thyssenkrupp AG

Yes. Thank you very much, operator.

Hello, everybody. This is Claus Ehrenbeck from the Investor Relations team.

And on behalf of the entire team, I would like to wish you a very warm welcome for our conference call today, which is on Q4 and fiscal year figures 2021 and, of course, the outlook for '21/'22. And before we start, just 2 housekeeping remarks.

First, all the documents for this call are available on the website of the IR section of thyssenkrupp. And a replay of this call will be shortly thereafter available.

And with that, I would like to hand over to Klaus Keysberg to lead you through the slides. And afterwards, there will be a Q&A session.

Thank you, Claus. A warm welcome from my side to our conference call, as you said, on tk's Q4 and fiscal year figures.

This slide, you can see now summarizes our achievements and the key highlights from our performance improvements and transformation progress in the past fiscal year. However, I do not go into that at this point, but I would rather like to take you through it in detail the following course of the presentation.

Well, I'm quite happy. I'm pleased to report to you that we significantly improved our key financial indicators and met or even exceeded our targets.

Simultaneously, we achieved major milestones in the transformation to a high-performance and sustainable group of companies. Our figures on the first slide reflect clearly that we are heading into the right direction through performance and restructuring plans at all our segments and by benefiting from strong post-pandemic economic tailwinds.

Thus, we recorded a fiscal year order intake of €39.6 billion, a plus of 41%, strongly pushed by the joint German-Norwegian submarine project of €5.5 billion at Marine Systems. And even without this big ticket, order intake was an impressive 21% higher year-on-year, while sales went up by 18%, totaling €34 billion.

Simultaneously, we have been able to generate a positive EBIT adjusted of €796 million. That is included -- that is including the loss of materials of Multi Tracks of minus €298 million year-to-date.

And compared to last fiscal year, corresponds to an improvement of €2.6 billion year-on-year. The positive overall development of our company is also reflected in the free cash flow before M&A, which was improved substantially year-on-year to minus €1.3 billion from minus €5.5 billion in former fiscal year '19/'20, but it should be noted, of course, that the free cash flow in fiscal year '19/'20 was also burned by our termination of disproportionate year-end and net working capital measures.

So free cash flow in fiscal year 2021 included a negative business cash flow of minus €284 million from the Multi Tracks segment, significant restructuring costs and mainly price-driven net working capital buildup of €1.1 billion. And ultimately, stood at the top end of the guidance range we gave to you.

Another important factor, of course, is that we decided high investments of €1.6 billion to support sustainable performance improvement in the years to come, especially at Europe, we spent almost €200 million more than in the previous year within the strategic concept in order to actively shape the future. Let me emphasize at this point that we will relentlessly continue our efforts to render tk a much better company and to drive performance regardless of the current tailwinds.

And we are driving the transformation of thyssenkrupp backed by a very strong balance sheet with a net cash position of €3.6 billion at the end of the fiscal year and with a free liquidity of more than €10 billion. Let us now jointly take a look at the performance in the past fiscal year more specifically starting with our performance and restructuring progress.

As mentioned before, the market recovery and measures to improve performance and efficiency resulted in an adjusted EBIT, which increased year-on-year in every quarter. All segments contributed to this.

At Materials Services, higher sales volumes and rising prices resulted in a significant increase of €700 million year-on-year. Industrial Components alongside to upturn in demand, the positive trend was strengthened by cost-cutting measures and actions to improve competitiveness and thus resulted in a plus of almost €200 million year-on-year.

At Automotive Technology, better overall capacity utilization coming from the more profitable order structure, higher productivity at new sites and lower D&A could generate a plus of over €400 million year-on-year. At Marine Systems, adjusted EBIT was €6 million higher than in the prior year, continuing the positive trend.

The order book still includes some orders with poor margin, but the performance program together with new orders is aiming to an improvement. At Steel Europe, higher net selling prices and increased shipments resulted in a significant rise in earnings.

Furthermore, restructuring measures and lower G&A had a positive impact. This, in total, led to an increase of €900 million year-on-year, but the steel business could not really benefit from the favorable spot market development in fiscal year '20/'21 due to its long-term contracts.

But we'll catch up in fiscal year '21/'22. Further points that offset adjusted EBIT were, of course, temporary restriction on production, especially most recently, the relining of blast furnace 1 and rising and very volatile raw material prices.

Multi Tracks gained almost €300 million in adjusted EBIT, while still negative in the fiscal year, improvements were made in almost all businesses. Moreover, we have continued the stringent execution of our headcount reduction and have extended our overall reduction target.

I will come to this later more in detail. Let us continue with the portfolio highlights, which relate to our clear goal that we want a successful future for all of our businesses.

We examine and evaluate the development potential of the individual businesses to find the constellation that creates most value and at the same time, offers the best future perspective. To improve the financial performance, we identified the key levers for value creation in every single business and use them to define appropriate measures.

This includes for some business besides performance levels also exits, partnerships and closures amongst other things. Our segment Multi Tracks that comprises business for which we pursue best owner concept made good progress.

More than 50% of total sales are by now 60 months after we announced our major portfolio realignment signed or with defined exit plans. In July, we signed the sale of Mining Technologies to Danish competitor FLSmidth.

Shortly after, we signed the sale of the infrastructure business to FMC Beteiligungs KG as well as the closing of carbon components to sale to action composite can bear in Austria, both in August. In September, we signed the sale of stainless steel business AST to Italian Abedi Group and closed the heavy plate production in thyssenkrupp.

As a result of these closings that will most likely take place during the current fiscal year, the expected positive effect on our net cash position and pensions will amount to a high 3-digit million number in total. Furthermore, the water electrolysis technology supplied by tk UCE provides a very good basis for us to benefit from the upcoming strong demand for production processes for green hydrogen.

To use this upfront advantage, we are examining the option of an IPO to make the real value of this business unit visible and fund further growth. At the same time, we agreed at the same time, we regard a stand-alone solution as beneficial for the steel business because we are convinced that the dedicated steel company has better chances of remaining viable in the long term.

Therefore, we are examining whether and if so, how this can be achieved. In parallel with this, we are continuing to implement the Steel Strategy 20-30.

We aim at gaining back a position of strength in order to go ahead also with the green transformation with a clear road map for an emission-free steel production by 2050. In view of the specific market and sector situation at Marine Systems and to give the German and European shipyard industry, a stronger international position, we believe that the potential consolidation option would make sense.

However, as long as the business stays in our portfolio, it can be managed to make sure that it contributes positively to the group performance. The next slide depicts and summarizes where we stand with the restructuring plans of all businesses.

We extended our restructuring initiatives to a total reduction of more than 12,700 FTEs. In the last 2 fiscal years, we already achieved 2/3 of our previous target of 12,000, which means in absolute terms, 8,000 FTEs with an almost equal split between Germany and the rest of the world.

As part of the restructuring, we had a cash out for the entire fiscal year of roughly €250 million and expect a slightly lower number in the current fiscal year. Almost all restructuring provisions are made and sum up to a total of roughly €900 million.

Based on these restructuring efforts, we have realized from headcount reduction already, sustainable savings in the low to mid 3-digit million euro range during the past fiscal year and expect them to climb to a high 3-digit million euro number in the midterm. Let me now walk you through each of our business segments and briefly highlight some major developments of the last quarter of fiscal year '20/'21 and the following, starting with Materials Services.

As already shown in the Q3 chart in August, we have revised the format of our presentation, presenting 1 charter segment reflecting the group of company's concept in addition to the business insights. We have also added some information regarding market trends on the right side.

After it reported an outstandingly strong third quarter. This was continued in Q4.

We have seen slightly lower shipments year-on-year due to material shortages primarily in Europe. However, sales clearly benefited from an increase in material prices, especially for carbon and stainless steel.

Simultaneously, EBIT adjusted continued to be strong with a total of €225 million in Q4, which is an improvement of €276 million year-on-year by favorable price dynamics clearly supporting margins as well as productivity gains achieved in [indiscernible] via a continued FTE reduction totaling 2,000 FTEs versus early fiscal year '19/'20. These developments broadly reflect the overall market picture where strong demand recovery is likely to drive shipments above prepandemic levels during the next fiscal year if supply from producers is available.

Industrial Components, moving on to this business. We have recorded a significant top line growth driven strongly by Forge Technologies.

In case of bearings, growth mainly came from industrial applications in Europe, beyond Germany and the Americas. While the demand for wind energy installations was temporarily lower year-on-year as expected, given the tax incentive driven extraordinary strength of the Chinese market last year.

Forge Technologies achieved significant increases in sales performance and strong demand for its components across all regions, mainly driven by market recovery and market share increase. However, with an offset effect from supply chain constraints in Europe.

On segment level, Industrial components EBIT adjusted has increased by €39 million year-on-year, particularly due to forge technologies driven by the top line as well as ride cost control, increased productivity and tax-related win for probes. This was partly offset, however, by increased sector costs.

The bearings business achieved significant earnings improvements by economies of scale and productivity increases that compensated for declining prices in the wind energy business in China and increasing factor costs. Looking further out, a positive midterm trend for wind turbines is expected with rising demand for energy and the shift towards larger wind turbines as well as rotor blades as key drivers for which we offer the right solutions with our products and accompany these trends with long-term investment strategy.

For Forged Technologies, market experts, such as IHS, predict continuous demand recovery and further growth for heavy-duty engines and construction machinery, which obviously goes very much in line with the GDP growth. Next up is Automotive Technologies, which experienced a significant upswing across all businesses compared to the prior year, supported by strong automotive demand.

Automotive Technologies recorded higher demand overall in the first half year and stable and good business development in China. The aforementioned bottlenecks in the supply chain became increasingly apparent at the end of Q3, particularly the shortage of semiconductors had a negative effect on customer calls, in some cases, quite spontaneous and hardly plannable due to customers' production interruptions and temporary shutdowns.

This also affected the fourth quarter. On the other hand, Automotive Technologies' one relevant long-term framework contracts in Automotive serial business over the course of the fiscal year, which ensures the future capacity utilization of our plants.

Simultaneously, Automotive Technologies was able to improve their EBIT adjusted sustainably year-on-year with our business reporting and earnings increase. This is primarily based on high plant utilization rates at all businesses particularly for new plants, a more favorable order structure and cost savings related to higher production efficiencies and restructuring.

This result has been achieved despite headwinds stemming from the supply bottlenecks and increased factor costs for raw materials, packaging and freight. Taking a look at the overall market environment, IHS expects further growth in the global light vehicle production to 80 million units in calendar year 2022, which is a plus 10% year-on-year, however, still below pre pandemic levels, particularly due to the ongoing semiconductor shortage that might stabilize into 2022 and then start to get better after summer.

However, the situation has to be closely monitored. If we apply IHS forecast to our fiscal year '21/'22, the global light vehicle production will be broadly flat year-on-year, around 77.5 million units.

Over and above, we believe that we are well positioned with our product to benefit from the major trends of autonomous driving and e-mobility. Steel Europe benefited from the economic upswing that began at the end of summer 2020 and the resulting recovery in the demand of the European flat steel market, particularly driven by the European automotive industry.

However, shipments and production in Q4 were below Q3 due to the planning -- to the planned relining of the blast furnace 1 and the associated reduced production capacities. Looking at sales, Steel Europe could achieve an increase by 34% year-on-year, mainly driven by higher selling prices and a more optimized product mix.

Quarter-on-quarter, we saw first effects from better development on revenues on the one hand. On the other hand, those were partly offset by the lower shipments and higher material costs as well as underutilization due to the plant relining.

Consequently, EBIT adjusted increased strongly year-on-year by €232 million, but yet moderately quarter-on-quarter. Additionally, we became more efficient from restructuring process 1,900 FTE has been largely already contractually fixed or addressed.

Looking forward, with the -- let's say, with the upcoming adjustment of the long-term contracts to the actual market conditions, a significant improvement in the relevant financial ratios will become apparent progressively in the quarters to come. Moving on to Marine Systems.

The segment had a very strong fourth quarter with the signing of the contract for the German-Norwegian submarine program, the biggest single order of €5.5 billion for 6 submarines in the company's history. Order backlog also reached a record level and provides great visibility.

After postponements of preceding quarters, the fourth submarine was delivered to a customer in North Africa, among others. Thus, Marine Systems achieved its sale target.

Thanks to an above-average fourth quarter, also the adjusted EBIT target for the fiscal year was achieved with an increase of €50 million year-on-year, thus nicely confirming the turnaround profile. Also, the performance program provided a major contribution to this and secured margins in orders in new orders as well as support the profitability of order backlog.

Looking at the overall market, the Norwegian and German submarine orders could have a lighthouse effect as entry tickets to additional orders from the European Navies. And last but not least, at Multi Tracks, there has been a significant recovery in almost all businesses.

Order intake was up 62% year-on-year with plant engineering units, chemical plants, mining and cement as well as AST at the forefront. Sales have been increased by 18% year-on-year with a significant improvement in AST, cement and mining, and on the offsetting side, lower sales at clinical plants.

EBIT adjusted has significantly improved from previously minus €212 million in Q4 '19, '20 to a loss of only €63 million over the same time frame in fiscal year 2021, mainly driven by improvements at AST and plant engineering, the latter being driven also by the strong progress in the mining as well as the cement business are making. Overall, ongoing restructuring programs across all units with an increased total of now 790 measures led to an FTE reduction of roughly 2,000 FTEs.

As presented earlier in the Multi Tracks portfolio updates, we made some significant progress regarding our portfolio transformation and the science transaction will make a substantial contribution to further improving the group's financial position. For the outlook on the fiscal year 2021, '22, we believe that an optimistic, yet cautious view is appropriate based on the structural improvement in our business.

favorable economic forecast and also considering uncertainties stemming from supply chain constraints, effects from the recent sharp increase in input factor costs and not least, the ongoing course of the pandemic. Therefore, we believe it is appropriate to formulate the forecast for '21, '22 in ranges.

Sales growth is expected to be in the mid-single-digit percentage range year-on-year and adjusted EBIT to significantly improve to a figure between €1.5 billion and €1.8 billion. Performance increase will be essentially driven by the significant earnings improvement at Steel Europe and a significantly reduced loss at Multi Tracks.

At Materials Services, we anticipate positive effects from higher volumes and shipments. However, this will be offset by FX from a normalization of oil price dynamic.

At Steel Europe, we expect a significant increase by at least €1 billion adjusted EBIT as a result of planned volume and margin increase from renewed contracts and structural improvements. This performance, of course, depends particularly on the further development of the supply chain issues and in the ensuing shipment volumes.

For Automotive Technology and Industrial Components, we expect that both segments benefit from ongoing favorable demand conditions as well as structural improvements. However, we will be impacted by effects from supply chain constraints, cost increases for input factors and normalization of wind turbine business in China.

Finally, for net income, we expect a number of at least €1 billion and for TKBA to be significantly positive. Looking at cash flow.

Besides a strong growth in earnings, we are expecting a significant increase in free cash flow before M&A to break even. All segments will contribute positively with the sole exception of Multi Tracks.

At the same time, cash out for restructuring will continue. And CapEx will remain high.

The latter mainly driven by Steel Strategy 2030, aiming and supporting the segment's planned performance step up going forward. The improvement in free cash flow before M&A will come primarily from the increasing earnings and will also be dependent on changes in net working capital also impacted by the supply chain issues at our customers and including cash flows from order intake and the payment profile and project businesses.

As a result of our progress in transforming tk and enhancing performance in all of our businesses, we can confidently say we are on track. And we will reach the next stage in fiscal year '21/'22.

Within the Multi Tracks segment, we will build up on the success of the previous year and continue streamlining the portfolio. As a result, we expect positive effects on our net cash position at turns.

For tk UCE, our electrolysis business, we'll figure out the best option for value crystallization currently with an IPO as preferred option. The case is strongly supported by the trend of Green Hydrogen that is driving the growth in the market for industrial scale water electrolysis.

For our steel business, we will continue diligently evaluating a stand-alone option. Besides that, our path to becoming a climate-neutral steel location by 2050 is clearly defined, and we are convinced to reach the interim order of 30% CO2 reduction until 2030.

It should be emphasized that sustainability is not only an utmost importance for the steel business, but a core component for tk's group strategy and thus management priority. Here, the MSCI rating that has recently been raised to AA is already an initial reward for our efforts, which we will continue driving forward ambitiously.

Furthermore, the largest restructuring program in tk's history will be executed in the same stringent manner as we have done it so far. Through all these efforts, we will break even in free cash flow before M&A in fiscal year '21/'22, an important step to sustainable cash generation in the future.

Our net income will exceed €1 billion, and we expect notable value creation shown in a significant positive TKBA. And further important step is rewarding the trust of our shareholders.

Therefore, we give the resumption of reliable dividend payments priority. Let me come to another issue before we come to the Q&A, a final note on our own behalf.

thyssenkrupp's Capital Market Day, 2021 takes place on December 2. On this occasion, our senior management from the business segment will represent the strategies and financial targets in detail.

Due to the current situation, the event will be conducted virtually. Registration has already been opened.

Until then, now I'm ready to take your questions. Thank you for attention.

Thank you very much, Klaus. And with that, operator, please take over for the Q&A session.

Thank you.

If I can start out with hydrogen, please. Can you give us a little bit more color on how you're considering the various options or time line for a potential spinout or IPO of this business?

Why is the spring the right time for a transaction? And what do you view as the commercial benefits to the business of just in maintaining a majority stake once it's listed?

Why not sell 100%? I'll start there, please.

Okay. Yes.

Thank you for your questions. So first of all, I mean, we have not decided on any timeline.

Of course, this timeline for having an IPO in Spring could be a possible one, but we have not taken the decision to do so. But I think speed is essential here.

This is very clear. So the other question was, why are we examining -- why are we aiming for IPO?

I think in previous occasions, we said that we are considering a potential IPO, but also considering, let's say, strategic partnerships. Meanwhile, our decision is more than we would prefer an IPO.

Why is it so? Because we want to -- we want to, let's say, maintain speed.

And we think it's of importance if the capital market is involved in this business. This is -- This brings us speed, this brings us agility, this brings us more focus.

And of course, this brings us also, let's say, funds to, let's say, grow the business. And this is -- these are the most important issues why we go for this.

And of course, with this, we, let's say, generate not only value but we got also a value indication for this business.

If I can just ask a follow-up, please, with regards to the underlying hydrogen business. Obviously, over the last year, you've had several very significant order wins.

Can you give us an update on when you'd expect those to translate to tangible revenues or prepayment cash flows? And now I guess with the engineering work more advanced, are you able to provide any color on the scale of revenues expected or margin contribution perhaps versus other parts of the business?

Seth, we are not sure whether we got your question fully right. So which business are you now referring to?

Sorry, it was a problem in line.

I asked for hydrogen, please.

You asked for potential sales development in UCE and potential order intake. I mean, you know that we announced, let's say, a Capital Markets Day for UCE is coming up.

And of course, here, we will provide more, let's say, specific and detailed information, something about the size of the business up till now. You know that our sales number -- you know roughly.

And the portion of Green Hydrogen business, of course, is a part of this. But our -- as you said before, our potential order intake and our order intakes we have so far, we are quite comfortable that we can, let's say, turn this into -- order intake into sales quite soon.

So our order pipeline is quite good, and the dynamic is very high, but please have understanding that we cannot be so much precise at this point of time.

Just before I ask a question, I'd like to make a polite request to Dr. Keysberg, if I could.

And it's one I made before. My request is, would you please consider using EBITDA as your key reference figure instead of EBIT.

This would be in line with your peers. So I'll just leave that with you for your consideration.

I'm happy to discuss. My questions for you are actually on a business we don't really talk about that much, which is Material Services.

So it's quite a large capital employed, I think €3 billion or €4 billion. I'm guessing several million tons of steel inventory.

So my two questions. One, do you think -- how do you think about the returns in this business?

Is it worth more than the value of the steel it has in the warehouses? And two, does this stay after steel leaves the business?

Yes. They are several questions.

So first of all, if you look at the business profile of Materials Services, and I think you know this, but I just want to make clear that this Material Services business is totally independent from the Steel Europe business. So only 10% is purchased by Materials Services.

So this is independent. So a potential spinoff of this Euro business does not have an effect or does not necessarily mean that Materials Services is impacted here.

It's a totally standalone business on this. This is the first one.

The number you said for the capital employed for Materials Services, I guess you mentioned €4 billion or something, this is too high. This is not a capital employed, it's a lower number.

So -- and regarding the returns, you have to look in details because this Materials Services business has, let's say -- does materials warehouse business with all kinds of business with carbon steel, with aluminum, with stainless steel and also with raw materials. And if you look at pure margin, it might give you not the right indication for this.

You have to look at the, let's say, some figures like return on capital employed. And if you look at these figures, we are convinced that with our, let's say, capital management, we are benchmarked -- yes, clearly benchmark on this.

So capital management, we think we have a very good position on this. And then you asked -- I think the last question was whether the value of the business is higher than the capital employed.

Well, this has to be considered. I'm quite, let's say, convinced that the value of the business would be a good one.

But anyway, so as you said before, we are driving the business in a higher margin because we want to go into more service business. We want to go more into -- with a more footprint in the U.S.

This will bring up -- margins up. But as you said, whether we are happy with the margin so far, with the return on capital employed numbers, we are quite happy with the businesses.

But of course, strategic things to improve.

Sorry, just a follow up. Could you give us an indication of either the capital employed or the current number of tons of steel that actually sit in Materials Services?

Material Services capital employed is €2.6 billion, yes.

And if I take -- I just take that and divide it by the steel price and that's the number of tons of steel-ish.

Well, no. You cannot do so because it's not only carbon steal, it's aluminum, it's stainless steel, so you cannot do so.

So -- Sorry, it's not that easy. And by the way, your EBITDA issue is -- I recall that you once asked before, so -- We are working on this.

I've got a couple of questions as well. And maybe firstly, a follow-up on the Uhde -- IPO plan as well.

Can you just briefly confirm whether your IPO plan includes the Electrolysis business only? Or would that also be packaged with the plant engineering parts to be able to broader -- a value chain spectrum for hydrogen, i.e., particularly storage and ammonia?

That would be my first question.

Yes, clearly, clear answer. So IPO does only include electrolysis business, not ammonium business, which is -- and the rest of the ammonia business, I think you know the structure.

We are pushing, of course, the electrolysis business, the UCE business. But in parallel, we are also, of course, pushing the ammonia business.

but it does not necessarily have to be combined into 1 business. There -- as usual, they are in every kind of business relations, which are on Tuliva, which is our supplier base.

And this is what we plan. But clearly, the IPO would only consider the electrolysis business.

Okay. Understood.

That's obviously slightly different, I guess, from some of your peers, such as Siemens, which, I guess, basically aim to keep a broader value chain spectrum. -- basically altogether, is there like a strategic reason why you're not basically keeping those 2 bundles?

Or do you think the general positioning of ammonia is maybe different versus the hydrogen business, i.e., in hydrogen, you just see better market potential relative to your position in ammonia? Or what is the background here?

Well, it's -- I think our strategy is all I'd say, the strength of the PK -- Udhe or the UCE business is clearly this hydrogen business. This is a real selling point, which is a unique selling point.

And this -- I think we have the total strength here. And here, we are very, very successful.

The other business, the ammonia business, of course, we're doing this -- But we do not see so much -- of course, we do see market growth here, but we see more potential value crystallization in concentrating on this special criteria.

Okay. Okay.

Understood. Then another question related to the business.

You obviously I guess, have your 5 gigawatt capacity target out there. You talked about that before.

You will pursue the IPO to also fund growth. There already some numbers you can at least give us -- could give us in terms of what the CapEx would be required to get to the 5 gigawatt from the current 1 gigawatt you have?

Sorry, we are not providing this kind of information at that point of time. Sorry, is, but I think you understand.

Okay. No problems.

But at least to stay on that topic CapEx I guess, if we look at the budget, you kept it flat versus 2021. Remember when we talked earlier, you suggested obviously you aim to cut it a little bit down in 2022 after a bit of catch-up CapEx in 2021.

I guess, in all fairness, obviously, the markets are extremely strong. I guess we've seen most companies generally revising CapEx budgets upwards but just what has led you to keep the CapEx flat?

And what are the areas where you're basically spending more at the moment? Is there already something for example, in businesses such as UCE?

Does this more go to steel? Why has it been kept flat?

I mean, if you say the CapEx volume is kept flat, you're mainly right. But if you look at the numbers, it is not a flat number.

It is 160% of depreciation. So this is a big number.

And of course, the biggest CapEx is going to the steel business. But of course, we see also in the other businesses, in the Multi Tracks business, but in the other business, we see areas of CapEx, which is partly also higher than depreciation because, of course, we want to grow the business, and we want to enable the business.

And why we do this? We do this by intention.

This is very clear. So -- and this is a very structural effect.

But of course, we do this because we can -- we clearly said that we want to transform the business into, let's say, higher margin and benchmark profile, and we clearly see that this is necessary to do. And of course, bringing this in line with our target not to burn money to have a, let's say, a breakeven cash flow, this is our target.

That's the reason why we go for this number here.

The first one is on Multi Tracks because you're -- You simply stated that one of the earnings drivers for next year will be at least remarkably a reduction in EBIT in fiscal year '21/'22. Do we talk about closer to breakeven here already?

Or are we still far away based on your budget? And on this one, on the Multi Tracks as well, because you also said there's -- or you put Springs & Stabilizers back on the list for initiating the disposal process here, what will happen if you cannot find the best owner?

So that is the first kind of question.

Yes. So first of all, the EBIT development of the Multi Tracks business is still a loss.

It's, let's say, double digit number will be. And this is the first one.

The second one, as you know, of course, the structure of the businesses and what we already signed so far. And as I said in previous occasions that we will start with the divestiture process of Springs & Stabilizers and most of the rest of the business, which I think this is very clear.

But if we do not find a potential buyer, of course, we want to be successful in divesting the businesses. But as we also showed with cement business, if we are not able to come to, let's say, to a solution which we can accept, we are not ready to do fire sales.

And this is still our opinion. So we will -- at the moment, we are in a heavy restructuring of this business, and we are quite optimistic and confident that we can restructure the business.

We are not the best owner. We don't consider this, but let's say, it's not a question of 6 months and how to, let's say, divest the business or not divest the business.

So we will see.

Perfect. The second one is on the free cash flow guidance for the next year, which surprised me a little bit especially given the good EBIT guidance, as it would indicate you expect almost the net working capital build rather a reduction next year.

Why are you more conservative here? Because it looks like also you had a bit of a -- in the fourth quarter, a very strong positive contribution from payables and receivables of about €0.8 billion.

Do you expect actually that this is part of the more, I wouldn't say conservative, but why you actually remain at about breakeven?

I mean if you look at the structure of the cash flow, then if you pushed -- let's say, take into consideration that we are, let's say, investing €600 million more than depreciation, this is a big ticket, then we still have restructuring expenses, as I said before. Less than €250 million, but still a 3-digit number in this direction.

And of course, yes, we are also we are planning with working capital uplift of, let's say, a low to mid-3-digit number. This is coming from, let's say -- of course, from the growth we see in the materials business.

And this is very clear that we are going to have this effect here. And if you count this together, you see what kind of structural effects we see in the cash flow here.

And that's the reason why we guided at this number here at a breakeven or slightly [indiscernible].

I've got two as well. I'll take them one at a time.

First, just on the sort of steel stand-alone option, I know you're still sort of looking. Klaus, when you were talking about the Udhe business, you spoke quite a lot about speed.

Just wondering if you could talk a little bit about the timing of such a steel stand-alone option? I mean, clearly, there have been some news reports out recently looking at sort of 2023, but just curious on your thoughts.

Is it a case of getting it out as quickly as possible, trying to catch those sort of strong spot spreads? Or are you looking to reap the cash flow from the steel business that's probably likely in the next year as contracts reset?

Yes. Of course, if you spin off a big company like Steel Europe, of course, this is a heavy task and there are some effects which we have to take into account.

So first of all, this is very clear, we take our time because we have to. And this is -- if you look at other spin-offs, it's not a new sale.

It's a bigger one. And if you look at other spin-offs, our time frame as we now are planning it, is quite normal.

It's not so slow. It is quite normal to do so.

What are the drivers for this? I mean, clear -- If you look at the spin off of the steel business, I get very often the question, is this the right time now, or if -- is in 2 years the right time because at the moment, we are, let's say, in a better phase of the cycle of the steel business?

Yes, we are. in principle, we are in a good cycle moment at the moment.

But at the end of the day, you have to demonstrate that during the cycle, the steel business have to be in a position to, let's say, fulfill the KPIs, which are needed for this. This is the first one.

The other one, of course, is if you look at the transformation of the new business to carbon-neutral production. This is, of course, an issue.

Yes. So we also, let's say, include into the business plan, this transformation.

And of course, the more clarity we have here, the better it is, but this is not the case that we are waiting so long until we get 100% clarity. This will not be the case.

But I think we are in a quite good position. At the moment, we are doing a feasibility study under what circumstances and how we can separate the business, also with regard to the green transformation.

And we think we will have a quite good picture in the next calendar year. And as I said early this morning, we will come to some kind of communication about this, not necessarily a decision but the communication about this in spring next year.

So this is what we are seeing. And -- yes.

That's very clear. It's very, very clear.

If I can sort of just follow on just on that decarbonization CapEx, you gave a number of €7 billion out to 2045. Could you first just confirm that doesn't include any sort of government or EU aid?

So that's a gross number? Do you have any expectations over what aid could look like?

And perhaps you can give some color on how much of that CapEx comes over the next 3 years? So clearly, the bulk of that should be coming through these DRA and remelting units that come from 2025 onwards.

But is there anything significant near term that we should be baking in?

I don't know whether I got all of your questions right. But the first question was a €7 billion in investment in decarbonization starting from '25, is this what you're saying or...

So is that a gross number? Does that include any government support?

No. No, it does not.

It does not. So -- it does not.

I mean, there are some rules so transforming 1 million tons into, let's say, into green production needs €1 billion in CapEx. This was an old one.

So the terms are now getting better, so because of scaling effects and things like this. So at the end, when you said €7 billion or something like this which is more or less until till 2050, this is more or less a number we can.

We also see, let's say, this way, it's pretty obscure still, but this may be the amount in this direction here. But this is a number which -- where there are not included any subsidies at the moment.

So you know that we are...

Do you have any sort of color on what subsidies could look like in, I think, each year?

Yes, I think it's fair to say that we -- of course, we are planning to invest into a first direction, direct reduction in equipment, and it will be -- it should start at 2025. We have an application outside and it is about our estimation is that a fair number would be 50% of CapEx.

But this is not given, just this is a fair estimation of what market participants should estimate on it. But this is, of course, something -- if you do these kind of businesses, you also have to look at the OpEx.

I think this is very clear. And with the OpEx, we are -- this is still very uncertain.

So this is -- the question is -- the availability of hydrogen, the price of hydrogen, is there a bridge technology of using gas into the direct reduction equipment? And this is something -- we have our ideas here, but it's very much dependent on, let's say, regulatory effects also coming in the next year.

So we are talking about carbon contracts for different and things like this, which are supporting also the OpEx. I think you heard about all these issues.

But at this point of time, the most advanced, let's say, knowledge we have is regarding the CapEx. The OpEx is still quite open and needs political decisions.

And just very finally, we -- can we expect most of that sort of €7 billion only really come from 2025? So the next 3 years sort of before the DRI melting units and the remelters, that isn't any significant amount of CapEx that's going in?

I mean, if we are planning to build up a direct reduction equipment in 2025, it will start in the coming years. So -- This is clear.

So it's not in 2025, it will be earlier. So it will be -- it will start at '23 soon, at least.

Sorry. To clarify, 2025 is when the first plant should be up and running?

Or when you start loading it?

Running. Running.

Running.

Two questions from my side. The first one is around the CapEx, just a follow-up.

Should we think about the €1.6 billion as a sustainable CapEx level going forward, including decarbonization through 2023? Or will the number go up even more beyond next year?

That's the first question.

Difficult to say. So if you exclude decarbonization, definitely, the €1.6 billion is not a number we will maintain for a long time.

So this is a, let's say, extraordinary high number, which mainly is valid for steel, but also for other companies. So I think normal kind of CapEx level, what is normal, you never know, but you should consider 120%, 130% or something like this, if so, but it depends very much on the situation.

So coming in with the transformation CapEx, of course, this will increase the number of CapEx in -- if you do this into addition, but we do not consider it to be higher than the actual amount during the next.

Okay. That's very clear.

And my second question is on the hydrogen business. I presume that the ownership structure with De Nora is 66 to 34.

However, can you elaborate a bit more on how the economics shared between the 2 parties? And what is the commercial relationship between the JV and De Nora itself?

I'm just trying to better understand where the capital risk and the margins lie within the ownership structure.

So De Nora owns 34% of UCE. You know this, yes?

And we own the rest. So De Nora has the IPs on coating of the anodes and cathodes.

And they are working as a tool producer or...

They are a supplier. They are tool manufacturer.

Yes, tool manufacturer of the anodes and the cathodes and the sales -- and we are -- our issue is that we are -- let's say, we have the IP of the design of the cells and De Nora is building under our IP. And we are then, at the end of the day, assemble this equipment to this, let's say, necessary capacity then.

Does it understand?

Yes.

And when we say we manufacture, we mean we order to give this order to subcontractors. We really can concentrate on the engineering and procurement.

Yes.

And on the margins, where are the margins in that whole relationship structure? Are they more on the thyssenkrupp side?

Are they more on the De Nora side? I appreciate you cannot quantify, but at least qualitatively, how should we think about the margins given that De Nora takes on most of the capital risk?

So of course, we are not providing any margins. But I think we are quite happy with the business model as it is so far.

Just one for me. On pensions, can you just confirm what the movement in headline pensions will be post the sale of the Multi Tracks businesses that have been signed for sale over the next -- over this coming financial year?

And then within that, can you just articulate what the -- what your expectations are for pension cash out in your free cash flow waterfall that you provide? And then maybe some sensitivity about what pension cash out would be in the next financial year post the removal of these Multi Tracks businesses and potentially with Steel Europe?

So first of all, pension dedicated to Steel Europe is roughly €4 billion. It's a bit lower, roughly €4 billion.

To Multi Tracks, I have to, let's say, make a guess, it's roughly €1 billion, a bit below €1 billion. So far -- the signings we did so far is that we let's say, got a solution for the pension, which means that we are not, let's say, staying that we don't have to keep the pensions.

So far, it is the case. This is, of course, our utmost goal, not to keep pensions.

This is very clear. And the cash out for the pensions in the next fiscal year is...

Yes, it's always about €500 million or so -- Yes. It is -- yes.

It's a bit less, I guess. It's a bit less than €500 million.

It's a bit less. It's €400 million something -- yes.

This was the case in 2021 [indiscernible].

And if you're now asking what kind of numbers are going out, I think you can make your calculation by your own and just having the ratios we just gave you. Does that make sense?

Yes.

Sorry to go back to the hydrogen, but in the IPO, you're considering with [indiscernible] of De Nora, is it you -- would be passing on some of the stake? Or is it De Nora or -- who exactly is reducing their stake in the company?

Well, this is something we -- At the end of the day, this is not decided at the moment. So we are just examining on this, but it could be a possible solution that both parties would, let's say, would give shares to the market, let's say, this way.

But there has been no decision at the moment.

Okay. I understand.

And just to be clear, I remember you mentioning that part of the IPO, for instance, that you were considering was also that you were keen to retain some of your key employees in that business and you have to be able to motivate them. But the proceeds you would get from the sale, are they all to be reinvested in the business?

Or could you use them to reduce pensions? Could you find them as easy as usage?

Well, I think we use this to finance this kind of business here. This is at least what we think we are going to do with this.

But of course, in having said that there, of course, this leads more potential for the remaining business. I mean this is clear, but the intention is to leave the money in the business.

Great. So the idea of raising to 5 gigawatts of capacity, to some extent, the finance will help that?

Yes.

Okay. And my last point on this business is -- and I know it's going to be a tricky one for you to answer, but we've got values flying around €5 billion on Bloomberg and so on, and obviously, you can't tell us much about the business itself and I assume there are some projections which are being made available privately but how can we best -- first of all, it's €5 billion, something which you would consider ridiculous?

And b, how can we find a way of giving a value on your business? What should we look at?

Sorry for not giving you an answer on this. So we cannot comment on any valuation of this business here.

So -- and I have to tell you, look at the outstanding -- or the available material here, but we cannot give you an indication of what kind of business is likely to be or is valid. Sorry for this.

So I appreciate, but between now and the Spring, chances are there's going to be a lot of value flying around on the newspaper, magazine and so on. I mean, at some point, would you be able to give some kind of indication of the range before we come to the Summer?

Yes. Yes.

Yes.

Okay. And the timing would be the Spring as I suspect or like a late Winter?

We have not taken any decision on this, but -- this could be possible window to do so. But as I said before, so we will see.

My question is already answered.

I just have a couple of questions. First of all, on hydrogen.

Can you just give us an idea conceptually like where you see the value in the business? I know you can't comment on the valuation, but in terms of the build out to say, 5 gigawatts, the -- I saw that ITM Power built a 1 gigawatt factory for not very much.

I think -- I forget the CapEx figure, but it was pretty low. So I mean, I guess, capacity that you have isn't where the value lies.

Maybe it's in the IP. But I think it's -- It seems like this is a relatively well-understood technology from what I can see.

It's obviously been used for many decades. And -- I'm just trying to get an idea for, okay, not a comment on valuation, but where you see the sort of competitive edge for this business and what stops other new entrants with a decent size balance sheet coming into the space given the attractive outlook for growth?

That's the first question. Just secondly, on the steel business.

Obviously, you're looking for a decent uplift, and I guess that's on annual contracts and so forth. Could you give us any sort of steer as to how you're thinking about pricing for next year?

And around those contracts, maybe a share of your volumes that you're actually looking to lock in, in the near term for 2022? And an idea if there's maybe some of the assumptions behind your guidance for the steel business?

So let me just try to come to the first question. So what is our competitive advantage here?

So if you look at the history of the business, you know that we -- with the older UCE, it was -- they have, let's say, clearly, the capability because they already did this production of Chlor-Alkali Electrolysis. 50% of the worldwide installed capacity of Chlor-Alkali Electrolysis are built by thyssenkrupp UCE.

So this is the first thing because turning this, let's say, capacity into -- or the production of this into water electrolytes is nothing. It's technically very easy to do.

So it is very clear that we are -- have the total supply chain, not in our hands, but we -- let's say, we are able and we...

In place.

It's in place. We have the total supply chain in place already for installing 1 gigawatt capacity.

And we are the only one who really did this in this kind of environment. So this is the biggest -- I think the biggest advantage and selling point we have.

And ready for industrial scale.

Yes, of course.

Which is a bigger partnership.

So you will barely find someone who did this in -- or proved that they are able to handle the supply chain to do so. Does it answer your question?

Not really. It's more the -- if I look at now of ITM Power or these guys, they're building out capacity in the entering still the market, okay, with a different technology.

But it doesn't seem as though getting in market is that difficult from what these guys seem to be talking about. So I'm just a bit -- I mean, if you have like large numbers of, say, Chinese competition or others, I mean, how confident are you in maintaining market share as that market explodes potentially over the next sort of decade?

Well, we have very strong IP in this business. And based on this IP, we were able to develop our current market position.

And we can also prove that our alkaline water technology operates very efficiently. We are operating them with the speed of 12-kilo amps current density, which is unique in the industry, and we can give customers a very competitive cost of ownership which is proven by our existing technology, which is surely true for the alkaline water technology, meaning for the traditional and for the new one.

And there must also be a reason why at quite early stage, we have got nominated for some industrial scale projects. We talked about Neom already, that we are involved in Neom, and we are involved in others.

Not every project we are allowed to announce for confidentiality reasons. So we believe there is good proof that there's a lot of value in this.

It's just a follow-up to that. Is there -- if -- I mean, I don't know how much of the IP is on the De Nora side.

It seems like on the anodes, cathodes side, it's -- I mean, it's [indiscernible] that they could potentially use some of this technology with another partner at some stage. I mean, is for -- I mean how much of a risk is for around De Nora potentially branching out in another direction?

Andrew, probably the best is we discussed this in such details more in a bilateral session or so that we come back to you and take some time to go deeper into the issues that you're raising here and what I want to discuss.

Sure. Okay.

And just on the steel business, and the assumptions behind your forecast for the next year?

Yes. If you look at the actual market conditions, I think you know them, of course, all spot price development went up last calendar year or last fiscal year and is still high.

We saw a bit of a reduction last couple of weeks. But now coming to a phase where we see, at the moment, flat price development.

Raw material prices after peak in the middle of last calendar year or of this calendar year went down very much, iron ore, coke and coal not, but iron ore. So if you calculate a spread coming out of these ratios here.

So because of our long-term contracts, we think that we will be able to maintain a quite high level of spread also in the next fiscal year, yes, because with these contracts, we can lock in the sales and the revenues here. And we see a quite high number of spread here also for the current fiscal year.

What we at the moment see is, of course -- also if you look at the range we guided to you. So the question is, the problems with the semiconductor and supply chain issues, how much does this influence, let's say, our volumes in steel business, but also in the Automotive Technology business?

How much is it influencing this? So our estimation to this is that we, at the moment, see the worst situation.

At the moment, it is the worst situation, and we do not think that it's going to be worse in the future. We will have to deal with this issue through the next calendar year, but it's going to improve during the year.

This is what we see here. And therefore, let's say, the EBIT number for the steel business is more -- or the numbers we -- in the range is more a function of volumes than a function of the spread.

This is how we look at it.

Okay. And could you just remind us what proportion of your -- or what sort of volumes alotted for potentially repricing going into calendar year 2022?

I mean, in terms of sort of millions of tons?

It is -- so first of all, spot price or spot dependency is 10% or something like this. And if you talk about the first of January, I think we are talking about -- did we provide this number?

No, we did not. No, we did not.

I just gave you. It's a large portion of our yearly volume.

It is a large portion.

And you would expect to fix those prices for a year, right? Or was there any sort of -- would you expect to be booking those at fixed prices for the remainder of the year?

Or is for a risk that given the volatility in recent times, there may be some sort of costly, be it pricing or something like that? Is it your expectation that these contracts remain fixed?

I mean we have, I think, fixed conditions with our partners. So we have customers, especially if you look at the template business, which go for 12 months.

And the automotive business goes sometimes for 6 months, sometimes for 12 months. And so this is more or less how it works 6 to 12 months, the majority.

We also have in cases also 3 months, but it's more 6 to 12 months.

If there are no further questions, then, well, we think we can conclude the call. We would like to thank you very much for your participation.

And as always, for any follow-up question you might have the Investor Relations team is, of course, happy to be in contact with you. So thank you very much and enjoy the rest of the day.

Bye-bye.

Thank you. Bye-bye.