current preliminary calculations, we expect an impact in the high three digit €1 million range for taxes and other costs.

All of these costs may become effective in 2018/2019, and we will do everything we can to diligently structure the implementation in the cost and tax efficient way. But what’s most important is the fact that we ultimately create value.

As already said in the beginning, the first steps towards the separation have already been accomplished with the announcement of the new leadership team. For me, it’s really important to enable the operating segments, the greatest possible entrepreneurial freedom.

I’m convinced that most decisions are better may be decentralized, meaning faster and closer to customers, as well as employees. The precondition for this is common and shared understanding of what we want to achieve.

Two things are not negotiable, an open culture to deal with mistakes and a commitment to our performance targets. At Elevator Technology, we want to have a fresh start with a new CEO.

The decision on the success of Andreas Schierenbeck is in final stages and will be announced soon. At Material Services, Klaus Keysberg will inherit the role of Joachim Limberg as the new CEO.

While we nominated Ilse Henne, the former CEO at tk Schulte as the COO. At Industrial Solutions, the new management team with Marcel Fasswald and Oliver Tietze is already in place since October.

After having conducted the first assessment of the current situation at Industrial Solutions, they already tackled the first topic. One of the major topics pertains to the reduction in the organizational complexity.

This includes amongst others, the reduction from four to three executives, responsibilities, which were already accomplished by Marcel moving from CEO to COO, while his old role won’t be replaced. Moreover, the current business unit Fertilizer & Syngas, Electrolysis & Polymers and Industrial Specialties will be merged into Chemical Technologies.

While the general matrix organization will be simplified by reintegrating the network of excellence into the business area and business units and right-sizing of regional organization. All the complexity reducing measures will also improve our SG&A cost base, which is as of now, not competitive.

In addition, new leadership teams were introduced in three business units to drive the restructuring and transformation process. With the separation of Marine Systems and the prospective regrouping of System Engineering, the new management team can now completely focus on the planned engineering business, meaning a higher involvement in the operating business and closer proximity to customers.

The fourth quarter was already a promising start with order intake being highest in the last six years. Now let’s come back to the rationale for our separation plans and our priorities besides operational improvements.

The separation into two separate companies provides strategic clarity with our best option combining the rationale of the Capital Markets with industrial logic, let me start with the latter one. Firstly, the capital goods businesses that set themselves apart with their engineering and service capabilities operate globally and have attractive growth prospects from secular trends.

And secondly, the materials businesses in which we have a strong materials and processing expertise and are able to leverage consolidation opportunities from a position of strength. Both organizations will be leaner and more agile.

But replacing the matrix organization structures will be less complex, specifically decision-making processes will be simplified, and operational decisions will be decentralized and made in proximity to customs in markets. At the same time, we’ll ensure that both headquarters will be designed for leaner overhead, meaning that especially the management models for the two new companies will be critically reviewed.

Admin expenses must satisfy the Formula one plus one is less than two. The move also makes a lot of sense from a Capital Markets perspective.

By being listed separately on the Stock Exchange, the company will have a more focused investment case and therefore, better meet the different investor requirements. At the same time, the separate listing reduces complexity beyond thyssenkrupp shares, enhances transparency and ultimately helps to attain a fair stock market valuation for both companies.

Moreover, the split up will have a positive impact on the balance sheet due to reveal of hidden reserves, as already mentioned. Liabilities and pension obligations will be fairly allocated between the two.

In the case of tk Industrials, the capital base would provide for investment-grade rating significantly better than thyssenkrupp’s rating today. For tk Materials, a stable sub-investment-grade rating is targeted.

At the same time the retained shareholding in tk Industrials will represent the valuable investments for tk Materials and likewise ensure it a strong capital base. But let me emphasize, this cross-shareholding is only temporary, and the share will be kept as small as possible.

Our priorities for the upcoming months are clear. Alongside the merger controlled procedures, we’re working hard to setup our steel business as an independent entity in preparation for the Steel JV, whereas a joint leadership team will be announced shortly.

The aim is to ensure operational independence from the first day after closing. At the same time, we work stringently towards improvements of our performance in every BA with the ultimate goal of above €1 billion free cash before M&A in fiscal 2021.

However, the biggest construction side is the group separation into tk Industrials and tk Materials. As I said at the beginning, we’re setting up an ambitious execution timeline with separation readiness as of October 1, 2019.

One of the first steps was the decision on business area leadership team that I just talked about. By the time of the Q1 release in February, we aim for a definition of leadership model for both companies.

This will be followed by the announcement of the designated management board, as well as further details on the strategic rationale positioning. Separation readiness and the operating start of the newly created company is expected to be October 1, 2019.

Equity stories and spin-off documents will be published next year November, followed by Capital Market Day and a comprehensive IR program. Once these details are finalized, we will be able to put our proposal to a vote of the Annual General Meeting at the beginning of 2020.

That is where the final resolution on the separation of the group will be made. Till then, we will continue to update you on our progress.

Thank you very much, Guido, for the presentations. With that, I would – we would like to ask the operator to take over for the Q&A session.

Yes, thank you. I would have three questions.

The first one would be on Elevator Technology and what you refer to as a fresh start with a new CEO. Can you tell us a bit what your expectation would be for the new leadership team?

I mean, would you expect them to run a complete review of margin targets, M&A, R&D priorities, or would you rather expect continuity and the new team delivering on sort of the targets and also a strategic framework that the previous team had developed? Second one would be on Industrial Solutions, where also the guidance for next year is still implying a negative EBIT number.

I think you would have some of the ingredients that you typically need for improvement, due to restructuring order intake has improved. Can you shed a bit more light on why that we’re not yet be visible in a more quicker profit development?

Is it still that you see weaker gross margins in some of the old legacy projects, or is it still high gross margin pressure and the new order intake that you’re currently taking on? And the last one would be just very quick on Components Technology, because it was obviously hard for us to judge the outlook with regards to those quality issues.

I would be interested to know whether you would say that with the €100 million provision, you already have an advanced dialogue with the clients and a good understanding of the root causes that you can firmly say that the provision you took in Q4 is enough as far as tangible risk that it could become more in the next quarters?

Yes. Thanks, Ingo.

On Elevator, the new team, I think what you can see already in Q4, as well as the margin development compared to competition is not really improving. So there would be no new targets, but I would like to see a more stringent implementation of the measurements behind that.

So that was one of the reasons why we want to go for a new head at Elevator, so that we have a really stringent delivery on the targets that we want to see. So we’re falling behind a little bit in the last quarters.

On the Industrial Solutions, it’s a little bit, yes, coming from old contracts and some new restructurings and measurements, they will put in place and the reduction of – further reduction on G&A and other stuff they want to do now with a new set up. This will not be implemented in the first-half already, it always takes sometime to get it all implemented and set up.

So therefore, we will have some drag, and that’s why we gave out the guidance that we expected for the first-half to be still burdened by that and it will come in play step by step and some older contracts, yes, they are still dragging a bit down. So that’s why it’s going to – I mean, Industrial Solutions is a longer-term contract.

So, the measurements are taking – take sometime to get through, that’s why we wanted to be fair, open and transparent, say, we do improvement, but we won’t make it to break-even and not raise expectations too high. I think, they’re on a very good track in the way they approach it and you can clearly see that myself comes from the industry and no such talk to the people, they deeply understand and clearly understand what he’s doing and what he’s going for.

On Components, on the quality issues, I mean, we clearly know them and it’s our internal team that really found them out and was driving them to fix them. They were all fixed to make that very clear.

So all the stuff we’re delivering to our customers right now are in right shape, so it’s taking care of some deliveries we had in the past, where we found out about the problems. We fix them, that’s done.

So it’s not something that is lasting and increasing and we are in good talks with our customers on that front to fix them. So therefore, we will see them, but the issues are fixed and in some cases, they will not just our issues, there were issues with sub suppliers from our side.

So that’s what I can say about that.

Okay, that’s good. Just quickly follow-up on the Elevator.

I mean, you spoke about the more stringent execution and delivery on improvement measures. But I guess, we can also understand that it is not meaning that you would expect one big step change announcement in one of our production footprint, withdrawing from certain countries, but it’s all more about the continuous improvement and then the sort of gradual sharpening of the edges we’ve seen last year already?

Yes, that’s true. I mean, what we have clearly highlighted is, I mean, and again for Q1, our guidance is not that strong for Elevator.

What we see is that we need to address a bit more stringent issues, especially in Germany and Europe on the SG&A quota on the production facilities, for example, in Hamburg. And this is what we are addressing right now and this is what will come and with a new leadership team, we’ll be stringently working on it.

Okay. Thank you.

Good afternoon. Seth Rosenfeld from Jefferies.

Thank you for taking my questions. I guess, three follow-ups, I guess focused on the Elevator business, please.

If you can give a bit more color on recent order intake and implied margin as we’d expect it to be most important going into 2019. In Q4, you obviously saw very strong order intake strength year-over-year in somewhat at odds with more cautious commentary.

What’s driving that 14% year-over-year growth in order intake? Secondly, with regards to pricing.

You once again commented on price pressure within China. In the last couple of quarters, you sounded a bit more optimistic in your ability to pass on raw materials cost pressures even within China.

Is this reversal of that progress or more of the same? And then lastly, with regards to margins for next year, you’re talking more like the need for internal cost-cutting.

What scale of margin growth we expect a return to 50 basis points or something more modest? Thank you.

Yes. Thanks for your question, Seth.

Order intake was very strong in the fourth quarter. You’re completely right, we have some really big orders coming, especially in the U.S.

and Canada. But on the other hand China was good as well.

We could clearly see that our price efforts that we have undertaken do go through. So what we saw is that new installations in units were in the last quarter even slightly up.

So – and we could see in the value in the order intake that our price increase was passed through. So definitely, we’re counterbalancing our material cost effects now gradually in the order intake.

It will take a bit of time to get in revenues, but we see that it gets through and nevertheless that the order intake is not declining there. So that’s what we’re indeed targeting there.

So rather better signals overall. What was the last one?

Could you please repeat it?

Sorry, just to clarify the…

Sorry. I forgot that one to write it down.

The pace of growth, let’s wait and see, look, that’s why I said for Q1, we indeed see some further continuation of the pressure we saw in Q4. In general, we want to go back to the targets we’ve seen.

But with the outlining to Q1 and the performance we’ve seen now that we would clearly pass-through, again, to place number four in the industry, we need to recover and see what we can take it. Our ambition level in general remains the same.

But given the current trend, we need to be a bit more vague and can specify that a bit more throughout the year.

Great. Thank you very much.

Yes. Good afternoon, gentlemen.

I have three questions, please. Just firstly on cash flow.

What has been the net cash out from restructuring charges and similar operational one-offs in the last fiscal year? And basically, what do you budget for in 2019 in continuing operations?

And then also did you bake in Egypt, which you mentioned in the other large IS orders into the cash flow guidance? Maybe you could also let us know what is the book-to-bill ratio which you basically expect for the business> And then secondly, on the split of the company, could you please let us know whether there will be any special governance rights granted to the Krupp Foundation related to the industrial side of the business, or will those basically stick with the old legal entity in Materials?

Then lastly, I think, there were some articles around Tata and that they are starting to look into selling some remedy assets, whether that was right or not. But could you please just help us to understand whether you agreed to settle any change in the JV structure, will the funds granted from the sale of remedy assets be retained on a JV level or would they be basically rebalanced via the ownership structure instead?

Thank you.

Yes. Let’s first start with the number one, the net cash flow restructuring was €150 million, well, for next year.

So I can’t give you a clear guidance on that one, but over the last year, it has always been such a vicinity, yes. IS, outlook for IS, it’s going to depend on some bigger order intakes, we’re definitely targeting book-to-bill of about 1, but let’s wait and see throughout the year where we – where it’s going to take us.

So we’re pretty positive on some big orders. As I said, one is just depending on the financing, so if that gets done, the deal has already been signed on the fertilizer plant.

So we’re not that negative to Cronus one, that is very well. On governance, the Krupp Foundation, as you know, has the right of nominating two people at Materials.

But what I would clearly like to highlight here, you’ve seen that even the right to nominate these people and the way it has been used in the past has not avoided or influenced changes at thyssenkrupp, including the split of the group, including the JV of steel and including the separation of stainless that we did before. So I – well, I don’t know what importance the governance rights of the Krupp Foundation really do have or whether it’s not over exaggerated in Germany all the reasons behind it, because the Krupp Foundation has always been pretty supportive.

If it is around support of the development of decisions, on the development of the company, including the split, so one shouldn’t exaggerate this – importance of this rights. Tata remedies, we’re now facing in the talks with the European Commission, let’s wait and see how that will go and – but it’s too early to speculate.

But there’s no kind of key framework with Tata at this stage on how this is going to be settled. So that will be basically done whenever it happens?

Exactly. Let’s first see what needs to get done and then we see how we deal with it.

So far we’ve always developed unanimous and good understanding of how we deal and go about these things.

Got it, okay. Guidoas, thank you.

Just one quick follow-up on the cartel situation. Could you just update us on that front and on the provision you did, you did obviously provision your peers did not or at least not at this point.

What has changed for you on that front in the last few months? And if anything, do you think that has gone different for you versus your peers?

I can’t talk about the peers. What I can tell you is, we had internal knowledge in the past that led us to a point that it has always been on our annual report pretty prominent that we have a risk there now.

The German cartel office has allowed all participating entities to take a look into the material and redid what they found out. And all the things we found in there led us to the point that we clearly say now, we think it’s more likely than not that there will be cartel fines.

And this is what we provided for. What the assessment of the others is, I can’t talk about that, you have to ask them.

Okay, very clear. Thank you.

Gentlemen, good afternoon. My first question on Industrial Solutions, just taking from your comment during the introduction of Annual report, where you flag that problems have accumulated.

If you could just give us some color in your mind what are the most urgent problems to fix there? My second question is on Elevator’s follow-up on first question before, maybe more color on the levers where you find that thyssenkrupp Elevator is at disadvantage versus peers and on the positive side where you think – what you think tk Elevators can capitalize on?

And the last question would be on the business cash flow at Components. Historically, it’s not a business, which has often been in negative territory or negative territory this year.

Obviously, we know the pressures on the Auto side. Could you share some element of breakdown between what it was on the auto side and what it was on the other businesses and wins in particular, please?

Well, on Industrial Solutions what we were facing was that in some of the projects and that’s why we at this project revision in the mid of the year that we saw that they were not working on the project as expected. There was too complexity and they were too slow in certain cases.

So we have to react to these problems and that we were facing. Overall, what we saw was that the organization that was set up for very strong growth was by far too complex.

And now with the current organization, as I explained in my speech, a network of excellence, for example, on the execution we bring back to the business unit or parts to the business to have clearer responsibilities closer to the project management and not so much in the matrix. So that the responsible people for the project can really be held responsible directly and don’t have any excuses within the matrix to find it out.

And I think some of these problems have indeed led to the situation we’re currently in and are addressed with a new team to reduce it and make it more stringent and closer to the customers and project. On Elevators, I believe as we do see is definitely the number of products we have who want to further reduce.

We see that we have too many production sites and still sustain too many inefficient production sites, where the cost level is too high. And we have SG&A assets, where we can furthering – have more stringent attempts to reduce it, where we see competition into our internal competition like in Europe, Africa was spending way too much on SG&A and we need to further reduce and we expect from the new management team or the new leadership team with a new CEO that they address it in a bit more rigorous manner than we’ve seen it so far.

On Components with the free cash, I mean, we’re still in the ramp up of the factories and we have some issues in springs and stabilizes and inefficiencies. And our target clearly there is for Components that for 2021 were at €0.5 cash conversion and therefore kind of really catch up and bring it to the levels where they should be.

Thank you.

Thanks very much. Hi, guys.

I’ve got two questions on cash flow. Just firstly, we’ve seen the Industrial Solutions business reported weaker business cash flow year-on-year in 2018.

I want to try and understand what you think the fixed cost of that business will be after the restructuring program has been completed? Basically trying to understand what the worst-case scenario is for business casual in that business if we don’t get some big increase in order intake coming through.

I mean, you even talked to lower visibility and some of these big tickets been realized? That’s the first question.

And then, the second question just on the business cash flow performance in Elevator. So we had a correction in EBIT year-on-year, but we had a much more pronounced correction in free cash.

Free cash going down by nearly €300 million in that business. Can you just talk about the levels that drove that correction in free cash?

And how we think about free cash going into next year, so we get a slightly improved EBIT scenario? Do we get a significant improvement in free cash or are we looking at a free cash number in the division more similar to the 2018 scenario?

Thank you.

Thanks, Cedar. On the 2018 numbers, if you take a look at Industrial Solutions and the cash flow and that it was overall weaker, it was – a lot was coming from besides the project and the order in – the order intake and Marine Systems were pretty weak in that overall picture.

Now the fixed cost certainly will help if we address the SG&A level and get it down to have the burden going forward, and where we’re preparing the organization for more product and having more small and medium-sized contracts and not always be there for just the big ones and go for the people ones. Nevertheless order intake is going to be the important thing that will help on balancing out the annual figures and how we will do the improvements.

And definitely for 2021, we’ve clearly announce that we want to be €200 million buyer in business cash flow just for them. That’s why you can already see that the biggest ticket is coming from Marine Systems and that overall improvement that we saw fixed cost is helping that to get that cash burden down, but that’s not the only one and not the biggest from my point of view good and solid project mix and a stable order intake over the years and development of down payment is more important.

Fixed cost will help for long-term stability of EBIT, and therefore, cash flows. Elevator, what we saw in Elevator is indeed and completely reviewed the free cash numbers even more disappointing than the EBIT number.

We saw on the hand is that in the losses, we did quite a lot of reducing of working capital, which was helpful in the previous years. On the other hand, we saw that free cash compared to EBIT is indeed lagging behind and there was some build up of working capital going along with the EBIT number and the development through the year.

And yes, we do expect a better improvement on the free cash going forward than on the EBIT number.

Okay. Just to put you on that – just to try and get a little bit detail.

So one of the concerns of the market is that Industrial Solutions is not a fixable business, right? Because end markets that are exposed to are seeing CapEx compression, and I’m not saying that that’s right or not.

I’m just saying that this is one of the concerns. So a lot of people wonder how does thyssen get out of the scenario to the extent of the CapEx environment doesn’t really pickup in some of your key end markets?

And I suppose what people are trying to understand is what is the downside in this business? Because right now, most people are extrapolating the current cash burn forever and saying it may be gets better, the restructuring is going to be challenged because of the CapEx cycle in your end markets and because of poor delivery entering the business around in the past.

Can you give us any detail? Like I appreciate your comments.

But can you give us any detail on how we think about the cash burn in that business going forward to the extent we don’t get some big inflection on the big tickets or on winning smaller service that contracts? I mean, is there any kind of clarity there?

How do we think about downside basically? As we’ve got your target, right, but how do we think about downside to the extent the macro environment is not supportive on big tickets?

Look, I’m not that black and white on Industrial Solutions. Look, in the past, we’ve always made money with strong technology and the leadership team, the first thing as I look, we’ve got very good customer recognition and we’re doing good customer contact with customer relationship with strong technology that is well appreciated by the customer now and service increasing.

On the other hand what we see it is always depending on the individual markets we’re in. Now mining is coming back from lower levels.

What we’ve seen currently is on the chemical side rather and that’s what I wanted to lay out with the Cronus example, for example as well. We do get more and more on a broader base positive signals in the chemical markets to come back.

Now cement is in not such a good situation. That’s clear that what we all see nevertheless, we do see there are some good order intake on some technology to help to reduce emissions.

So Syngas, for example, that we’re offering for quite sometime now gets more and more orders. So there are positive signals and that’s why I’m not so negative.

And we do see some growth areas that we’re working on, and we definitely believe will come back. So I wouldn’t be focusing on the downside and how we’re going to go we’ll further continue that.

Okay. Thank you.

Good afternoon, gentlemen. One question from my side on the closing net debt, which is boosted by the usual working capital release by the Steel business and you’re guiding on Slide 8 that you will have to invest mid to high triple digits working capital there.

I’m trying to better understand what to be the normalized – what would have been the normalized net debt, excluding the effect of steel close of business September 18, that would help us doing the bridge from net debt this year’s to the net debt figure next year? Thank you.

Yes, Alain. But I can’t give you a clear breakdown of this one.

And it’s – the contract that we have signed with Tata gives normalized working capital depending on prices and volumes that will be shipped until then. So, to help you on that mall, that’s why we’re a bit vigor wouldn’t help that much.

So you all know that year-end measures are in place and that we always have a significant uptick in the beginning of the year and this is what’s going to happen this year as well. And clearly, we will transfer it on a level with a normalized working capital and that’s what we clearly highlighted this is a negative cash flow coming out of that and we will see where it goes.

In Q4, we’ll not not be just a normalized one. It’s going to come back, but we see it over time.

So therefore, I can’t give you a clear guidance on that one.

Okay. Thank you.

Thank you very much. Three questions from my side as well.

First one, you had a very sizable impact in the fourth quarter of the fiscal – last fiscal year due to the low water levels at the River Rhine in between your release of force majeure here. Just wanted to get a feeling that we expect more negative impact out of the low water levels at the River Rhine, or is that topic over?

That’s the first one. Second one on capital allocation, and we talked about that already three, four years back.

But it comes back again, I guess, I think the Components Technology BU become more visible, especially the automotive part. You spent or you want to spend around 50% of your CapEx in Components Technology?

I still struggle to see how that is value creative, at least, until now. Maybe you can give a bit more color where you see this division evolving in order to make sure it gets to the return on investment target, which you have in mind?

And the last one, what is the rationale and that is actually related to the split-up of the group? And on tk Industrial, what is the rationale of aiming for an investment-grade rating in thyssenkrupp Industrials units.

As thyssenkrupp has proven in the past that even being non-investment-grade, you could refinance at very favorable rates. Could you remind me about that?

Thank you very much.

The River Rhine levels force majeure has been released, that’s true, but we will have effects of Q1 and even Q2 coming out of the shortening of the production we have. So yes, we’re getting back to normal levels and we’re getting back our raw material, but the volumes we lost will have effects on Q1 and even small ones in Q2 that we will see in the current year.

The capital allocation, you rightly mentioned, Components getting the 50% all the new contracts that we’re doing and this is a CapEx-heavy business as we all know. All the contracts we signed deliver a return on capital and we’re in a ramp-up of the factories and therefore, it’s still more CapEx and it’s low – lower cash flow is coming out of the business.

But given the targets we’ve given out 7% and the contracts we’re signing, we clearly see that they are earning with that the cost of capital that we require otherwise we wouldn’t go for it. But it is and remains the CapEx-heavy business, that’s the nature of it.

And therefore, we have to deliver and bring it to the levels that we announce, otherwise it’s not justified. But given the contracts we do see if they’re put in place the way they’re projected, it should work.

Tk industrials on the investment-grade, if you take a look at the competitive landscape of these companies, most of them are very low asset base, but have down payments. So therefore, there is less guarantee, so you can put behind it, and that’s what we do see in that sphere of companies that their competitors are basically all investment-grade companies and that’s what we said the target should be to be on the peer benchmark level in the financial situation and this is an investment-grade level.

Okay, helpful. One follow-up on the CapEx for Components Technology.

Could you give us a rough split in Components Technologies? What is for the automotive side and what is for the non-auto business just percentage-wise?

No, I couldn’t give it exactly, but the largest part is definitely for the auto side, as you rightly assumed.

Okay. Okay, that’s fair.

Thank you.

First question just following up on tk and specifically on the medium-term targets, which you last updated the Q3. Obviously, in the interim, we’ve had the split announced, so I’m just wondering if you’re now in a position to provide appetite for those medium-term targets for the different CT businesses, that will fit in tk Industrials and tk Materials, that’s my first question.

And then second question, I don’t it’s obviously still early in the process. But can you give any idea of how you’re thinking about Steel Europe and how that fits within tk Materials?

Obviously, it looks so much better fit for that business. So should we still be thinking along the lines of an IPO of your 55% share eventually?

Thank you.

Well, on the CT split, I won’t and can’t give you the clear split today. What I can clearly tell you is that the two businesses are well performing ones that were moved with the Industrials businesses.

So the large-scale bearings and forge technologies came back and had a good result last year. So they do earn their money and they’re a good business now.

And this is – will be part of the equity story later on. So then next year we’ll provide you with more guidance on that one, how it breaks down.

On Steel Europe and the joint venture, there’s no change to our targets be preparing for an IPO even in such a situation that it’s 50% within the company, an IPO if it makes sense and if it’s financially feasible would be a strong signal for both parties and would still lead the two companies Tata and thyssen being in the majority shareholding and basically being together jointly driving the company. So there’s no change to do our targets and objectives there.

Thank you.

Yes. Thanks for taking the questions.

First is on – generically on strategy. According to what we could read in the press is that the search process for new Chairman of the Supervisory Board is still ongoing.

And once this is done at some point and probably latest by early next – by early 2020, how shall we think about the strategy change, would be – should we expect there could be a new review and a modification of the high-level strategy? And the second question is listening to the comments you were making is, it sounds that there could be more focus on operational decentralization.

Maybe can you comment a bit what that could mean in terms of your – of the organizational structure in the businesses? And thirdly, on the way you’re going to run the business, the company split is going to cost up to €1 billion and there could be some cash out for the cartel fine and maybe some further cash out for restructuring.

What is the kind of toolset you’re going to use to finance that, obviously capital increase is ruled out, maybe can you talk about that because at the same time free cash flow is still expected to be negative in current year and coming year?

Yes. First of all, coming to the strategy, we do have a Chairman and we do have a Supervisory Board that even throughout the whole year was supporting us and was able to make decisions.

So the split decision has been made in the time where the union member was having as the Vice Chairman to the Supervisory Board and there you can see how aligned the Supervisory Board in respect to strategy and strategic decisions and strategy making. So I think, as I’ve stated a couple of times, I think the discussion around who’s there and what Chairman and new is a bit exaggerated.

And even yesterday in our Supervisory Board meeting, we got the full support for the strategy. So a new Chairman from our point of view wouldn’t stand for a new strategy, the full Supervisory Board and this includes the two major shareholders have fully supported it and the union.

So I don’t see any need for anything new, even if there was a new one and again, it’s fully setup and working. So from my point of view, there is no lag in governance.

The decentralization of the businesses, as I said, for Corporate, it should mean that by 2021 one plus one should be less than two. So it should be smaller and more efficient and we will see some efficiencies that can be realized together with the business areas and units as well, because a lot of this what we saw in the benchmarking of functions on SG&A are just starting in 2014/2015, out of €2.4 billion G&A in the group, we just have €450 million on Corporate level.

So a lot of that is in the complexity in the business areas and below and this is what they address and this is what can with this new setup of the new holding may be address even more rigorously by combining things and merging them and getting the efficiencies on the lower levels as well, because what I have always stated is that, I think, the biggest part of the inefficiency is not even at Corporate level. People are just talking about Corporate, because they see this Corporate line.

But the biggest part of G&A we spend is somewhere in the organization and that is even worse. The highest savings we can do is not at Corporate because basically coming out of that exercise and benchmarking was at Elevator.

Now therefore, we need to see how far we can drive and how much levers and levels we can take out within the organization and improve it and make it faster. This is what we want to see from the business areas as well.

And you see with the new set of Industrial Solutions that we’re addressing and reducing the matrix and focusing then on a core plant with the move components to focus them on order will be another step to focus them just on one business, and therefore, hopefully taking out some of administrative stuff as well. For the financing, we still have a lot of liquidity reserves on the group.

We don’t have refinancing that is needed next year. So we currently – recently paid back €1.6 billion of bond.

Next year, there’s hardly anything we have to pay back. So that’s why we think we are well setup to finance it and to make one thing very clear, we don’t need capital increase and there’s no possibility to do.

So we used it. And as I’ve said and I can clearly confirm that again, if that was the background of your question.

Just want to get confirmation for that. Maybe a follow-up.

I think, you sounded pretty comfortable on the potential IS or pipeline like Cronus and the Egypt frigate order. Is there anything on the horizon you would also consider for 2018/2019?

I’m not 100% sure, what the timing is for this German, Norwegian submarine, big ticket, or is there anything else on that?

We have a good pipeline. I won’t talk about each and every project now other than Norwegian submarines and the German submarines are definitely one, but that’s outer in the year, so that could be next year as well.

So therefore – but we’re in good negotiations from that one as well. And what I do see is not too bad pipeline overall.

Okay, that’s good. Thank you very much.

Hey, good afternoon. Thanks for taking the questions.

Three questions, if I may. First, the IFRS 15 adjustments of sales at the Components Technology, that amounted to €1.9 billion.

Should we allocate this evenly on to the prior year’s quarters, so roughly €475 million each quarter? And why haven’t we seen such an impact on Elevator, because that’s also a project-driven business?

That’s the first question. The second question is why didn’t you made any provisions for the separation costs, which is clearly high number with high three-digit million amount?

And what are the cost drivers for this number to understand that a little bit? And on the cartel issue, is there a crown witness in that cartel case?

And when do you really expect the final decision from the authorities, otherwise you wouldn’t have made that provision now? Thanks.

Yes. On IFRS 15, let me explain that on Components.

What we’re doing at Components is that we’re doing the assembly for some auto companies of rear axles and parts. And in the past, according to the old IFRS, all the material, where we don’t take any risks, which gets delivered from the auto company, we assemble and then we deliver back, we had to take it through the P&L.

Now with the new IFRS 15, we only charge for the part that we’re doing just the assembly. As we don’t have any risk on the material, we don’t even own it, we don’t have to put it through the P&L anymore.

And that was the biggest effect we saw, and that’s why you don’t see that at Elevator. So it was a very special thing.

Now provision for the separation according to IFRS, you can’t do it just because you can only do it once the expenses occur and you’ve signed contract. Its consultants or taxes, you just can account for them if you pay them and if you’ve done the steps, but you’re obliged to pay.

And so we are not in the situation right now. So we can’t provide for it according to IFRS 15, it doesn’t work.

There was a crown witness in the cartel case. That was the reason why the cartel offices investigated into it.

And we were allowed now to see the outcome of the material they could gather. We have not finally got any kind of accusation from the cartel offices, but that gave us a situation where we think it’s more likely than not that something will come.

And the final decision of the cartel offices have not announced when they’re going to do and what they’re going to do, so we have to wait and see when they’re going to do it. I don’t want to predict them.

Shouldn’t be too far out, but too difficult to say, there are many steps they could take.

Okay. Maybe one follow-up.

That’s just standard – the tax rate that was impacted heavily last fiscal year due to that change of tax loss carry-forward. What do you expect or what could we expect for this year as a normalized tax rate for the group?

That’s always a bit difficult to say. Look, we have amortized most of the tax losses going forward.

But I think these one-time effects will – and if you take a look at the past and we’re at very low net incomes, we’re now going to improve again to be positive again. But – therefore, having lower numbers, the tax rate might be impacted heavily in the cash tax rate is much better to be projected in our case, because book effects can always drive it up and down.

And if you’re at lower numbers – absolute numbers earnings before taxes, which is currently the case, then you have percentage-wise huge effect. So €10 million can change your quarter quite heavily.

Now most of the tax loss carry-forwards are either used or now written off. So it should normalize overall.

Our general average tax rate is slightly above 30%, which is something in the long run, we would expect. But again, at the rather lower levels of the earnings before taxes, the tax rate can be distorted from years.

Okay, thanks.

Yes. Operator, with this, we have come to the end of our conference call for today.

We also would like to thank all participants for attending the call and for the questions. And as always, if you have more questions after the call, the IR department here at thyssenkrupp is more than happy to get them and to continue the dialogue with you.

Thank you very much, and we look forward to seeing and speaking with you next time. Bye-bye.