Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- thyssenkrupp AG (TKAMY, Financial) has established a new segment, Decarbon Technologies, which is being prepared for future growth opportunities.
- The company is working on standalone solutions for Steel Europe and Marine Systems, with significant progress in negotiations and due diligence phases.
- The APEX performance program is being implemented across businesses, showing incremental improvements.
- Steel Europe's climate targets for 2045 have been validated by the science-based targets initiative, underlining the company's commitment to green transformation.
- thyssenkrupp AG (TKAMY) has a solid balance sheet with a comfortable equity ratio of 39%, providing financial stability for ongoing transformations.
Negative Points
- The company had to adjust its full-year guidance due to continued challenging market conditions, reflecting a significant decline in sales.
- Decarbon Technologies faced negative one-time effects of approximately EUR 80 million due to incorrect cost accounting in the Polysius business.
- Free cash flow was negative at EUR 256 million for Q3 and EUR 983 million year-to-date, influenced by payment shifts and lower profits.
- The Steel Europe segment is operating below capacity and still producing positive results, but cash flow generation remains a challenge.
- Order intake for Decarbon Technologies has been less than one for the last two quarters, indicating potential end-market weakness or prioritization of higher-value projects.
Q & A Highlights
Highlights of thyssenkrupp AG (TKAMY) Q3 2024 Earnings Call
Q: Can you provide an update on the timing of the structural changes, particularly regarding the Steel Europe and Marine Systems segments?
A: (Miguel López, CEO) We are confident that the process with the German Development Bank (KfW) for Marine Systems will continue successfully in the next few months. For Steel Europe, our partnership with EPCG is progressing as planned, and we are currently negotiating the remaining 30% stake. The business planning exercise for Steel Europe is also making progress, with significant upgrades to the original plan.
Q: What are your thoughts on the appropriate capital structures for the spin-off vehicles for Steel and Marine Systems?
A: (Jens Schulte, CFO) For Steel, we anticipate a combination of equity from us and investors, shareholder loans, and external financing. For Marine Systems, the structure will depend on the final transaction details, but it should be largely self-funded as it generates positive free cash flows.
Q: Can you provide more details on the ongoing audit for Steel Europe's business plan and its implications?
A: (Jens Schulte, CFO) The audit is an IDW S6 study, which will analyze the current business plan and provide an independent opinion on its sustainability. The process will take around three months and involve sensitivity analyses on various factors. The result is not legally binding but will be considered in our decision-making.
Q: What is the status of the HKM transaction, and will it be included in the JV with Mr. Kretinsky?
A: (Miguel López, CEO) Our first priority is to sell HKM, and there is an interested party. If this option does not work, we will consider closure. The HKM transaction is independent of the remaining 30% sale of Steel Europe to EPCG.
Q: Can you explain the EUR80 million one-off due to incorrect cost accounting at Polysius?
A: (Jens Schulte, CFO) The EUR80 million one-off is due to incorrect cost accounting discovered during a cleanup of the project portfolio at Polysius. This primarily relates to prior periods and has been corrected in Q3. We have strengthened our internal controls to prevent similar issues in the future.
Q: What are the key friction points in the discussions with the Steel Europe Supervisory Board?
A: (Miguel López, CEO) We are working on the business plan for Steel Europe, and the discussions are ongoing. The key points involve aligning on the assumptions and measures needed to ensure the business's sustainability and profitability.
Q: How do you plan to achieve the EUR900 million free cash flow target for Q4?
A: (Jens Schulte, CFO) The EUR900 million target includes EUR170 million already received from government funding. We also expect significant advanced payments in our construction and shipbuilding businesses. Additionally, we will optimize net working capital and ensure timely collection of receivables.
Q: What is the outlook for Decarbon Technologies, given the recent order intake trends?
A: (Miguel López, CEO) We have a solid pipeline of projects, but customer decisions are being postponed. The sales development is a better indicator of growth momentum than order intake, which can be volatile.
Q: Can you confirm the current book value of HKM and its balance sheet status?
A: (Jens Schulte, CFO) We do not disclose specific figures for HKM. However, if we sell it, we expect to provide financial support. The exact amount is still under discussion.
Q: Have you officially pulled the 2025 target timeline, and when will you update the market on new targets?
A: (Miguel López, CEO) We are currently going through our internal planning process and will update the market once the fiscal year is closed and the books are reviewed. There is no further comment on the 2025 target timeline at this time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
