thyssenkrupp AG

Yeah, thank you very much, operator. Yeah, my name is Claus Ehrenbeck and on behalf of the entire team here, the entire IR team, I would like to welcome you to our conference call today on our Q2 numbers.

We have released all documents already this morning at 7:00 AM. And you can find all the documents for this conference call at the IR section of our website.

And with that, I already can conclude my housekeeping remarks here and can hand over to our CFO, Klaus Keysberg, who will lead you through the presentation and will be available for the Q&A session afterwards. Klaus, please.

Thank you very much, Klaus. A warm welcome from my side to today’s conference call on the figures, Q2 figures.

Today, it is my premier for me addressing you in this conference call. Therefore, before we start I would like to introduce myself shortly.

I joined the company back in 1996 and after various management positions in the automotive area for instance amongst others at Bilstein. I became member of the Executive Board of the Materials Services in 2011, first as COO, afterwards then CFO and later on CEO.

In October last year, I was appointed to the Executive Board of thyssenkrupp. And as you know, I took over the CFO function in April this year.

Before we have a look on the financials, let me start with a short update on newtk and what have we accomplished in the past month so far. For example, for Springs and Stabilizers, which is, of course, part of Automotive Technology and one of the business under review, an extensive restructuring plan for the German site was approved, including the discontinuation of the Olpe site by the end of 2021.

The Hagen site will be realigned and converted into a Center of Excellence for the development and manufacture of springs and stabilizers. And around 490 jobs will be impacted by this restructuring of both sites.

Some 330 out of this will be effective to Olpe. In the coming weeks, agreements are to be reached with the employee representatives on the reconciliation of interest and social plan for the 2 sites, which is clear.

At Europe, we already started the implementation for the new strategy 2030. As already announced a few weeks ago, an important element is the significant reduction in costs, including cuts of 3,000 people – 3,000 jobs, more or less 2,000 short-term and the other 1,000 medium-term to 25, 26.

Moreover, an action-plan has been developed, addressing the optimization of the production network, expansion of technological capabilities, and shifting our product mix even more to the higher margin value-added rates. Furthermore, for our Heavy Plate operations, another business under review, we will make a sell or close decision until the end of fiscal year 2021.

Irrespective of the currently difficult environment, we are convinced that the Steel Strategy 20-30 is the right response to the norms challenges you see at the steel sector, and the right way of course forward to strengthen our position as a technology leader and the fundamental value of the steel business. At headquarter, at corporate headquarter, restructuring is also progressing as planned.

Not only did we reduce the number of corporate functions from 15 to 10, but headcount reduction is also underway. As of April 1, 177 FTEs decided to leave the company or join the transfer company to be more precise.

Confirming with this is our target headcount reduction from 800, to roughly 400 or a bit more than 400. Year to date, throughout the entire organization, we already realized or decided on personal restructuring of up to 2,400 FTEs.

1,400 we have realized so far and additionally, we have been decided – we have decided on out of the frame of over 6,000 people you may know. And next to performance, we focus now on the portfolio pillar.

The elevator transaction is fully on schedule. We already obtained approvals from 8 out of 30 merger control authorities, amongst other essential ones, especially from the U.S., Canada and China.

And we are in contact with buyer consortium on a nearly daily basis and we are both very confident as we have been since assigning that the deal gets closed in the course of the fiscal year. So we do not see signs of having lost confidence or we do not even see signs of losing time track or something like this.

At Plant Technology, we continue to the evaluation of opportunities to realize based-owner concepts, either through alliances or the pursuit of M&A. For the individual business or the entity as a whole, we see vital interest from strategic buyers.

So far, we received indicative offers, that of course, are currently being screened, and of course, going forward, the corona implications have to be considered. In about a week on May 19, plus the Supervisory Board meeting on Monday, we will present the main cornerstones of our portfolio assessment over to you.

And with this, I would like now to come to the financials. Overall, order intake was down year-on-year.

In an already weak auto environment, all businesses were lower than year-on-year. And with our materials as well as car and truck component businesses experienced the strongest decline, worsened on the back of the first effects from corona due to a drop in demand in China and Europe as OEM customers shut down their production.

The development for sales mirrored the order intake situation except for Plant Technologies, where they are showing a strong increase driven by the execution of projects for chemical plants. The economic slowdown, particularly on our materials and components business was the main driver for the EBIT adjusted development in the second quarter.

On top of that, we experienced first pandemic induced effects at Automotive Technologies, Steel Europe and also, for Forged Technologies for [FX] [ph], and discontinued elevator activities. Without these effects, we would have been slightly positive.

Free cash flow before M&A came in lower year on year and remaining negative despite the sizable release of net working capital by inventory reductions at our materials businesses and also in part also in the steel business. And significant milestone payment at Marine Systems, but this was [with this] [ph] positive FX could not overcompensate the negative effects, which came out of the overall development.

Due to the global spread of the corona pandemic and the associated effects on the economy, we withdrew our original forecast for the fiscal year with ad-hoc announcement on March 23. I assume I’m not telling you anything new when I’m saying that providing an outlook for the next 6 months has never been more difficult than now, as the economic effect, particularly in our auto-related materials and components businesses are not yet fully foreseeable and quantifiable.

And from today’s perspective, we expect a significant decline in our key performance indicators, with the third quarter likely managing the trough. On the positive side, once the closing is accomplished, our balance sheet will see a strong push from the elevator transaction, specifically a significant uplift on our book value of equity of more than €14 billion.

Moreover, we will have a significant and sizable net cash position, which now is more than ever important. Also on May 8, so last Friday, we concluded a credit line of €1 billion from the KfW, Kreditanstalt fur Wiederaufbau, a state-owned bank, a special program with the consortium of KfW and other banks.

This credit line will additionally secure liquidity during the coronavirus pandemic until the cash inflow from the sale of the Elevator Technology business area expected this fiscal year. Together with our free liquidity at the end of second quarter in the amount of €4.5 billion, we really have to say – let me say this very clear, we are – we feel that with this, we are in a quite strong position in terms of liquidity.

And at this time, of the pandemic of corona, cash is king. Liquidity is the most important and best thing to have with elevator deal and with the bridge loan from the Kreditanstalt fur Wiederaufbau, we are really feeling quite comfortable and we think – really think that we are in a very strong position regarding liquidity.

Looking ahead our operational performance in more detail, EBIT adjusted at Automotive Technology came in lower year-on-year and negative, and then already weak auto environment plant shutdowns in China starting in February and continuing in Europe as of March resulted in a significant demand and production decline, putting further pressure on earnings. However, both dampers and camshafts held up quite well, but couldn’t compensate the ongoing and year-on-year more negative performance of Springs and Stabilizers as well as System Engineering to under utilization.

Industrial Components delivered a positive earnings contribution, however, higher earnings from bearings for wind turbines good development we see there. This will over compensated by a weaker forging business due to cyclical lower demand on components for heavy duty engines and construction machinery and first effect from corona.

On the back of stringent G&A and cost reduction, Plant Technology continued to improve year-on-year yet remain negative, confirming that our turnaround program is bearing fruit. Moreover, the earnings contribution from chemical plants is up year-on-year reflecting increasing execution of sales from major orders.

EBIT adjusted at Marine System was positive and up year-on-year, as measures for performance improved – improvement showed results. Nevertheless, earnings continued to be held back by low margins on project build.

But let me make one remark this business is not very much impacted by corona. And so corona-wise, it’s a quite stable business.

Challenging trading conditions continue to drag on Material Services EBIT adjusted reflecting year-on-year lower shipments to 10% in comparison to previous year, and prices in the main products. In addition, the prior year quarter benefited from substantial positive onetime effect.

AST was lower and slightly negative year-on-year due to the downward price trend in stainless steel, but also due to the temporary plant closure in March until early April. At Steel Europe mainly lower shipments of higher margin products to the automotive industry, negative price effects and high raw material costs particularly in iron ore, as well as costs for lower capitalization utilization drag on EBIT adjusted in the second quarter.

Despite the continuing implementation of measures to reduce administrative cost, Corporate Headquarter costs were slightly higher year-on-year, but this – the influence out of this has something to do with valuation issues, reflecting also higher project expenses for the project newtk and other provisions. For elevators, I don’t want to spend too much time discussing about elevator developments that they came in slightly lower year-on-year due to an adverse sales development in Asia, especially in China affected by the corona pandemic.

In the current environment protecting the health of our employees, while mitigating the economy impact of the pandemic through stringent cost control and preserving our liquidity is our top priority. Overall, countermeasures planned sum up to savings cash and EBIT wise to roughly €1 billion in the current fiscal year.

At the moment, roughly 32,000 people or 32,000 FTEs are in short-time work all over the world, predominantly in plants and administrations affected by plant closures and production cutbacks at our customers. In addition, we make use of more flexible working hours such as reducing overtime, holidays and temporary work while expanding the possibilities of the tailored working to keep the risk of contagion between employees and low – as low as possible.

Lastly, where possible, we reduced or postponed maintenance and repair investment project and release net working capital, which is possible, especially at our materials business. However, against the background of the still consolidating estimates of the economic research institutes further expected economic downturn, a reliable forecast for the development of our key core control parameters is currently only possible under great uncertainty.

Consequently, we only make trend statements for the fiscal year. And as a result of a drop in demand in our business, with materials and components for cars and commercial vehicles caused by pandemic related temporary plant closures and production CapEx by our customers in the automotive industry, we see sales of continuing operations are expected down sharply, particularly in the second half of the year or to be more – even more precise in the third quarter.

Declining sales and the resulting under utilization of capacity pull EBIT adjusted of continuing operations down into strongly negative territory for the fiscal year. With the third quarter likely marking the draft for the third quarter, a loss in the high 3-digit-million euro range is likely, but it cannot be ruled out that the figure might go up to a good €1 billion depending, of course, on the pace of resumption of production by our customers, which is just beginning, but also depending on the stability of demand and supply chains.

For the remainder of the – for the year, fiscal free cash flow before M&A of the continuing operations will be determined by, of course, the operating performance but also pretty much cash in from milestone payments in order intake at our project business payments for restructuring. And lastly, our net working capital needs, respectively, the magnitude of releases in the fourth quarter of the year, which we normally also do.

Wrapping up and looking forward before we jump to the Q&A. Looking at the pillars from newtk.

Firstly, performance. Of course, the pandemic will likely overshadow the rest of the year, but we will fight back with stringent cost and cash measures up to €1 billion, as I said before, to mitigate the economic impact.

This is, of course, short-term. The measures – additional measures are flanked by our restructuring initiatives, especially as Steel Europe, where Strategy 20-30 will push fundamental value.

Meanwhile, we will drive restructuring while enhancing performance across the entire organization. And this, of course, will be the absolute focus area for the future.

For the second pillar, our flexible portfolio results of the portfolio assessment will be communicated on May 19. Alongside, we will continue the best owner process for plant technology, more details on the use of proceeds from the elevator transaction will be provided once uncertainties have lessened and the economic parameters for businesses planning have stabilized again.

Last but not least, closing the elevator transaction is expected in the course of fiscal year 2019-2020. And with the inflow of the purchase price, we will significantly strengthen our balance sheet, providing us a sizable safety cushion.

And having said that, I’m happy to answer your question. Thank you for listening.

Yeah, thank you very much, Klaus. And, operator, please take over for the Q&A session.

Yeah, thanks very much. And congratulations on your new role and CFO job.

My first question would be on your free cash flow. You’ve given us some guidance for the third quarter.

And, obviously, it’s too early to talk about Q4 in detail. But can you just shed some light on what net working capital tactics you expect for the fourth quarter?

Should we expect another quarter with clearly positive cash flow in Q4, like in previous years? Or will that change, because you’ve got the Elevator proceeds and don’t necessarily have to release much of that working capital?

And beyond this, let’s say, tactical net working capital point on Q4, I would also be interested in a slightly structural comment on net working capital, because I think we’ve heard from many companies that they are taking more steps to push suppliers to – of a better payment terms. Is that something that you as the new CFO will also be pushing forward to your suppliers or is this rather other way around that some of your, let’s say, clients specifically in challenged sectors are pushing you to even improve your payment terms to them?

Yeah, thank you. Lot of questions, let me start with the last question.

So, up till now, we have not seen this trend or dynamic which you mentioned that our suppliers are pushing us. This is not the case in the moment.

If we look at the development of the net working capital in the fourth quarter, so having said that, we mitigated the risk of liquidity during the fiscal year. We still have our focus on liquidity and also on cash, which is very clear.

And we will also do these things. We did also in the previous years in optimizing our net working capital, especially in the fourth quarter.

And we will also do this in spite of having cash in of Elevator deal, something like this. This will be the same, but I cannot give you, at the moment, an indication, first of all, how much it will be; and second also, will it be, let’s say, how much will be the effect from the EBIT influence about this.

Yeah, this is regarding the development of the fourth quarter. I think these were more or less all the questions.

Thank you.

Yeah. Well, just maybe to follow up on the question whether you can structurally use, if everyone knows that you have a negative cash flow at the moment, do you see opportunities to push your suppliers to offer better payment terms to you?

Yes, we do. We do, yeah.

Okay.

We do it case by case by businesses, not as an overall thing. But to we – let’s say, stimulated our people to do something like this.

Okay. And then, just a quick one on the Plant Technology divestment process.

I think you mentioned that you’ve got indicative offers that you’ve received. Just wondering whether you would feel that those offer – support the current book value over the – you would think at the current stage of the process is maybe right now or maybe of the next quarterly results, a point in time, when we should see an impairment or value adjustment based on offers that you’ve received.

And also, the numbers are probably much weaker with a triple-digit loss for next quarter, which you are guiding for Plant Technology. Are you still confident that all business units can be can be sold or is it probably more prudent to wait for certain parts of the Plant Tech divestment?

Yeah. Let me start with this way.

So we received some indicative offers from very reliable parties. And the offers are also to say it, interesting.

But, of course, in times of Corona it is, let’s say, it’s not easy to really bring it quickly to an end. But we will focus on this M&A process, of course.

But we will not make fire sales or something like this, because we don’t have, let’s say, the necessity from the liquidity portion of us. So we will look at it and we will, let’s say, at the right point of time, see whether we can have a good deal or not.

So, that’s the thing which I can say at the moment. I cannot say much more, but we don’t see at the moment that there is the necessity to make book value adjustments or something like this.

Okay, understood. Thank you.

Good afternoon, gentlemen. My first 2 questions are on the steel side, the Steel Europe.

Given the circumstances and the crisis, do you agree that we should expect a faster decision on Heavy Plates? Obviously, with year-end in September, that’s a couple of months away and in this environment, as we can see, every week counts.

Related question to that is to know what level of production cuts you’ve implemented across steel operations already. There were reports in the press, but no official release.

My second line of question is on short-time work. I can see you’ve effectively applied for short-time work for 57% of your workforce if excludes Elevators.

Was there any constraint to extend it further or what was the criteria? Is there a case where if things don’t improve as you think in the later part of Q3, you could still use more or is there a maximum already?

And lastly, on Marine, have you get more visibility at the stage on whether you’ll be able to secure some prepayment from the Norwegian order before this yearend or if we now have to assume that this will not contribute to free cash flow this year? Please, thanks.

Okay. Thank you for the questions.

I will start with Heavy Plates. Of course, Heavy Plates, we have also an agreement that we will have a decision until the end of this year.

This must not necessarily mean that we cannot be quicker. But this is also something, to be also very honest, I don’t think that it will be feasible to make it really quicker at that point of time to really talk seriously about divesting Heavy Plate.

We judge both opportunities to shut down or divest? I don’t think that it will be very much quicker to have a decision till the end of this year.

This is the first one. The second one was I think level of production cuts so far.

Of course, you know that our main customers or some of our main customers, especially automotive, shut down. And also, we have lower volumes.

I think this is very clear. And so far, we reduced our capacity utilization in the downstream aggregates, up to 30%.

And this was also taken by the – which was also done with the blast furnace area. But as you also know that we already also were able to bring down one blast furnace in HKM, so that we are now more flexible with existing 4 blast furnaces we see at our steel site.

So this is the comment on the capital utilization at steel at the moment. If we talk about short-time work, I think the question was more or less, could we do more or what is the ratio behind.

So, up till now, I think worldwide we try to use this instrument as far as we could. And we use this instrument where it was also indicated, where we were dependent on the situation that also may be our customer shutdown, some work, and where we have not a good utilization.

So I think we have pretty much on the maximum. Maybe there are some 5% or something with which we are – or 2% or 3%, which we can enhance.

But we are pretty much on the level where we think that we can use this instrument here. Sometimes it’s also a legal issue here – or not a legal issue, but it’s not provided in any case in the world.

Thanks. And there was – the fourth question was on the Norway, whether we expect prepayments to come in?

Yeah, I do not personally expect a prepayment this year.

Okay. If I could just follow up on your – the short-time work question, do you have an estimate of how much cash this is a saving to the company on a same – I don’t know if you measure on the monthly or weekly basis.

This is – we think that we will have a cash release of roughly €300 million at least for the next 5 months or something like this. This is an estimation, roughly estimated.

So that’s per month or for the whole…?

No, no, no, not per month. Sorry, this is for the 4 months.

For the 4 months of cumulated.

4 to 5 months, yeah, so roughly till the end of fiscal year.

Yeah, all right. Thanks so much.

Thank you very much. 3 questions from my side.

The first one is on the, I believe, on the third quarter, you talked actually that the second calendar year quarter could be the worst one. The third calendar year quarter could be better question.

Do you already see signs of improvement in your bookings? And here, particularly in steel and automotive, which are heavily impacted by COVID-19?

Second question, Plant Technologies, in the last crisis, we have seen some kind of cancellations of orders. Do you see the same kind of pattern right now?

Or are the orders safe? And what does it mean to the prepayments?

And the last question I have, I noticed that your pensions went down, as the discount rate went up to 1.6%. The jump seems to be quite big in discount rates.

Could you just give me a – or shed some light on why the interest rate or discount rate went up by, I think, it was 70 basis points? Thank you very much.

So, yeah, let me start with the questions, yeah, regarding the third and fourth quarter. I mean, what we clearly see is in what is also, I think very obviously, that we – that, for instance, the OEM producers, they shut down production at the end of March and they kept it down in the April now and they are coming back to work.

So – and that is now the question of what is going to happen, they are coming back to work some with one shift, some with two shifts. And they will remain in this, let’s say, mode of driving the shifts, I think, from our perspective to some or something like this.

And the question is now, do they really produce for a real demand or do they produce because they produce for the stocks? What we see is, let me say this, we what we see in China is it seems to be that there is a real demand.

And we see that production is going up and it seems to be reliable. For Europe, we see – of course, we see that our customers are starting to produce again.

And as we see, they are only producing with one shift. And they are really – obviously, they are trying to – whether the supply chains are working or not.

And, of course, we see now here that we get a slightly higher demand. But to also be honest, we need, of course, more.

And this is the question when it is going to be decided when there will be more or not. And this is something we will see during the time.

And this is also something which makes us hesitant to say it’s going to be that much better in Q4 or that much better in Q4. We really think it’s going to be better, but we don’t have an estimate how much this will be better.

So just to give you a statement, if automotive production from our customer in April went down to, let’s say, went down 70% in comparison to the pre-corona situation. Maybe in Q4, is it then a reduction of 20% or still a reduction of 50%?

You don’t know that. We don’t know either.

So this is the – these are the scenarios we are looking at. So definitely, we see an upcoming production.

But the question is how much will it be? If we come to Plant Technologies, you mentioned that in previous crisis, you saw cancellations and effect on pre-payments.

This is what we are not seeing at the moment. So we do not see cancellations and we also do not see effects on the prepayments to be very clear about this.

What we see is – and this is very much different from country to country, that in some countries we are able to come to the plant and work on this. But in some countries, we are not able, because there are some regulations that because of corona you cannot enter to the plant.

But this is what we are having here in the situation in Plant Technology; some problems with the access to the plants, but no problems with cancellation of orders or prepayments. So – and the last question was regarding pensions, yes, of course, our pension liabilities went down, because of the valuation or the, let’s say, the adjusted interest rate of the valuation and interest rates in end of December was – for Germany 0.9, and the end of March it was 1.6.

And let’s say, the reason, did you ask for the reason why these interest rates went up? I cannot tell you…

Yeah.

Sorry.

Yeah, yeah. I think it was 70 basis points.

It’s just, intuitively, I would have not thought that would go up that much.

Yeah, but it is – of course, this is externally driven. But this was the case, yeah.

Okay. That is the point.

Thank you very much.

Yes, good afternoon. I have a couple of questions left.

And my first one is just a question on your equity, which I think would have gone negative or would there not have been the relief from the higher interest rates for your pensions, which you just discussed in the previous question. This is, obviously, not an issue once the elevator transaction is finalized.

And I think they will, obviously, boost your equity by €14 billion. And I think also you have a bit more cushion in your German GAAP statement.

But could you please let us know how far that is an issue for your access to your credit lines in this perspective of the Elevator deal sufficient to alleviate any concerns with your credit counterparties? That is my first question.

Yeah. Coming to the first question, if we would not have this adjustment of the pension liability, the equity would not have been negative.

I think – I don’t know whether it was your question or your remark. No, it would not have been negative, it would have been still positive, the effect on the pension – on the equity was €0.4 million.

And the second question was more or less, can you help me again? It was how much base…

Yes. Of course…

On the German GAAP. No.

Yeah, of course. The equity – the IFRS equity is, of course, not a trigger for any worse things that and it’s a local GAAP, and then, we have more cushion.

That’s right. And at the end of the fiscal year, we’ll have the proceeds of the elevator deal.

So – and the question was, how the banks are reacting in this regard? Well, let me say it this way.

The banks are looking, of course, critical to us. This is very clear.

And the elevator proceeds are helping. And we will start discussing with the bank starting next year.

And, of course, they will also look at. I think, what kind of equity story we are building.

After the strategy, we will, at least in part release next week. And for them, it’s key how we will proceed into the future.

Elevator is helping. But it is not the case.

And to be also very honest that banks are saying, well, this is now at the end of the game. They want to be, of course – let’s say, they want to have an equity story, where we can clearly show that this company is going to proceed and going to earn capital costs and things like this.

So we have to [convince the rest] [ph].

Okay. Okay.

Then just one more…

But let me – one question – sorry, one remark. You know that we have this bridge loan from Kreditanstalt fur Wiederaufbau.

And of course, we also have to engage 20% private banks here, and we were able to engage them just as a remark.

Maybe just on that point as a follow-up, has eventually all of your postings basically underwritten that credit? Or has some of your, say, longer-standing credit counterparties pulled out of that?

You mean this Kreditanstalt fur Wiederaufbau?

Yes, exactly. I think, there was a press article suggesting that some of your credit counterparties apparently have been a bit of a stumbling block in those negotiations despite the 80% backup of the KfW.

No, no. We have some – we have – of course, we have a consortium of banks which were participating at these things.

But we don’t want to release the names at this point of time. But we have – there are – this is a mixture of banks.

All in all, there are 5 banks.

Okay. Understood.

Okay. Then I have one more question on your indicative guidance for the second quarter, where you say, we may possibly go towards €1 billion in EBIT loss.

Could you please let us know how hard that is including any restructuring charges or other one-offs, which I think you typically strip out? And could you also give us an update on the restructuring charges we should expect this year and next year both on a cash flow and P&L level, i.e., has that number gone up versus the last quarter?

Yeah, regarding this estimation for the third quarter, this is not including restructuring issues here. This is an operative number.

Of course, this is, let say, a range where we, at the moment, I still have not a clear view what is coming out of this. And if you look at these restructuring issues, what you’re saying, we are the way.

And we also – we announced the restructuring programs. And there will be some of this, this year, and some of this next year.

And it will be, let’s say, a high 2-digit number in the third quarter, yeah, and something more to come. So if you want to have more details, we are still in the planning process.

I think we can deliver these details more or less after in summer, where we have this planning process. But at the moment, we are still in detailed planning.

Okay. So also for this year, basically for the current business year, you couldn’t give us an actual updated number for the restructuring – for the cash charges from the restructuring?

I think, if you look at the full year number, the amount for restructuring will be a mid-3-digit number.

Okay. Then the last one more – one more question, and the very last one actually on your CapEx budget, where I’ve seen you cut the numbers down to €1.4 billion.

And I appreciate that question, obviously, comes early and maybe you’re just also going to give us an update next week? But could you let us know is your general plan to keep it around that level?

Do you plan to potentially cut even deeper, just given the situation we’re currently in? Or maybe if you could give us maybe a bit of an early color on that front.

That’ll be great.

Yeah. Well, it’s difficult to give you more information to come not too much into detail, but let me start it this way.

In a situation like this, even if we have the elevator proceeds being in a crisis situation and having not so much visibility into the future. We will be very cautious in, let’s say, in spending money.

And if we talk about the strategy next week, we will also see this has something to do with – also with more streamlining. If we have talked about portfolio companies, we’ll be very much looking at what kind of money is going into what kind of business.

And this is the first one, which has something to do with strategy. On the other one, which has something to do with corona, we will have a bigger portion here on central level, where we will have a, let’s say, a closer look on where to spend the money and if to spend the money depending on the overall situation.

So we will be more cautious.

Okay. Thank you.

Yeah, thanks for taking the questions. Also a few follow-ups from my side.

Maybe I can go through them one by one. Can you help us to get a better understanding what you actually meant with your third quarter EBIT range?

I was a bit puzzled, to be honest, with the phrase of a good €1 billion. I could imagine anything between €1 billion, €1.2 billion, €1.3 billion, maybe a bit of clarification, what would be the worst case from current assessment would be of help.

Yeah. This is – well, I’ll leave it to your interpretation.

Let’s say, the more likely one is a 3-digit negative €1.1 billion. Yeah.

Let me leave it with this.

Yeah. Okay.

So if I take an imaginative midpoint of this guidance range, can you give us your kind of gut feeling, where you see yourself in the fourth quarter? Would you feel to be closer to the second quarter EBIT or would you feel closer to the middle point of this indicative Q3 range?

Yeah, I know, this is difficult to answer because if we would have this visibility or if I would release my gut feeling now, then we could also have released, let’s say, an estimation for the whole fiscal year. So please excuse me, when I’m not giving a number on this.

But – we, of course, think that the number of the fourth quarter will be better than of the third quarter. And as I said before, there are scenarios.

And where it depends on how much the recovery of the production of our main customers will be. So I will leave it at this.

Okay. Enough.

Fair point. Maybe if I consider – I think you earlier said in your presentation that you estimated the corona effect on this second quarter ballpark around €100 million.

If I consider that the bulk of the decline between the second quarter on the third quarter is largely corona, but they up to €1 billion. Can you give us a bit of a sense about this multiplying effect, I don’t know how your worldwide hit in Q – in the second quarter.

I think in Europe was from mid-March. In Asia, probably you have been impacted the whole March.

So if I consider that most of the calendar second quarter is hit. I still struggle to see this escalation between this €100 million and up to a €1 billion.

And maybe you can help us to get a bit of an idea how much of this corona effect of the €1 billion maybe is volume driven, price driven and maybe attributable to other factors?

Well, of course, it is difficult to say and if you look at the second quarter, there are as I said before, some different impacts of this, I think, the Automotive Technology was the one who had the impact. First, if you look at China.

Also, Forged Technologies had some impact in China. Materials Services business and also the steel business was more impacted in Europe in March.

I mean this is – if you look then at the effects we will see – which we will see, especially, in April and May. They are – from my point of view, the most of them are volume driven – clearly, volume driven.

That’s the point.

And then the last question is, when I look at your expectation for steel and the potential deterioration there, it appears that you obviously struggled to fully offset the effect from the decreased fixed cost absorption. If I compare it to the statements made by ArcelorMittal, the other day, where they said all the short-term instruments allow them to fully offset that effect.

Maybe you can help me to understand that better where – why this is still an incremental burden on the margin?

I’m not quite sure whether I understand what you said. So you said that we are not able to, let’s say, compensate the volume decrease completely by short-term measures.

No, we are not to be very clear. So we are not – this is clear we do a lot.

But – and I really, let’s say, between us, I doubt whether other steel producers can do this 100%. But let’s leave it as it is.

This is the one thing. The other thing is if you look at steel business as is, of course, we are in a cyclical business.

And if you look back at 2017, 2018 steel business earned €700 million EBIT. Is it good?

Or is it – what kind of business we are in? So in this cyclical business, you have to look what other cycles, this is clear, but you also have to look, what is your relative position against the competitors.

And as I said, on other occasions before, we think that our relative position to other competitors is not so good. Yeah.

So we have still home works to do regarding our performance. And this is the main reason, why we introduced this Strategy 20-30 and also this connected restructuring program, which we immediately start at the moment.

Okay. I think you’re making a good point on this relative position.

What I started to understand is that when I look at your performance over the last, let’s say, 5 years. I haven’t got the sense that thyssenkrupp was falling that much behind peers in terms of the relative cost position, considering that a lot of cost work couldn’t be done, because you think there was some plans, obviously, to restructure some elements under the planned joint venture with Tata.

But when you look at earnings, it feels like you had this drop off in the last couple of quarters very sharply. So maybe you can add some color why this hasn’t been kind of a steady step by step process, but more like a back end loaded drop off, at least it appears to me like that.

Yeah. It is – has something to do with the past, which I don’t want to comment so much on it.

So what I saw is that, in this story of having this plant joint venture with Tata. There was so much in plant restructuring, but always said, we do this when we have this joint venture.

So at that point of time, of course, this is also my criticism. This is clear that we should have done something before.

And I think the last I don’t know the last couple of months or years or at least 1 or 2 years, we were not good in doing this thing. So let’s say, we missed to do necessary things.

And so, therefore, we lost a bit of our competitive position. And this, we know, we have to regain with this restructuring program.

We are just working on it.

Okay. That is very clear.

Thanks for the digit answers. Thank you.

Good afternoon. Thanks for the call.

My question on the short-term effects you mentioned, which you said could save €300 million over the next 4 to 5 months. Just to confirm, does this all relate to lower labor costs?

And is it possible to get a sense for how much this relates to steel? That’s my first question.

We can, but give us a minute. Please go ahead with your next question.

Okay. Second question just on the guidance for Q3, in terms of what is being factored into that guidance, can you talk us through the assumptions around capacity utilization as we progress through Q3, so maybe a sense of how you think you feeling about the exit run rate for utilization into the next quarter?

And my third question is just follow-up on the CapEx of the €1.4 billion. Can you give a sense of how much of that is in pure sustaining?

Can you repeat the last question? I didn’t get it so much.

Sorry for this.

The question on CapEx is €1.4 billion guidance, how much of that is pure sustaining?

So let me come to the last question. How much of the €1.4 billion CapEx is sustaining CapEx?

I guess, you mean, which is CapEx to keep the maintenance CapEx on something like this. So our depreciation, it’s roughly €1.3 billion or €1.2 billion – €1.3 billion.

So you can make up your mind how much of this is real maintenance. And it’s a bit below this, but something like this.

The next question was regarding the capacity utilization in Q3. Very difficult to answer, because if you look, for instance, at the Material Services business, we are, at the moment, in the Q2, we think that we had a 10% volume reduction against previous year.

With the Q3, I think, we will have at least furthermore 10% to 15%, yeah, reduction so – or 20% against previous year. And it will come up something of this in, let’s say, end of May and June it will become better.

How much? We don’t know yet.

So – but this is something – is then the – it depends very much, how much degree we have at the end of June. Is it then, we had previous year, 15% or something, we cannot really say.

And the same, of course is, if you look at steel. The steel at the moment, we see that the automotive producers are producing with a capacity of 32% – let’s say 32% to 40%, 50%, again.

This means that our capital utilization. If you think that’s all in all, we have a reduction of 30% in April, May, it will maybe come back to a reduction, which is then only 20% or something like this.

So – but this is really a very rough estimate. And I think this gives you a picture if you look at then, for instance, at the Forged Technology business, it’s more or less the same, as I’ve described with steel.

It is helping a bit.

Yeah. And just a point of clarity, just on the 30% to 50% of order production you said, is that 30% to 50% utilization?

Or 30% below normalized levels, so sort of 70% utilization?

It’s 30% of against normal production. So there was still one question open.

This was – how much is of Steel Europe, the short-time work is roughly 33%, yeah, or 1/3 of this is with steel.

Excellent. Thank you.

Hi, thanks for taking my questions. So I have a quick follow-up on the COVID-related lower capacity utilization, please.

So running at, I guess, a relatively meaningful lower utilization level. So does that mean that there would be any – a hot idling plan that we should be aware of?

And then post-COVID how much of a lag should there be between the end market turnaround? And for you to bring backup utilization level, please?

Thanks.

Sorry, I didn’t get the first question. So lower utility – can you please repeat?

Sorry for that. The line was not too good.

Yeah, sorry. So running at the lower utilization level as planned.

Does that mean that all blast furnaces are just running as usual? Or do you plan any hot idling?

Yeah. Okay, as I said before, so if you look at the blast furnaces, you can hardly reduce the blast furnaces capacity to – by 30% or something like that.

You can do so. But you shouldn’t do this very long.

So this is the reason why we in the first time reduced the capacity of the blast furnace by 30% roughly, yeah, and then decided to pull out one blast furnace at HKM, the blast furnace A, to reduce blast furnace capacity in our production network and to partly bring up the capacity utilization of the remaining blast furnace again to levels where I don’t harm for the future. This is a strategy for the blast furnace.

And with this, we are quite well in, let’s say, in the situation that we can cope with this lower capacity utilization, because we simply put out one blast furnace, yeah, and a small adjustment at the other blast furnace. The second question was, if I got it right is, what is the capital utilization past COVID?

Is this what you meant?

So what is lag in terms of time that, for example, if you see that end market will turn around starting, I don’t know, September? And then how quickly can you bring back up the utilization?

Yeah. Okay.

So I think, we don’t see – we don’t have a clear picture. I think what we can clearly see is that we don’t estimate that production of automotive or steel is coming up to somewhere 200% before corona.

This is not going to happen. But at the moment, we think – or we cannot judge it.

The question is how much time do we have to bring the technical capacity up again? This is roughly with a big value – it is roughly 6 weeks, something like this.

Okay?

Okay. Thanks you.

Yeah. Thanks.

Thank you very much. So just one more question on CapEx just on that €1.4 billion.

Can you tell us how much of that is the IFRS impact that you’re highlighting on the slide? The second question is on Plant Technology, so you’re mentioning relatively little impact so far.

But do you have some prepayments that are due there, which you are expecting before the end of the fiscal year, if all goes well. And my last question is on the steel operations looking to the next quarter.

Are you looking at some relief on the iron ore pellets? Or is that going to be an ongoing issue?

And what was the final situation with regards to those negotiations with the auto industry on prices? I mean, is this still up in the air or you’ve been able to agree on terms in general?

Thank you.

Sorry, I just – we did not get every question. So something has to be difficult with the line here.

Sorry for that. But the last question I got is what is the status regarding the negotiation with the automotive industry?

So what I can tell you here is that we have the normal negotiation right at the beginning of the year. And there we, let’s say, were able to negotiate prices, which are more favorable for us, But then, of course, corona came and the volume went down.

So – but these prices at the moment are in place. So this is what we can say.

So lower volumes with slightly better prices or with better prices than at the beginning of the year. So this is the actual situation regarding the negotiation of the prices.

The other questions, maybe…

Yeah, there was one question.

So – sorry, go ahead.

Chris, you might – I think you also asked whether what raw material cost we expect for the third fiscal quarter in steel. And here, is assume that they go broadly sideways, yeah, iron ore and coking coal, which are the main cost factors on the raw material side.

We don’t see too much movement at the moment with the raw material prices – and the expectation further – the visibility is not so good, but we don’t expect too much at the moment.

And the IFRS…

Okay. My 2 other questions were – is simple ones, just – the proportion in your CapEx of IFRS costs.

The other one was whether you’ve got some prepayments due in Plant Technology?

So the IFRS portion, IFRS 16 effect in 2019/2020 is €100 million. And the…

Yeah, and I think it is fair to – yeah, well, of course, we have for Plant Technology, we have plant or we have in our budget some larger tickets. And, of course, we also have then considered the prepayments from those larger tickets in our, let’s say, cash flow assumptions going forward.

This is why we’re saying that every cash flow guidance is also dependent on the payment profile in our project businesses, meaning in Plant Tech and in the Marine Systems business. And in Marine Systems, we are expecting a larger order here from Brazil to come, and also the respective prepayments to come in the second half.

Maybe come as – for Marine Systems, we just received in last quarter an advanced payment in reasonable amount. And we also expect this for this Brazilian issue.

So we don’t see any problems, in this case, here with Marine Systems anyway. And Plant Technologies, as I said before, we also have no signs that there will be some delays or something like this.

At the moment, we do not have bad experience on this.

So that it means that when we looked at Q3, you could have a positive surprise with regard to those prepayments impacting both Marine System and Plant Technology.

Marine Systems – the advance payment was in Q2 and we are expecting some in Q4, but not in Q3 to be honest. And we don’t see – we are, let’s say, quite aware of the payment terms.

And we don’t expect a surprise in Q3, unfortunately.

And that is same for Plant Technology?

Yeah, same for Plant Technology.

All right, thank you very much.

Yes, hello. And thank you very much for being so patient so far.

First, on Marine Systems, there are talks about a possible consolidation between thyssenkrupp Marine Systems, Lürssen and German Naval Yards. Can you give us some kind of an idea of where you have – where it is now in terms of negotiations, maybe talks, whatsoever?

Second or the next one are about balance sheet issues, intangible assets went down from €5 billion to €3 billion. As I think there is comparables, these are comparable numbers, so where is the downfall of €2 billion coming from?

And last, but not least, on equity, your equity currently stood at €1.1 billion, assuming that you’re making a loss of €1.1 billion or €1 billion in the third quarter, are you prepared at least until the closing of Elevator, to run your company with a negative equity? Thank you.

Yeah, let me come to the last question first, the €1.1 billion equity in the second quarter. The IFRS equity is not the problem or is not, let’s say, the KPI which is serious.

So the really issue is the equity of local GAAP. And here we have more headroom.

And on the other hand, it’s only, let’s say, year-to-year comparison. So within the year, we won’t have a problem, either on IFRS nor on local GAAP.

So we don’t have a problem during the year. That’s the first one.

The second one was the intangible assets, the reduction of intangible assets. I don’t have the balance sheet, but I think it’s – the explanation is that we have Elevator Technology as discontinued operations here.

And so, the intangible assets, there was some [indiscernible] there was some reconciliation or with some other – it was moved from the balance sheet position, intangible assets to another balance sheet positions in current assets. This should be the case.

Otherwise, we do not – we do not have really movements in the real figure of our intangible assets.

Of course, this is approximately €1.6 billion [before] [ph] taking out regarding to Elevator and the rest was impairments more or less.

Now, we don’t have in goodwill impairment. So with asset impairment, which you don’t see in this line, the goodwill impairments we don’t have.

And the movements you see is regarding the discontinued operation of Elevator. And the last question was – the first question was Marine Systems.

Yeah, that we are always open to talk about strategic issues. There are some informal talks.

Yes, but nothing more to say at this point of time.

Really, last one is you – before you also stated that there is possibility that you’re looking for partners in parts of the automotive business area. Is that still the case or currently not?

I did not mention it today. But I did not…

Right.

Right. But you mean – you mentioned – we mentioned it before, yeah.

Yeah.

It’s always a question. You have to drive your businesses and you have to really think what is best for the business and what is driving value for the business.

And we have plan for our automotive business. But we always have to consider whether there are plans where a partnership or partnering maybe brings more value to the business.

And let me leave it at this more general statement. We don’t have – we really don’t have very – we don’t have talks about this.

We don’t have clear ideas about this. But we have in principle, this idea of creating value.

Okay, thank you very much, and all the best.

Thank you very much.

Yeah, thank you, also now, everybody, for participating in the conference call, because with the last questions or last answers, we have come to the end of this call. However, we would not – we do not want to miss to mention that in one week time there will be another conference call, because we then would like to inform you about the results of our portfolio assessment.

We will have the Supervisory Board next Monday. And soon thereafter, the news flow will go out.

And we will send out an invitation for the afternoon of next Tuesday. And as always, after the call, the entire IR team is available for you to provide you more information or clarify any further questions you might have.

So thank you very much for participating. And we look forward to staying in touch with you.

Thank you very much.