thyssenkrupp AG

Claus Ehrenbeck - IR Heinrich Hiesinger - Chairman and CEO Guido Kerkhoff - Member of the Executive Board

Michael Shillaker - Credit Suisse Ingo Schachel - Commerzbank Bastian Synagowitz - Deutsche Bank Alan Spence - Jeffries Sylvain Brunet - Exane BNP Paribas Carsten Riek - UBS Alain Gabriel - Morgan Stanley Rochus Brauneiser - Kepler Cheuvreux Fraser Jamieson - JP Morgan Ioannis Masvoulas - RBC

Hello, everybody. This is Claus Ehrenbeck speaking.

Also on behalf of the entire team here, I would like to welcome you to our today’s conference call, which is of course on our fiscal year 2016-2017 numbers and surely, more important for you, the outlook for fiscal 2017-2018. Before we start with the call or with the presentations, please allow me to mention that all the documents for this call are available on the IR section on our website.

And also, I would like to briefly remind you that our Capital Markets Day that will take place in December 8 and there are still front seats available. So, if you want to register, please contact Investor Relations.

And that, I would like to handover to Heinrich and Guido, who will give the presentations.

Yes. Thanks you, Claus; also from my side, welcome to our fiscal year conference call.

Let me start with the last business year. In last fiscal year, we have achieved major milestones in our strategic way forward.

As part of our transformation to a strong industrial group, we sold the Brazilian steel mill CSA to Ternium, and thus completed the multiyear and multi-step exit of Steel Americas. In September, this was followed by the signing of the memoranda of understanding with Tata Steel to combine our European steel activities in a 50-50 joint venture.

Overall, this allows us to significantly sharpen our strategic and investment profile to our higher growth and less volatile businesses. By now, we generated roughly 80% of our sales with our profitable capital goods and service businesses.

In addition, we significantly deleveraged our balance sheet; net financial debt at below €2 billion and gearing at 58% but at the lowest level since we have started our strategic way forward. This clearly mainly reflects the free cash flow obtained with the growing of the CSA transactions and the cash inflow from the capital increase.

Moreover, we continue to feed our value pipeline. Order intake reached its highest level since 2011.

Components elevated in order to reach the new while order intake Industrial Solutions climbed to new five-year high, thus confirming the strong order momentum and the turnaround. In addition, the consistent implementation of our efficiency and growth initiatives paid off again, driving adjusted EBIT significantly higher on a year-on-year basis.

Both components and Elevator Technology continued their structural growth. Yes, they were not able to compensate for the temporary earnings shortfall at Industrial Solutions.

Earnings in the material businesses were significantly up year-on-year, lifted by significantly improved trading conditions. As we already said in February, the exit from Steel Americas had negative effect on net income, resulting in an overall net loss for the group.

But without these effects, group net income would have been higher than in prior year. Nevertheless, in light of the strategic process that we have achieved this year, we considered it appropriate and financially justifiable to pay a dividend of €0.15, unchanged from last year.

This also takes into account the further improvement of relevant financial indicators, particularly a clear increase in EBIT adjusted and correspondingly clear positive net income for the upcoming year. The profile of our order intake is highly encouraging, benefiting from the trend reversal in the second half of the fiscal year in the material market, but more importantly, highlighting structural growth perspective at Components Technology, at Elevator Technology and marking the inflection point at Industrial Solutions.

In addition the strong order intake also reflects our continuous investment into our competitiveness, year over year. Since the start of our strategic way forward, we increased our annual R&D spending by 30% to more than €800 million this year.

Orders at Components Technology are up year on year by 14%, reaching a new record at €7.7 billion. Future growth will be fueled by our advanced driving solutions that we are developing together with our customers.

We got a very strong customer response at this year’s IAA Frankfort Motor Show of our products and this does confirm our role as an innovative partner for the industrial automotive industry. There, we presented new developments in the various areas such as electric power steering, advanced solutions like steer-by-wire and adaptive damper systems, really paving the way for more automated and autonomous driving.

To put that into perspective, the structural value pipeline and Components Technology is continuously further expanding. More than 80% of the planned sales for 2020 are already booked.

And to support delivery, we are currently ramping up seven plants. Within the next six to eight years, we will generate sales of €8 billion from electric power steering products.

Production and customer deliveries are currently ramping up and will finally lead to about €1 billion in profitable sales when customers take off their agreed commitments. Orders at Elevator Technology are up by 3%, reaching a new record at €7.8 billion and the future looks bright too.

Elevator Technology is well on track for structural long-term growth. Although we are one of the youngest players in the game, we have an exciting innovation pipeline and lead the transformation in the elevator industry.

With MULTI, which we will see on the Capital Market Day, we developed and presented the world’s first ropeless horizontal vertical elevator, achieving up to 50% higher transport capacity and reducing peak power demand by as much as 60%, ultimately bringing new possibilities to building and city planning. Moreover, we have already connected more 110,000 units with MAX, comprising approximately 10% of our global maintenance portfolio.

By collecting and analyzing real time data from connected elevators, we significantly reduced downtime for customers. And in combination with MAX we are steadily incorporating the use of Microsoft HoloLens in our fleet operations.

With the first examples, we see that HoloLens might reduce service intervention time by upto four times with mixed reality technology, this will represent a step change in elevator service. And as I said, at our upcoming Capital Market Day, we will share more information with you on our elevator business and such -- some of those outstanding innovation pipelines.

Industrial Solutions did not only achieve its highest order intake in five years but the strong order pipeline has really marked an infection point. [Technical Difficulty]

Are we there? Operator, are we there?

Okay. Sorry about that.

The line had problem. So, let me start again with Industrial Solutions.

As I said, we did not only achieve its highest order intake in five years, we believe this really reflects an inflection point in that business. We look forward to the positive trends by further increasing the share of small and mid-sized projects and service solutions, which will allow us to reduce workload fluctuations and will have a positive effect in a volatile environment.

Especially the service marks, it has a lot of untapped potential. Our target includes to lift the service coverage of our installed base of more than 6,000 plants worldwide significantly, by enhancing the recent presence and getting closer to our customers and ramping up some more service centers.

We want to pick up on winning large projects here for sure, as long as they support our financial targets and offer an acceptable risk profile. In particular, in the last quarter, we were happy to win a big fertilizer plant from Brunei, which should support improvement and utilization and performance.

And then, I will continue. In an environment marked by high political uncertainty and volatile raw material prices, fiscal year EBIT adjusted was significantly high year-on-year.

Continuing operations are up 15% with four out of five business areas well above prior year levels. EBIT adjusted at the components business came out high year-on-year, reflecting growth in car components, especially in steering systems and cylinder cover modules and stringent implementation of performance measures.

Though margins are slightly up year-on-year, ramp up costs for new plants as well as product mix effect on motor [ph] system sales increased by almost 30% to €1.6 billion diluted margin expansion. Elevator Technology increased adjusted EBIT and margin in the fourth quarter year-on-year for the 20th quarter in succession, and we expect this to continue in quarters ahead.

Adjusted EBIT in Industrial Solutions was as expected, down year-on-year. Weak order intake in previous years, underutilization of chemical plants and lower margin project milestones in particular Marine Systems dragged on earnings throughout the year.

Margin fell to 2% in the reporting year, well below our target range. Materials Services adjusted EBIT came in at €312 million, more than doubling year-on-year, reflecting more favorable price environment as well as sustainable progress of performance programs at AST.

Adjusted EBIT at Steel Europe came out significantly better than last year, reflecting higher average net selling prices that we were able to realize from the second quarter onwards. Adjusted EBIT at corporate came in at €535 million negative in the fiscal year, reflecting €38 million higher cost year-on-year, mainly due to higher project expenses in connection with digital initiatives, which will come down next year.

As promised, we have significantly deleveraged our balance sheet, providing us financial leeway to drive our growth and restructuring initiatives. As you all know, free cash flow was clearly negative in the first nine months caused by a significant increase in net working capital at our materials businesses due to dislocations in the raw material market, the payment profile at Industrial Solutions, as well as growth and start-up of new plants at Components Technology.

In Q4, three major themes contributed to a significant net financial debt reduction. First, positive business cash flow contributions from all business areas added to a strong positive free cash flow before M&A in the fourth quarter.

Moreover, proceeds from the CSA sale, with sales price of €1.6 billion had a significantly positive net financial debt effect. Third, the capital increase carried out in September, further decreased net financial debt.

Overall, this brought net financial debt considerably down to below €2 billion and reduced gearing significantly to 58%, ultimately enhancing our financial flexibility. Consequently, net financial debt and gearing were at the lowest slow since the start of our strategic way forward.

For the financial year 2017-2018, we strive for a significant increase of EBIT adjusted to €1.8 billion to €2 billion, mainly driven by growth and improvements in our profitable capital goods businesses and cost savings at corporate. Nevertheless, the visibility of our materials businesses remains low as the contributions depend not only on the continuance of our currently favorable material market environment, given the recent strength of the euro, also possible ForEx effect need to be considered.

In addition, we will continue to systematically implement our transformation process of further driving our restructuring initiatives for whole business areas and capitalize on our growth opportunities, in particular at our capital goods businesses. Anticipated upside for 2017-2018 will be supported by planned EBIT effect from our impact program of roughly 750 million.

This is basically the same value as the 850, including CSA; now 750 is the same level as previous years. For both Components Tech and Elevator Technology, further sales in margin improvements in line with our mid and long-term target are expected.

Components Technology will see EBIT adjusted growth despite partially diluted by ramp-up cost of new plants. Elevator Technology would, quote, work like structural progress, aiming for a margin expansion of 0.5 to 0.7 percentage point.

This is supported by restructuring measures initiated and elevated. For example, in order to secure our profitability and competitiveness, we will reduce the workforce at our site in Neuhausen.

At Industrial Solutions, we expect continued good order intake and a significant increase in sales, as a result of a high order intake prior year. Moreover, significant increase in EBIT adjusted is targeted, yet the margin will remain noticeably below the target corridor 6% to 7%.

The same time, we will systematically continue our transformation program ‘planets’ to support growth and performance by focusing more firmly on customers, markets and especially the high margin service business. In this context, we want to reduce up to 500 jobs in the administrative area and up to 1,500 jobs in operating areas over the next three years.

Overall, the planned measures are aimed at transitioning the business areas’ earnings power by up to €200 million in each of the next three years. As already said, the visibility for our materials businesses is low as always, despite the currently favorable trading conditions that may last for quite some time.

And to make that very clear, we don’t have any indications that this is going to change. Nevertheless, the visibility is always something like six months add.

At Materials Services, we forecast a slight decline in adjusted EBIT, given foreseeable lower windfall gains. The progress at Steel Europe is dependent on the development of the materials market.

Assuming a continuation of the currently favorable trading condition, could even result in a year-on-year increase in adjusted EBIT. On the corporate level, we expect further G&A, restructuring charges and lower costs for initiatives.

Amongst others, the efficiency measures at corporate and in all business areas are expected to reduce G&A cost by around €400 million by the end of the fiscal year 2019 and 2020. Our free cash flow before M&A is expected to clearly improve with the return to positive figures, driven by higher earnings, lower net working capital.

Nevertheless, a posing effect will result from our restructuring initiatives. As already indicated, given our accelerated restructuring execution in 2017 and 2018, especially of Industrial Solutions and Elevator, we expect to significantly increase our restructuring payouts to 200 to €300 million over the next fiscal year.

Our operational improvement will also be reflected in our net income, despite continuing restructuring charges.

Let me now take a look at 2017-2018’s agenda beside the financials. With memorandum of understanding for the steel JV, we already provided a clear strategic direction going forward.

Recently, we have started to reduce the due diligence, the data rooms are opened and are in process of finalizing the JV structure and the synergy concept together with our partner Tata Steel. The major step will be the signing, which we currently expect for early 2018.

From this point onwards until the closing of the transaction, Steel Europe will be classified and thus reported as discontinued operation. After the closing, which we expect for late 2018, Steel Europe will leave our balance sheet and our share in this JV will be reported as equity.

The closing of course will be subject to regulatory approval of the EU commission and some other jurisdictions. Again, I would like to point out that this joint venture will create value for us and our shareholders from the first day onwards.

Throughout that process, further reshaping to thyssenkrupp into a strong industrial group remains a top priority. This paves the way for fundamental value crystallization and creation, ultimately benefiting our shareholders and therefore delivering significantly on our strategic way forward.

Besides the targets we have set ourselves for 2017 and 2018, we have, as you already know, defined clear mutual long-term targets for each of the business areas individually. These are based on benchmarking our business with the best-in-class peers and show the potential value upside for each business area.

As depicted in the slide, continuing to close the margin gap step-by-step amongst others and by executing our performance and efficiency programs brings a lot of untapped markets and business potentials to each business areas and therefore upside for our group as a whole. As the reshaping of the group continues throughout the year, we will provide you with more granularity on how this reshaping effects, of course in a positive way that impacts our earnings and much more important our cash flow potential.

We’re confident that we will generally meet stronger and sustainable uplift in the mid to long-term by continuing our transformation journey. Thank you very much.

Yes. Thank you very much, Heinrich and thank you very much, Guido.

With that, we would like to handover to the operator in order to lead the discussion and we are now curious to hear your questions.

Yes, Mike Shillaker from Credit Suisse. Thank you for taking my questions.

My first question, I guess, when I look at slide seven, which is your guidance, and it basically -- your base case is materials and steel flat to down. It looks like your upper case is you’re giving a 100 better for steel and materials at the top end.

And your run rating is still currently at least 300 better than you were for the average of last year. Now, this is guidance; it’s not a forecast.

Why wouldn’t you potentially say, okay, the steel market may hold firm, materials may hold firm and actually therefore the upper end of guidance could actually be more like €2.2 billion as opposed to €2 billion, because you’re not forecasting. What you’re doing is you’re giving guidance.

And based on where you see your steel business at the moment, that wouldn’t I guess be unrealistic, unless, you’re very clear that there’s a downturn in steel coming in the second half of next year, which I guess not a lot of people are able to predict right now. My second question on the restructuring, obviously, Heinrich, this is six years into the job we’ve been talking a lot about restructuring of the business and similar.

And when looking back, we’re talking about, on recurring businesses, we’re talking about 500 million to 600 million a year of restructuring charges. Now, could you give us a maybe clearer roadmap for how -- when that peaks and how that tails off?

Because the level of feedback I get from the investor base is, you guys counted as one-offs or all special items but actually given that it happens every year, it does appear to be more recurring part of the business. So, I think what would help the market massively is if you could give a little bit more sense in terms of when you think the restructuring is going to be done and when we those restructuring charges actually materially start to come down.

And then, my third question, if I may, just looking at the order books in IS, clearly, your strongest in five years; that’s fantastic. Could you translate that given that the style of orders you’re picking up in similar now are very different?

Could you translate that a little bit into how you’re looking at the profitability of that business and the cash flow in that business over the next year or two? And the follow-up to that question is also on orders.

Obviously, you had a quarter-on-quarter great in elevators but you often talk about year-on-year, and year-on-year was down. Is that something that we should be concerned about and can you please give us a little bit more granularity in terms of what’s happening to the Elevator order book and the Elevator business in general?

Thank you.

Yes. Firstly, we come to the guidance.

Mike, we have learned our lessons. If you look at the last two years, two years ago, we missed the EBIT because we were too optimistic for the full year, and last year we missed the cash because we were too optimistic for the full year.

And therefore, we just -- let’s say, say to ourselves, we will guide what we see. And this is only in last six months.

Clearly, let’s say, we are -- if the scenario would describe, will really come in, then, definitely, it will rather go to the upper end or beyond. But, let’s -- rather, let’s say, little along the year, then not have all the best assumption already in our guidance, at the beginning of the year.

Let me come to the order book, maybe pick the restructuring charges. The order book in IS, first of all, what is really good is that the order intake really covers all segments of our business.

So, System Engineering came again in beyond 1 billion. Let’s say, we could really keep cement on a higher level also, we had a very large order already last year with -- by Yamama in Saudi Arabia, €600 million.

We were significantly up in the mining business and also we were lucky that we could really book the fertilizer plant [ph] on the chemical side and also Marine Systems. So, all segments of the Industrial Solutions really could participate, which is a good chance that we can avoid the significant negative impact of underutilization in the year coming.

Now, we had two clearly large orders in the chemical in the fertilizer plant and the Marine Systems. But the good story is that in the other segment, it goes exactly in that direction what we are targeting, one third services, one third more let’s say smaller projects, most likely a replacement or extensions.

And besides the two very, very large orders, the mix of the other piece goes in that direction. And this means that also the profitability and the risk profile, let’s say included in that business is exactly what we would like to see going forward.

Now, let me come to the restructuring. Look, I think, the 600 million almost, that we’ve seen this year, we’ve clearly reached the peak.

But, as we’ve always and already stated, when we came out with our capital increase, we will use some of the funds to speed up, and that’s why we came to that peak. We could have done a little lower number but now we use some of the payments that came in to do it, but not more.

So, it’s going to go down over time. And I would clearly highlight on this one, and I’ve put some emphasis on that as well that this is included in the cash guidance as well.

We will have some $200 million to $300 million restructuring payouts next year as well. But that’s why I think we’re completely in line with what we stated when we did the capital increase.

Some of it we will use for additional restructuring. This is what you see in the special effect this year and the cash going next year, but it’s clearly the peak that is going to go down.

Yes. You also mentioned or asked for some more insight in our Elevator business.

Let me just a little flip-through through the regions. In China, let’s say, the number of units, we were on prior level; we do expect a similar trend going forward.

In local currency, we are slightly down, because we see some price pressure, let’s say, the mid three single digit number as also others probably will report. Europe, I think is quite stable.

We see, let’s say that we have reached the bottom in France which is quite important thing going forward. So, overall, let me say, Europe is stable.

North America is still on let’s say the more positive side. It’s still growing on a reasonable level, so, really, positively impacting our business, as we have already reported in the quarters going forward.

Maybe one step back, Asia, clearly remains outstanding positive for Korea. In South Korea, again, our team made a great job and we could again grow double-digit figures.

So, it’s quite a stable environment, let’s say broadly throughout the region. And I think one of our let’s say strong assets in that business is our well-balanced research footprint throughout the globe.

So, maybe this gives you some insight.

Okay. So, no reason to believe that the Elevator targets are off track?

Follow-up one. Follow-up two, will Industrial Solutions be free cash flow positive next year?

And follow-up three, given your caveat on the €1.8 billion guidance on the low end, if steel markets stay the same or improve, then, you confirm that the €2 billion actually could be conservative at the top end?

I would say, the material markets remain stable. I think we rather target the top end and we will let’s say give some more insight as we are even more optimistic throughout the year but not today.

And the guidance for IS is better but not positive.

And Elevator, no reason with order book stand and the backdrop you gave to believe that there’s any risk to achieving the 15% EBIT margin guidance?

No, please keep in mind that with the 3% growth in order intake, they have really achieved a peak of order intake and consequently in the order backlog.

And new orders are not good but helpful on margin, so we have a higher margin in the service business, so therefore -- it doesn’t [ph] work that direction.

Yes. Thank you.

I have three questions. The first one would be on Components Technology, especially with the ramp up of the new products and then the impact that you have on your profit margin I think for -- this year, you’re still guiding for some dilution because of the ramp-up expenses for let’s say 2019-2020, when you see more of ramp up already year-on-year which exceeded more normalized margin in Components Technology or do the new products come at a lower margin quality because of the learning curve effect?

And the second question would be a quick follow-up on the restructuring, timing of Industrial Solutions. Given that you’ve accelerated many of the measures, can you give us some hints on the timing of the actual payback?

I am assuming that the actual -- the costs and people will be off the payroll already this year, so that for 2019, would it be fair to say that for the plant engineering part, the old margin range of 6% to 7% should be really in reach? And I’ve also seen that for Industrial Solutions you’ve increased, almost doubled your CapEx compared to 2016.

I was curious to know which areas that’s about. Whether it’s about services or about electrical mobility?

And the third question was just on the free cash flow guidance, because have Steel Europe clearly still a big swing factor in your free cash flow guidance probably, and there’s a chance that you discontinue this segment during the year. So, if and when you present the guidance on a continuing operations basis, would you expect to be able to give the same guidance for the remaining capital goods part of positive free cash flow or should we expect the completely, i.e., negative free cash flow guidance then?

Yes. Let me start with Components Technology first, just to make that clear, when you made or used the sentence that the margin development in Components Technology will be diluted, it does not mean at all that Components Technology will not improve in the running business here, both in absolute term and also in margin.

But the step-up let’s say is limited, largely extended by the impact of the ramp-up but they will definitely be better than last year, both in absolute value and in margin value.

On the restructuring, surely accelerated restructuring helps on the margin and the timing. So, payback terms are like expected usually in restructuring measurements up to two years.

Keep in mind that we have especially at Marine Systems, some contracts that we still have to complete where the margin is below average, like the Turkey contract. And therefore, we will see margin improvements, but to recover to 6% to 7% will take some time.

It’s not just the restructuring alone, but makes it. So, we have to get out -- some of the old contracts.

For the free cash, now, clearly, the guidance is for the full year. And let’s see when we will come to assigning and where it develops, and includes completely Steel Europe for the full year and then we will see target moving forward is definitely to -- that this positive free cash that we guide for the year cannot be the end for what we see for the group, be it including steel or not including steel.

Can I just ask a very quick follow-up? No question on your tax rate, because obviously you had a big valuation allowance this year and that’s been a key audit measure, and everything, so is it fair to assumes that this all taken care of now, as far as this year, you’re back to a normal general corporate tax rates or not?

The tax rate in general should develop to a more normal tax rate going forward. But nevertheless, keep in mind that in the U.S.

you might see changes. The tax rates themselves would -- which will by the end of the day again, then result in changes in the valuation of your DTAs that you have.

But overall, we think now we would see as they be off the books, over time, we will see a more normalized tax rate.

I have a couple of questions left and the first one is on Industrial Solutions. Firstly, I read that there was a €50 million re-measurement gain from the full consolidation at Atlas Elektronik, which wasn’t mentioned under the one-ff items.

Do I understand correctly that this was actually included in the adjusted EBIT for the business? And secondly, could you please share with us the contribution of TK Marine Systems to Industrial Solutions?

And maybe give us some color on how that will develop in 2018, i.e., will it be actually loss-making? And then, also, what would be the cost impact, if Israel and Turkey were to cancel their orders because I assume they probably have capitalized some costs related to those projects?

Then my next question is following up on the ramp-up cost in components. Could you maybe just quantify what you incurred in the past year and what you expect to incur in the following year and 2018 for the ramp-up of these seven plants you mentioned?

And then, lastly, more general question on the impact of IFRS 15 on your businesses. I suppose it will be quite smooth in businesses like elevators foot, but is there going to be any major effect on profit realization or revenue realization in Industrial Solutions, for example?

Let me start on Industrial Solutions. As you rightly mentioned, the effect of the €50 million of the first consolidation of Atlas Elektronik was a revaluation of the state that we already had.

And this was not corrected as special effect because the counter effect will be that we will have more depreciation and amortization going forward and which will be in the normal EBIT. So, therefore, in the total period, that’s going to be zero.

And already, this year, we had an effect of a higher single digit of depreciation on these assets that we had to step up. So, therefore, the net effect is less than 50, it’s rather 40.

On Marine Systems, the contribution going forward will be slightly positive. So, they are not negative, and look for Israel going forward on new submarines and new contracts.

There is not a lot of workloads already carried out. So, there is nothing to embed on that one.

And let me finally come to your IFRS 15 effect on Industrial Solutions group, obviously we don’t expect big effects coming out of that. We will have one effect at the system engineering -- the automotive systems because there, we will have a net reporting, instead of a gross reporting, which we already outlined in our annual report which will have for CT an effect of a margin of 0.8% or something like that.

But, this is already laid out because there we will change from gross to net reporting, which reflects much better, really, the value creation carried out by us because we don’t have any risk on the inventories that we take in and give out again.

And let’s say, the ramp-up cost, you can say a number, which is between a low and mid two digits million value on a yearly basis.

And that will be for this year and then next year, and can we expect that to already start to phase out in 2019?

No, not in full, because as I said, we have -- we did also win orders this year. And as I said, the way to following that we build the plant only when we receive the orders.

So, it will be lower but it will not be taken out in full.

Just related about working capital. You highlighted less sensitivity and smaller swing in Q1.

Is this a sign of improved working capital and potentially inventory management or is this a function of having less -- nominal working capital with CSA now sold and just smaller numbers to play with? And then, separately, on the full year free cash flow guidance, can you share what your assumption is in terms of an investment or release of working capital?

Yes. Let me start with that one.

The smaller swing will come basically out of -- majority will be out of the pricing changes in the materials business as last year with a sharp increase in raw material prices. There are always some measures where we try to improve our working capital, but the large effect will come out of that and we don’t see the huge price increases going forward.

So, at year-end 2017-2018, we expect, say, seasonalized development of our free cash compared to the previous years, so some release coming out of the working capital as well. But it’s going to be a big question of where the raw material prices will be by the end of the day, because especially if you take a look at Materials Services where the stockholding that you really have on hand is always affected by the pricing movements.

So, if prices go down, you destock more; and you restock in an increasing environment. So, this will affect the business itself as well, but we will do it along with the price movements that we will see in the second half and in the last quarter, so that it could go in any direction, too early to say what we will do.

Good afternoon, gentlemen. First question on free cash flow.

I understand from the last Capital Markets Day that the Elevator division I believe is able to consolidate its working cap almost on a weekly basis. Is that the same at all the divisions?

And which are the measures you’re looking at taking now, you’ve got a more visibility on this business seasonally and the portfolio to meet your goal under the strategic way forward to generate the strong free cash flow on the recurring basis? My follow-up question is on Industrial Solutions and Components actually to get some guidance on what sales growth, based on the current order intake, we should factor in for the coming year?

And lastly, if you could just help us sequence, the €400 million savings you’re talking about achieving by 2019-2020, how much of that should we expect already next year and the year after, please? Thank you.

The measurements we’re doing on net working capital are bit different business area by business area what we do on Elevator. As you rightly see and this was a big contribution in the last years.

But especially with introducing new IT and new ERP systems, we were much better capable of adjusting our overdues. And therefore, especially in China, we could collect lot of more money that was out there and that was supportive to the free cash in those years.

We introduced these systems, but are processed [ph] now in Steel Europe and in Industrial Solutions from early this year on. We will see what the outcome is.

It’s little bit difficult to predict the unknown because at Elevator, they were not aware of their overdues to such a degree when they started it. But, we think that now with the bigger transparency, we can further increase cash generation out of that.

But now that these systems are just introduced for one month, we’re still in a hyper care phase. So, we will see what the new transparency will help us to improve.

But, I think overall on net working capital and the measurement and the initiatives we will have, this should give us a much better transparency and we will see some of these things coming up. 400 million benchmarking or assumptions you mentioned by 2019-2020, we expect something like 25% to be included in our guidance.

They are part of the 750, that’s very clear, it’s included. This is nothing on top, that 25% out of that we want to realize in first year.

And I think if you look on the sales of Industrial Solutions, it should be a mid to higher single digit growth on sales side.

Three questions from my side, the first one on the free cash flow guidance, again. You say positive but what does mean?

Is that just technically positive term or can we expect actually something more substantially, means somewhere north of 100 million to 150 million? The second question I have is on the Materials Services business.

That is the only business which you guided down. Is that because of the stainless steel operations?

Because what I noted is that the dive in the operating performance here was less than of peers. Did you already incorporated this huge losses which others already have seen in the -- due to the falling ferrochrome prices et cetera, et cetera, or is that something which you actually will recognize only in the first quarter 2017-2018?

And the last question is about the JV in Tata. We’re seeing just today some news flow from the unions that they would actually agree on a Tata Steel joint venture with 10 years job guarantees.

Is that not something which could jeopardize the synergies you actually laid out until 2020? Maybe you can actually elaborate a little bit on this.

Thank you very much.

Maybe I start with the last one, with Tata. I think for us that we could make the announcement on 20th of September has really changed the situation because from that point onwards we could really engage in sharing information with the unions.

So, we do meet quite rightly normally every second week and we really update them about, let’s say our motivation as a strategic, let’s say, facts why we come to such a conclusion. And let’s say, based on that dialogue, I think we came already closer.

And you might have recognized that 10 days ago, they have outlined, let’s say some of their requests, actually 10 of them. Now, this doesn’t mean that we will jumble them.

But it really shows that the unions are outlining let’s say some requests. They only do it because they also are let’s say coming closer to be ready to negotiate and so are we.

What is clear, we will find, we tried to find common ground but we will do it in a manner that we do not scarify at all both the strategic rational and secondly our capability to lever on the $400 million to $600 million synergies.

Yes. Let me come to the other two questions.

Free cash flow positive, positive means positive above zero, but whether it’s above zero or above 100? I mean, we have outlined what visibility questions, we do have.

So, to be honest, Carsten, I think whether it’s by the end of the day, something more in that or the other direction, we will see what while we’re going. And that’s by far too early to predict because just the volatility you see in steel, Materials Service and price changes over the last quarter to have a bigger effect than the difference between just positive and 100 million.

So, let’s wait how the year goes, and we clearly want to get it positive. On Materials Service, why did we take our guidance down?

Now, if you see last year’s figures, you clearly see that we had windfall profits like the whole industry had. And going forward, you can have assumptions whatever you want but there’s not such an amount included.

I think that’s the right way of doing it, and that’s why they’re going down. We continue to be operationally up and improve their operations.

But, the windfall profits were quite helpful for the current numbers. On the ferrochrome you mentioned, yes, we’ve seen Q1 an impact that will affect AST as well.

But how that will turn out for the full year, I think it’s by far too early to say. And that was not the reason for guiding it down.

No. Okay, fair point.

Thank you very much.

My question is on the corporate costs which were around a €0.5 billion drag on your EBITDA for FY17. Where do you see this number normalizing at, following the restructuring that you have been referring to at the start of the call, the G&A restructuring?

And the second part of this question is, if you’re willing to share in this forum, what percentage of normalized corporate costs are attributable to the steel business? Thank you.

Out of the €500 million you’ve seen corporate costs, we’ve given some updates on what does it do to the governance cost that we have for the group, something like €300 million out of that, the rest is a lot of initiatives that we do have. And as we already outlined, these IT and digitization initiatives, which were pre-finance from there, will go down over time and be reduced.

And I can clearly tell you, out of the €400 million that we’ve given as a target for the benchmarking assumptions, a big chunk, around 100 million is allocated to all the G&A functions at corporate overall, as well. This is gross, I mean, you always have to see, you have some cost inflation and all of that but that’s why we deeply believe the numbers, and we clearly guide that this number is going to go down.

In terms of the percentage allocation to steel?

Sorry. Allocation to steel, we have to see how many people are there, but one thing is very clear, steel will be in joint venture; governance costs cannot increase by that.

And as always, if you go department by department, it’s not so easy to find -- the people that are clearly allocated to steel will move with it and the rest we will see how big the overall scale for the rest spend has to be. We’ll clearly have a look what it impact it has and it’s going to be a negative one in the total amount of cost that we will have.

So, we’ll get it down.

I just want to follow-up on the joint venture talks. I guess, you confirmed very clearly that you are confident that this agreement with unions can be signed in the early 2018 that big discussions have started on a constructive basis.

I think it’s probably the easier part of the demands from the unions in terms of dropping site guarantees is probably easier to book. How should we think about -- the other point is labor co-determination rights, which might be under pressure if the headquarter moves to Holland.

How should we think about the kind of flexibility to get around that kind of aspect? And the other question is on this joint venture, there was some press report the other day, suggesting that in this memorandum of understanding, there is kind of an allowance for Tata India to supply 2.5 million ton steel into the joint venture.

Can you elaborate whether that comments were correct or is that mistaken by the press? And finally, this morning on Materials Services, not sure, it sounded a bit soft in terms of the timing when this business could be disposed.

I think the comment was that potential -- mix I suppose is not necessarily linked with the joint venture decision. Should we think about that Materials Services is still something for discussion, once the joint venture is coming closer to a closing or if anything changes in terms of the tone?

No, we always said that there’s no immediate, let’s say, necessity to decide on Materials Services because the leadership team of Materials Services was successful to really build it as a totally independent business, not any related to the state of steel because it’s only 10% and this was a release this morning. So, we can make a decision on it totally independent, and this is what I stated very clearly.

Now, let me come to the JV. Look, the worst I can do is we try to find common ground is that I elaborate on some of the points for negotiations now quite publicly.

Clearly, we see a basis for negotiations but clearly, for some points we are more flexible; others, we are not. But, this is not, let’s say, the right forum to have such a dialogue.

It actually would have a negative impact on a possible negotiation, if I do this now.

On the 2.5 million, let me explain you, because that indeed is largely misunderstood. Tata Steel India is currently already selling some volumes into the European markets, in coordination with the current Tata Steel Europe operation.

And what we have agreed upon there, and this is a bit misunderstood is that later on for the future there is this friction of volume that Tata Steel could place into European market against the JV. So, it’s a protection.

Therefore, there is no minimum or nothing Tata Steel wants to sell that there is a guarantee that they cannot exceed. I mean, there is always competition everywhere in the world.

And by the way, the cheapest is not the Indian steel coming into Europe. So, there is no real threat.

What we did is to protect the JV from say, a competition from one of the mother companies, we have to protected right that they are excluded to sell more than this and the rest needs always a volume that is offered to the JV first. So, it’s protection wise.

So, we talk more about finished product imports to Europe rather than slab supply to Holland…

No, there is nothing about slab supplies about Tata Steel India being able to selling into Europe finished products. And they don’t have a sales organization.

They currently do it in line with the Tata Steel Europe operations. And therefore, this is what we talked about and we always say, look, let’s protect the JV because that is doable from an antitrust perspective and it’s a protective life for the JV.

It’s a big turnaround sometimes but -- be another threat but it’s exactly the opposite.

The opposite, because today there is no limitation in order; in future, there is a limitation.

Yes.

I just wanted to go back to the Elevators business. You’ve obviously had a very good performance there and have managed to continue increasing the margins when around the trend industry has been a lot more challenging.

You have talked about it in answers previously. I just wanted to ask specifically, if we look at that breakdown or the increase that you are looking at 50 to 70 basis points year-on-year.

Can you break out how you see that in terms of the component part? So, the sort of pricing headwind overall or the margin headwind overall on existing technology, and then the additional benefit that you get from the new technology, and then the component is driven by the restructuring efforts that you are making, please?

As I said, the fact that we’re taking out gives us also the potential to do it by let’s say our own capabilities. As we said, the reason why we are letting so far behind was foremost the far complexity of our portfolio.

We have grown very much by acquisitions. And as a result of that, for example our number of different elevator types, controller types, escalator types is much, much bigger than other companies have.

And bringing that down remains a lever independent of the market environment and the team is very consistently working on that. This morning in our press conference, I have shown a slide that for example, on the Elevator, number of types they have already reduced that by 40%, which is beneficial throughout, let’s say the value chain to reduce its complexity in sales, in logistics, clearly manufacturing, but also the [indiscernible] will be much more efficient if they receive a lower let’s say variety of elevators.

So, there is a lot of potential in really continuing going on that thing. The contribution out of our new innovations is rather limited.

For example, you can imagine that MULTI right now is rather cost than positive contribution. So, it’s really the bread and butter business which you reshape.

And the restructuring which we have announced in our largest factory in Neuhausen is part of that solution.

And if I can follow up also on working capital. If we completely ignore the material side of the business and steel, can you just give us an idea of what you think that you can do in terms of working capital for the capital goods businesses only over the course of the next year, please?

You have to see how this is -- and you have to see that in line with the growth that we are expecting. For example, if I take a look at components, we’re optimizing net working capital and the cash conversion cycle.

But together, we will ramp-up the new factories. We in the first step will have a negative effect.

If you widen your revenues, you need some raw materials and some finished goods that you have on hand then. So, we will there have therefore a counterbalancing effect to the improvements we see.

In the Elevator, we’ve done a lot of the cash conversion cycle, if you really look into it, has come down and came significantly. So, they are already on the very good track.

So, I don’t see large steps to be done there. So, there is always some kind of optimization.

But, if that’s an optical for the growth, that’s already good. And Industrial Solutions is rather a question of the down-payments that will be coming and the percentage of completion valuation is doing for you -- the ongoing progress and this will largely affect it.

Good afternoon. Two questions from my side.

First, at Steel Europe. EBITDA per ton was at the €103 during the quarter, which is a very good level.

And based on the visibility, your goals over the next three to six months, do you think you can maintain that level, say above €100 per ton in the first half fiscal 2018? And secondly, in terms of the JV, assuming that you signed a final agreement with Tata in early 2018, is it fair to assume that the European Commission may look to initiate the phase three investigation, especially if the ArcelorMittal-Ilva deal is approved by then and the European market is more consolidated than it is today, and will that put your timeline in terms of concluding the deal at risk?

Thank you.

Let me start with the JV. As you said correctly, we are targeting a signature in early in early 2018.

We believe that there will be a second round in the approval process. That’s the reason why we have guided that you might expect it closing by the end of the calendar year 2018.

So, this considers already, let’s say that there will be a let’s say a deep approval process. And as you said correctly, we clearly see this already, the present process in ArcelorMittal-Ilva, and we believe will be treated the same way.

Yes. And it’s going to be the same team but the second phase will be concluded before our thing starts, but it’s going to be the same team, but they will be up to speed with the market by then.

Steel Europe, EBITDA per ton, we think it’s going to continue more or less now currently on the level that we do see. Nevertheless, always take into the account the first quarter and the seasonality, because it’s for us the Christmas quarter, so volumes will be lower.

So overall, that will have an effect on the fixed cost and everything else, shipments will be lower.

And just a follow-up on that. I guess, the summer quarter is also seasonally weak in Europe.

So, do you see a calendar…

The Christmas quarter is always weaker than the other quarters throughout the year, if you take a look at our shipments.

Okay. And maybe just a follow-up again, Steel Europe, if I look at the fiscal year 2017, working capital investment for that business was in the range of mid-three-digit million, and any visibility on the release, potential release in fiscal 2018?

Because you are effectively assuming a weaker second half for Steel Europe and I guess that would assume some working capital risk from today’s point of view.

Again, we don’t -- currently, we have stated, we have low visibility, and we do expect it to continue the way it is, so that whether that’s released or not, remains to be seen. But, what you have to keep in mind, the largest effect coming out of the increase for the last year was price, not volume.

So, volumes remain the same. We don’t have a price effect then, if everything stays what it is.

So, therefore, this negative effect is not going to continue because of largely priced.

Good. I think if this answers to your question, Fraser, then, I think we can now finish the call for today.

Thank you very much participating. And as always, for follow-up questions, Investor Relations department is available for you.

And tomorrow, Guido will be on the road in London. So, the Londoners can meet him.

And we look forward to continuing the contact and hope to see many of you at our Capital Markets Day in December. Thank you very much and have a great afternoon.

Bye, bye.