thyssenkrupp AG
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XETRA:TKA
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Dear ladies and gentlemen, welcome to the webcast of thyssenkrupp AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Claus Ehrenbeck who will lead you through this conference. Please go ahead.
Yes. Thank you very much, operator. Hello, and welcome for this conference call today on our Q1 numbers. Also on behalf of the entire team, I would like to wish you an interesting call. And of course, I said already welcome to you in our call today. We are sorry for the delay. There were some technical issues. So I would like to thank you also for your patience. The documents for this call have already been released this morning at 7 a.m. and are available on the IR section on our website. Before I hand over to Klaus Keysberg who will lead you through the presentation, [Operator Instructions] And with that, I would like to hand over to Klaus for the presentation.
Yes. Thank you very much. Warm welcome also from my side to today's conference call on our Q1 figures. Well, let us briefly take a look at the highlights of what we have accomplished during the first quarter of our fiscal year 2021. First of all, I'm very glad to announce that our start into the new fiscal year was better than we anticipated at the time we gave our forecast in November last year. Across all segments, order intake has grown year-on-year with the exception of Materials Services. Demand in particular from our auto-related customer groups was developed -- or has developed extraordinary dynamically across all regions. Consequently, we recorded higher sales at Industrial Components, Automotive Technology and Steel Europe, and we were able to generate a positive EBIT adjusted already in Q1. The turnaround was also supported by the consequent implementation of ongoing management initiatives. This is very important to mention, addressing the bottom and top line levers that Martina and I introduced to you already in our conference call in November last year. In this context, each segment contributed positively to the group EBIT adjusted of EUR 78 million with MT being the sole exception. Furthermore, we recorded a positive free cash flow before M&A of EUR 32 million with positive business cash flow contribution from all segments but Steel Europe and Marine Systems and year-on-year improvement in all segments expect (sic) [ except ] marine services. This is the first positive number in years, and it obviously strengthens our net cash balance of EUR 5.1 billion. Clearly, major contributors to this result are our stringent control of cash and net working capital as well as last year's termination of year-end net working capital measures preventing a swing-back effect that we got used to see in the last couple of years but not this year. Besides, we have progressed with our portfolio transformation regarding Steel Europe. We are conducting an in-depth value assessment of all major strategic options, you know these options, this is the sale option and the stand-alone option and potentially also spin-off option; and anticipated to conclude a landmark decision in March this year. In terms of Multi Tracks, we have terminated our attempt to find a buyer for Heavy Plate and thus, initiated the closure with envisioned completion until the end of this year. Moreover, the due diligence phase for mining has been launched, for which we have received one offer from FLSmidth, which you also read in the media. And last but not least, we have decided to hold the M&A process for our chemical glass business since we witnessed encouraging development in the hydrogen production product pipeline and have secured a major engineering contract from Hydro-Québec Canadian, confirming our conviction that we are very well positioned for the green hydrogen market that is about to take off now. Based on our better-than-anticipated performance in Q1, we are raising our fiscal year outlook and now forecast that EBIT adjusted will improve significantly towards almost breakeven, with all segments improving and all segments delivering a positive contribution except Multi Tracks. In addition, we raised our free cash flow before M&A forecast and now expect it to improve more strongly and move towards a negative EUR 1 billion figure. I will touch on this again later on. Moving on to the next slide. We can see the impact of the aforementioned developments on our key financials. Spurred by a strong recovery in the automotive sector and the segment's continued efforts to restructure while bringing their value levers into effect, we were able to improve our EBIT adjusted year-on-year by more than EUR 260 million. In particular, our segments Automotive Technology, Industrial Components and Steel Europe took advantage of the demand upswing in auto and truck-related industries, whereby Automotive Technology was also able to gain market shares thanks to new products for chassis applications and the production ramp-up. Simultaneously, we further reduced our head count by more than 5,500 FTEs across all segments year-on-year in total. Thereby, we have reduced within our defined restructuring programs, which we communicated last year, 560 FTEs in Q1. That sums up to a total of 4,200 FTEs in our current target of a reduction by 11,000 FTEs. So I'll repeat it again, 4,200 reduction of FTEs within our communicated restructuring programs and in total, 5,500 FTEs. One important thing is really that, of course, if you consider -- if you compare our previous guidance to the one we gave out now -- we give out now, of course, we see back wind from the market. But if you compare our, let's say, performance from Q1 of this fiscal year with the Q1 of the previous fiscal year, you really have to take into account that our measures -- our performance measures really, really got into impact. You see the sales development. Our sales development is 4% below previous sales of Q1 of the previous fiscal year, and we -- with this, we were, in spite of this, able to increase our EBIT by EUR 260 million. So this shows that the measures got into place. In line with higher operational earnings and the lack of the Q1 swing-back effect, the free cash flow before M&A has risen year-on-year by more than EUR 2.4 billion. In addition to the performance turnaround and tight net working capital management, cash flow in Q1 also benefited from earlier customer payments. Furthermore, inventory levels are not yet fully aligned with the faster-than-anticipated market dynamics, requiring further buildup in Q2. At the same time, our strong net cash position of EUR 5.1 billion remained nearly unchanged vis-à-vis Q4, in line with the slightly positive free cash flow. Let's jointly take a look at our operational performance in more detail. As evidenced by the figures, quarter-on-quarter, all segments improved significantly apart from Marine Systems. And year-on-year, nearly all segments have achieved an EBIT adjusted improvement with Multi Tracks being the only real exception since Materials Services was only a few millions lower. Material Services did not yet benefit from higher materials prices so far but will do so in Q2. Despite stable shipments in Q1, the business witnessed an unfavorable product mix with lower stainless steel prices and a decline in the aerospace industry. The effect from corresponding sales decline on the bottom line could be strongly mitigated, working intensively on achieving further cost reductions and enhancing its competitiveness by increasing the efficiency of its distribution network by the closure of logistics sites and branches in Germany, France and the U.K. and streamlining its headquarters with the project. Moving on to Industrial Components. We see a significant improvement with EBIT adjusted margins which comes to the level of more than 16% in total primarily due to the sales growth of bearings, where strong demand from renewable energy applications, wind turbines was further reinforced by the pre-buying from customers in China since government incentives expired at the end of 2020 and further supported by Forged Technologies where the demand recovery for auto and truck components increased. However, the majority of the improvement came from higher personnel productivity as well as cost control in admin and purchasing and led to a really pleasing margin for EBIT adjusted. Automotive Technologies recorded an improvement year-on-year after a trough in Q4, fueled by a higher production efficiency also on the back of higher capacity utilization and shorter cycle time, a more profitable order structure and further restructuring effort as well as lower non-conformance costs. Moreover, lower depreciation following the recognition of impairment in last fiscal year had an effect on our results, but this was a lower one -- it's a very low 2-digit one in the quarter. Thus, EBIT adjusted margin took a really nice jump to a direction which, from our point of view, is an all-time high one so far. Likewise, Steel Europe's EBIT adjusted has improved sharply, benefiting from 10% higher shipments and enhanced product mix with a higher share of auto, improved utilization rates and of course, initial effects from the ongoing restructuring with the progressive workforce reduction as well also here in this case and lower write-downs due to the asset impairment in the last fiscal year. In the case of Marine Systems, performance initiatives gaining traction and stabilized margins in the backlog as well as new orders where measures to improve commercial project executions are taking effect. And finally, at Multi Tracks, we see a very heterogeneous picture across all companies, given the composition of the segment. Year-on-year, EBIT adjusted was more negative due to Plant Technology and stainless. However, quarter-on-quarter, the business strongly reduced its losses on the back of management initiatives or restructuring taking effect. As initially mentioned, we are raising our fiscal year forecast due to the better-than-anticipated performance in Q1. And let's keep in mind though that the visibility for the fiscal year's second half year is limited and might be affected by the sustainability of the market trend, particularly the global automotive market, which will also be influenced by the further progression of the coronavirus pandemic and of course, other factors. Against this background, we feel that it is, of course, prudent to stay cautious despite the expected structural improvements in our business. Sales are expected to grow in the high single-digit percentage range but remain clearly below the levels before the pandemic. Regarding EBIT adjusted, we forecast a significant improvement towards breakeven level mainly as a result of the improved demand in our materials and automotive components business and of course, to some extent, dependent on the further development of raw material costs. This improvement will be mainly due to clear structural progress in all businesses and is predicated on the development of sales. Only Multi Tracks will clearly exhibit a loss, which is expected to be in the low- to mid-3-digit million euro range. As a result of earnings improvements in all segments, free cash flow before M&A is expected to improve and move towards a negative EUR 1 billion. In this context, we need to consider the investment required to set up performance and value upside of our business. And if we talk about investment, we also mean restructuring. So consequently, we will spend a low- to mid-3-digit million amount for restructuring and in addition, CapEx for driving competitiveness and capturing growth opportunities. To conclude, we believe that the current market trend and the continued execution of our value levers justify raising our full year outlook. Looking forward, our top priority is to enhance progress across the key value drivers. As a part of our portfolio transformation, we will take a landmark decision regarding Steel Europe in March 2021 and further pursue the M&A execution for our Multi Tracks business to achieve a streamlined target portfolio. At the same time, we will continue the execution of our restructuring and performance initiatives, so our value levers at all businesses. Moreover, our continuous improvement focuses on achieving returns on par with our best competitors and driving cash generation. And last but not least, tk aims to further build on its existing positioning, leading to a green transformation, thereby capturing attractive market opportunities, continuing its hydrogen-based steel climate strategy and leveraging its leading position in alkaline water electrolysis. Having said that, I thank you for your attention. And of course, I'm ready to take your questions. Thank you very much.
Yes. Thank you very much, Klaus. And with that, we would like to hand over to you, operator. [Operator Instructions] Thank you. And now operator, please take over.
[Operator Instructions] And we've received the first question. It is from Ingo Schachel of Commerzbank.
Congratulations on returning to profits and positive cash flow so quickly. My first question would be on your hydrogen business. You've now made the decision and commitments to develop the chemical plant business internally. I was just wondering whether you've already made the decision of how much capital do you want to deploy in there, how much of R&D and CapEx you want to spend in this business per year going forward. And how do you ensure that the unit has enough flexibility and managerial attention to compete successfully with successful pure plays, which have independent flexible management structures and direct capital market access, whereas, I think, at least for now, your unit is a business unit reporting into a, say, rather complicated business area?
Yes. Thank you, Mr. Schachel, for the question. Of course, as Martina also said on the general assembly, so we took the decision to develop the business by our own. And this, of course, needs some strategical, let's say, questions to be answered. And this is something we are in the process and we are going to deliver to you when we, let's say, ended up with our strategic process, which will be in May. But of course, these issues you raised are totally the right ones. So where do we find this business in our organization? And it's very clear that we cannot find this business in the organization as it is now. So we will come up, of course, with -- let's say, with another approach and are going to introduce it to you at the appropriate time then. And if we talk about financing, yes, this is also a thing which we are looking at. And you know that this kind of business at the moment, everybody is talking about partnership, partnering and partnering financing and things like this. We have not come to a decision, but we are looking at all possible options. So if we talk about partnering, this could be a strategic partnering, a financial partnering, but it's really too early to give you an answer to this. So this -- we are evaluating on this, but the clear target is that we, first of all, look at a stand-alone, let's say, solution to develop this business by our own. So having said much, but the short conclusion is we will come up latest until May with concrete actions on this.
Okay. Great. Then I'll try to wait until May. And then the second question is probably also one where you will tell us to be patient until March at least. But on the European steel business, I think on the Q4 conference call, you were already asked about potential impairments, and I think at that time, you didn't really send a strong message as to whether you would be willing to incur impairments in context of a potential divestment of Steel Europe. Now with the steel markets having rebounded very strongly, and I think you reset the book value at a time when steel markets looked a lot less favorable a few months ago, so at this point, would you be willing to tell us whether, let's say, the book value is any important reference point for you in this current strategic review or in other words, whether one could say that with much improved steel markets, you would not be willing to pursue a strategic path which causes an impairment for Steel Europe?
Well, I mean, this is, of course, a question which goes a bit into the detail regarding the negotiations with a potential buyer, which is called Liberty. This is very clear so -- as always and very independent from our book value. The best case of book value is more or less on -- let's say, on the market value. This is very clear. But not so much looking at the book value, we always intend -- if we are talking about divesting a business, we have to have, let's say, an enterprise value which is in accordance with the market valuations and not, let's say, a current one, more one over the cycle. And this is, of course, where we are looking at. And nothing else to say. You understand that I cannot be more concrete about it.
The next question is from Seth Rosenfeld of Exane.
This is Seth Rosenfeld at Exane. If I can ask 2 questions: first, on working capital; and then second, going back to some of the cost savings, please. On working capital, obviously, very strong performance in fiscal Q1. Can you just touch on or provide some scale of expected investment that will be needed going into fiscal Q2 or even over the next 12 months so we can better understand how raw materials are impacting your balance sheet and therefore, your working capital, please? I'll start there.
Yes. Working capital, of course -- I mean we saw a good net working capital development in the first quarter. But this is -- if you look at the dynamic of the business, you see that you normally have a seasonal trend. So you know that Q4 number -- no, Q4 calendar number, so Q1 of our business year, is normally -- if you look at the sales volumes is a weaker one. But in this time, you are normally going to restock a bit for the rest of the coming months, which are supposed to be strong. And this is something, of course, which went also in this first quarter, but business came out stronger, yes. So to be very honest, I think we have to, let's say, restock more to really fulfill the needs of the business in the future more. We saw also some effects on the receivables side, that we got, let's say, a few payments, which we did not expected. So there were some effects on this case. But we think that we have to deal with a slightly higher net working capital level for the rest of the year. So this is something which we are going to expect also looking at the dynamics of the business. This is more or less what we can say to net working capital.
Okay. If I can, a separate question, please, on self-help cost savings measures, please. Obviously, your Q1 EBIT came well above where The Street initially was, based on your prior guidance from late November. I just want to better understand how with only about 6 weeks left in the quarter, by the time of the guidance, results came so much higher than what was basically expected at that time. How much of this was self-help measures that were executed quicker than expected? How much of this was cyclical? How much of this was just your own conservatism in communication? It's nice to get a positive surprise, but we all know that, that can swing the other way as well.
I mean you're actually right. You were talking about the full year guidance because we did not guide the -- really, the first quarter. But I mean the question nevertheless makes sense. So the guidance which we brought out in November, of course, was something we already saw the dynamic of the market, which we started at the -- already at the Q4 of the last fiscal year. And as we also said, is that we were not quite sure whether it is, let's say, a catch-up effect which we saw in the Q1 and how much of this catch-up effect is going to be transferred in the rest of the fiscal year. And this was the reason why we were cautious at that point of time. And even now, if you take into consideration the Q1 figures, I mean, what we observed there was clearly that -- a high dynamic and a high demand. But we clearly can say also now that some this came out of catch-up effects from the supply chains and auto suppliers and auto producers and things like this. Now speaking about the rest of the fiscal year, we still see a high demand, which is very positive, which is good, and this is something which we were not sure whether it's going to happen. I think 6 weeks ago, this is something we were not sure about. We see a dynamic, but the dynamic normalized a bit. So it's not as dynamic as in the Q1. So taking this into account, we have a positive view, but our visibility is only 2 months. And if you then take into account potential, let's say, variables or potential risks, and you all know them, this is corona and the lockdowns. This has something to do with semiconductors. We can go into this in more detail. We also have, let's say, the raw material price development in iron ore and, let's say, logistic cost increases and things like this. This is something we see as a variable. And since we do not have a good visibility more than 2 months, we are still cautious. You can also count our actual guidance as cautious, and yes, it is so. But we do not have, let's say, the reason why we should be more optimistic because we don't have the visibility.
The next question is from Jason Fairclough of Bank of America.
Look, first question from me, with the elevator sale, I think you participated in the purchase vehicle. And I guess if we think about steel, would you consider a partial exit or possibly even supply vendor finance if it allows the steel sale to go ahead for a satisfactory valuation?
Jason, we are not quite sure whether we get the later part of your question right. Could you please repeat it?
Yes, sure. So bottom line is you guys don't need the money today. You've got EUR 5 billion of cash on the balance sheet. And so the exit of steel is, if you like, a strategic imperative rather than a financial one. So would you actually finance the sale of that business? So in other words, would you essentially give somebody an IOU for the sale to allow the sale to happen? Or would you consider a possible exit if somebody didn't have the money they needed to buy the asset?
Yes, yes. I see what you mean. So no, this is nothing we really want to go with. So we -- if we talk about -- the options we are talking about is, let's say, a sale option, which is Liberty. Nothing else on the table. Liberty is on the table, nothing else. And the other one is the stand-alone within the group; or potentially -- this is something we are checking, potentially, let's say, lead this into the direction of a spin-off, which all the -- let's say, which are the -- let's say, which are the opportunities which are coming out of this -- let's say, this kind of business model. And if we talk about the sale of the business, as I said before, we are looking at enterprise value, and this has to be on a market level. And everything else about the mixture, let's say, of equity and net debt and pensions and things like this, this has to be decided, but it's nothing that we would do a financing for someone with -- who wants to buy the asset. This is nothing we are going to intend to do.
Okay. So just a second question then, if I could. On Multi Tracks, we're talking about EUR 5 billion of turnover roughly. How should we think about the duration of this business? Is it gone in 3 years?
Well, at least, this is the plan, yes. So you know that if you talk about what is in the business, so in the business, of course, AST, the AST mill in Italy. We are -- we want to really, let's say, progress this process so far that we could really have something tangible through this year. The same applies also to the mining business, as we said before. For instance, the mining business, we are quite advanced because we have a bid here. And the cement business, this is something we already discussed also on other occasions. We were also in contact with potential buyers. But as we also said, we are not doing fire sales. So if we are not happy with the conditions, then we also say -- well, we step back from this one single alternative. But of course, we are looking further for the exit option here. And meanwhile, we are going to develop the business by ourselves. But as you said, 3 years' time, yes, this is clearly our plan, to get rid of the businesses in 3 years' time. Yes, this is the plan.
And sorry, just a cheeky follow-up. So if it's gone in 3 years, at the end of 1 year, is it 1/3 gone or half one? How should we think about the path?
You mean in 3 years, whether it's totally gone or 1/3 gone?
Exactly or even on a 1-year view, yes.
On a 1-year view, the 1-year is always very difficult because you know that this is difficult to say is it in 1 year done or not. So we should have some progress with the major assets here. But on a 3-year base, we should -- this is, of course, a wish. This is something I cannot promise you. But this is, of course, a key intention that in 3 years' time, we want to get rid of this business, clearly, definitely.
The next question is from Bastian Synagowitz of Deutsche Bank.
Also 2 questions from my side, please. My first one is on the performance in Industrial Components and auto tech, which was highly impressive. Could you please let us know how far this performance has been really fully underlying? I think you've been quoting some -- obviously, some catch-up effects here. These are generally very volume-driven businesses. So I would have thought this has still mostly been driven by basically good volume hitting, maybe an improved cost base. And then also, how do you reconcile the guidance with a deceleration in the second quarter with the fact that from what we can read out of your order books, you actually still see a very, very decent demand here? So the order book doesn't actually indicate a deceleration in the second quarter from the data you're reporting. That is my first question on the business.
Yes. If you talk about Automotive Technologies, for instance, of course -- if you look at the sales number from Automotive Technologies and compare this in the first quarter against the previous quarter, you only see an increase of 3%. So it is -- of course, this turnover of EUR 1.2 billion is the one which is far higher than we anticipated in our original planning, but it's only 3% higher than in the previous year. And what we also see is, of course, that we see really efficiency gains in our plants. So we see, let's say, less failure costs. We see better overall equipment efficiencies. And of course, we see better product ratios and -- for our portfolio, sorry. And this is something which we clearly see an underlying improvement in the efficiency of the plants. If you talk about the volumes, well, the volume is very difficult in Automotive Technologies. We -- as a sample, we said in '19, '20, sales went down 20%. And in '21 -- 2021, it will go up 10%. So this is more or less a sample. So that means that in 2021, we will be still below the pre-corona level. This is at least what we anticipate and what we incorporated in our guidance also. So the Q1 was a bit better than pre corona. What we see is that the dynamic in the Q2 is not bad, but it's not -- it's more normalized than in the Q1. So -- and we also see effects from the semiconductor shortage, and we also see some effects on the logistics. If you talked about -- to our customers, and this is what you can also read in the media, things are going to catch up in the middle of the year. If it's okay, then we will see higher volumes. But we don't have an evidence of this, and that's the reason why we stick to our cautious, let's say, view on this. Does it help a bit?
Yes. Sorry, go ahead.
Yes. And the Bearings and the Forged Technology business, the Bearings business, we saw also during the last fiscal year a big increase in volumes and in sales numbers, which is definitely also leading to a huge EBIT increase. And this is something which is clearly the case. If you look at the Forged Technologies business, it is also the case. You can see this also by -- if you compare the numbers in Forged Technologies business, we only have not that much sales increase, only a few percent, 2% of sales increase, but the EBIT increased a lot. And this is why -- why is it so? Because performance measures -- there were big performance measures which came into effect. And this is something -- if you compare the numbers of employees of the Q1 fiscal year to the previous one, I think they reduced by roughly 700 to 800 people. And if you go 1 year further ahead, then it's more than 2,500. So this is really effectively what we are seeing here. And we really see that the cost basis is going to be increased a lot. So this is the major driver with Forged Technologies. Bearings, it's sales. Forged Technologies, it's restructuring. Automotive Technology, against previous quarter, it's more restructuring and efficiency. And also Automotive Technology reduced head count by more than 850 people against the previous year. So this is something which now you can see in the numbers.
That's really, really impressive, I've got to say. Just a very quick follow-up on this one, just in terms of the margins we've seen. So we had 11% in automotive. We've had 16% in IC. You never have been reporting these businesses for a long time over the cycle, and I would say most people probably use peak margins, which are literally a fraction of what you did in Q1 already. And I think you're still due to communicate your actual aspirational margin targets for these units. So are these margins any directional indication of what you are aiming for in these businesses?
To be very honest, so this 16% is, of course, for the whole IC business. And in Automotive Technology, we see 9%. But nevertheless, it doesn't matter, 9%, 11%, it's good enough. This is, of course, something -- you have to take into account the special product mix. So by Automotive Technology, it depends very much which cars you are now in good volumes in this quarter. This is not necessarily the 9% which you can really count for the whole year, but it's a good development into this. So if you talk about the target margins which we, of course, know for the business and also, let's say, set as targets for the businesses, this is something we are going to, let's say, also distribute to you at the appropriate time. But I will not, let's say, release the margins now. This is very clear. But to be honest, the Automotive Technology margin is a very good one. So it's all-time high, and we are very happy with this.
Okay, okay. Then just one more question, if I may, just on the Multi Tracks business. And I guess you generally quoted obviously limited visibility, which is obvious, in the second half of this year, and I guess that applies particularly for the businesses which are contributing profits. But in Multi Tracks, I guess this is much more also of a cost-cutting game. And I guess from that point of view, maybe there should be more, basically, within your own control in terms of how you will be improving. So what is your visibility on how that business and the current run rate will be improving in the second half of the year given the packages of measures which you're still implementing?
Yes. I mean this is -- because we have so heterogeneous business in there, this is difficult to say. So if you look at the stainless steel, we -- at the moment, the demand is not too bad, but let's say raw material prices, especially nickel, is quite high. So this is not good for the EBIT. So we think that it's going to improve during the year. This is something we think but we don't know, but this is always the case. If you talk about, let's say, the steel business, there are also some big factors which are not in your own control. If you talk about Plant Technologies, I think we -- in the cement business and the mining business, we are -- let's say, in the mining business, we are quite advanced in the divestiture process. In the cement business, we are -- have some restructuring progress we will improve with us during the year, yes. And then if you talk about the rest, this is Springs & Stabilizers business, you know that we have a restructuring program ongoing there. This is the closure of Olpe and the streamlining of Hag, the 2 German plants here. And this will definitely have an effect on this year. But at the end of the day, this will be a difficult business anyway. So this is something where we are -- why we also say that we are expecting here a loss in this fiscal year still.
But you think the run rate will improve from here, basically, is what you're saying?
Yes, yes. This is what I'm saying, yes.
Your next question is from Constance (sic) [ Carsten ] of Crédit Suisse.
It's actually Carsten from Crédit Suisse. Quickly -- a lot of questions were already answered, but one question I have on steel guidance. You guide quarter-over-quarter flat, which looks not too ambitious to be fair, given that your crude steel production went actually up 30% quarter-on-quarter, suggesting that the second quarter will be actually very strong with regard to volumes. Price is not really pointing to -- at least to the lower side yet. So where is the weaker component here? Is it in the long-term contract prices which you potentially negotiated a little too early? Just want to understand where the rather conservative guidance comes from.
Where the conservative -- it is a conservative guidance, yes. So it is not so much on the price side. You know that we negotiate prices in long-term contracts half a year or 1 year starting at the 1st of January. We also have some contracts which are valid in April and some in June, and this is the normal case. You know this business. But this is something which is not so much -- let's say, gives us not so much fear here about this. This is a quite good development. We clearly see what is the raw material price development. So we see iron ore, which is coming up over 150, which went to 170. So this is something -- if it stays with 170, 160, it's, of course, not good for nobody. But this is something -- of course, we will have, let's say, not such a nice development. This is something you have to digest. So this is one case. And the other case is -- regarding volumes, yes, we are on a good way. And to be also honest, for the whole group, and I'm not saying too much, the January started quite good. So this is not the case. But as I said, we only see 2 months, and we don't see what is going on really in the demand if you talk in April or May. So if you could have the glass ball and see what is going on in May with the demand, then we could come to another conclusion, but we don't see this. Therefore, we stay with our cost guidance here.
Okay. Perfect. The second one is, I stay in the materials business, Materials Services. We have seen quite a bit of earnings upgrade at Kloeckner, one of your competitors here. We haven't seen that much of performance in Materials Services yet. Maybe you can shed a little bit of light why that is. Did you deplete your inventories in your fourth quarter and hence had to buy steel at comparably higher prices, which means the inventory effect comes later with you? Or why do you think you're lagging here a little bit?
Well, it is -- if you, for instance -- or if you actually look to Kloeckner, you have to bear in mind that road steel portion of Kloeckner is higher than the ones of Material Services. So the stainless steel portion of Material Services is much higher than Kloeckner. So this helps Kloeckner at this moment. And also, their footprint in the U.S. is better than for Materials Services, something which is in their favor at the moment. We clearly can say that we are expecting, let's say, a better development also from volumes and prices accordingly in Q2 and following which -- for the Materials Services business. And you have to bear in mind that we have an aerospace business in Materials Services, which is, at the moment, let's say, as you can imagine, not performing as we saw this performance 1 year ago. This is something which is also -- you have to bear in mind if you do a comparison or a benchmark here.
The next question is from Christian Georges of Societe General.
Yes. I'll be brief. Just you're highlighting these restructuring costs, a low 3-digit million euro amount. If we look at Multi Tracks EBIT, there's about EUR 70 million difference between your EBIT adjusted and your EBIT. I mean are these the restructuring costs you're highlighting? And is this part of the guidance? And what is exactly behind the EUR 70 million in the quarter? And are they recurring?
So what you are referring to is the difference between EBIT and EBIT adjusted in the Q1, so the roughly EUR 70 million. This is -- these are restructuring costs mainly related to the...
That's right.
Yes, this is the case. But we will see more restructuring costs during the year. So I think we guided to a mid-3-digit number or -- and this is going to come still. So out of this total number, EUR 70 million, we digested in the Q1, more or less, and the rest is to come. Yes, you're right.
So this is in line with the restructuring costs you're guiding for? That's where they will appear, mostly for Multi Tracks and possibly some for the core businesses?
Yes. So these restructuring costs are more or less -- we see some in Multi Tracks, we will see some in steel and we will see some also in other businesses because we do restructuring in nearly every business. So -- but yes, you're right. So...
Okay. That is very clear. And my second question still on Multi Tracks. I mean obviously, you're looking at divesting all these businesses. I mean can you give us an idea of the book value of all these Multi Tracks and whether we should take that as an area where we could have a risk of an impact on your equity if you're forced to sell well below the book value?
Yes. You might -- you clearly understand that we are not going to distribute the book value now. But if you -- for instance, the mining -- the cement business, so we step back from the divestiture for the moment because we think that what we saw so far is not, let's say, appropriate enough. So we are not doing fire sales on the one hand; on the other hand, willing to divest the businesses. It will be -- let's say, at the end of the day, we'll have to see what kind of effect do we have. Do we have maybe an effect on equity or maybe an effect of cash? I will not totally, let's say, rule out that it's not going to happen, but this is something we are not looking for. So we clearly think that we will have -- we have the time to not make economic non-sense, yes. This is clearly our objection. But on the other hand, we want to be -- let's say, we clearly want to have a perspective to get rid of the business in the next 2, 3 years, as we said before. But it's -- I cannot really say what will be the effect on equity or cash at this point of time. Sorry for that.
Okay. And I'll just sneak one very small one. On hydrogen, I know you can't tell us too much yet, but is the pipeline, looking for the next 12 months,still relevant? Or was the Canadian announcement a one-off? Are we still a long way from more potential deals in that activity?
Well, Christian, whenever we talk with our colleagues from the green hydrogen unit, we have the impression that they are really busy, really busy, and they are telling us that their project funnel is expanding. So you have seen the announcement in January for the project in Canada, which is really a nice proof that the market is starting to take off now. And they -- we are hearing that more of these announcements are planned for the remainder of the year. So there's really something going on in the hydrogen business.
The next question is from Rochus Brauneiser of Kepler Cheuvreux.
Let's start first with steel. I guess you were repeatedly stating about the landmark decision in March on Steel Europe. I guess if it would be a sale to Liberty, it would be a kind of a landmark decision. If you would keep it, probably, in that sense, it would be -- it would sound less of a landmark decision to me. What should we take as a conclusion if you would stick to the business ultimately now? Would that mean that this is kind of a decision which will be valid for a longer-term period because now you had this strategic decisions back and forth in the business and at some point, I guess, there needs to be more stability in the kind of direction for the business? And in this context, I'm not really sure whether I understand the point on the potential spin-off because you're now really working hard in harvesting the synergy and extending discussions with labor about stepping up eventually the restructuring efforts. So why not harvesting this benefit on your own? And the second question is can you get a bit more specific on the kind of CapEx range you see for this year? And what are the main tickets in terms of steel that you're seeing for the next 2 to 3 years?
Sorry, we were on mute. I already told something.
Sorry for that.
Now I have to explain again. So talking about your question about this landmark decision which is supposed to come in March. And you know what kind of options are on the table. This is the potential divestiture to Liberty or the stand-alone within the group or not within the group as a spin-off. And then you consider this not -- if you go -- if we want to make -- if we would make the decision to make a stand-alone, this is -- to go ahead with a stand-alone decision within the group, you do not consider this as a landmark decision, which I understand from your point of view. But for us, it is something because you know that we are -- we have these options on the table and we are looking what is the value creation potential for each of the options. And if we look at, for instance, the divestiture option, of course, we can judge it easily. If we look at the stand-alone option, we will have to have a full potential business plan, which we are working on it, and then make our decision whether it's better or worse in comparison to the options we have on the table. Now this is something we are clearly looking at. The spin-off is, of course, something -- and we are always quite open in what kind of things we are, let's say, looking at and make a feasibility study or something like this. I mean for us, the most important thing is really -- the most important thing is what is the option where you can create the most value. And we are very much convinced that our steel asset is one where we can create asset (sic) [ value ]. And we are very much convinced that also in a stand-alone case, we can create value because we really are convinced that our setup of production plants in Europe is more or less unique. And that we have -- let's say, our capability to produce, let's say, special grades and our relations to the customer, it is something. It is really something. And so this is something, and we are very confident that we are able to do this by our own. The other thing is, of course, you always have to judge what is a potential better solution. That's also the reason why we were talking about potential consolidation. Of course, we see some, let's say, challenges in the European steel market, yes. You know this, overcapacity and now this transformation to green steel and things like this. Is it more easy to overcome these challenges? Is it -- are there plants in the world where you can create more value if you talk, for instance, about the consolidation? And this is the reason why we also look at a spin-off. This might be -- but we have not taken a decision really. We're very open to say that we are looking at it to make a feasibility study. But what is the strategic rationale behind this? The strategic rationale is, I think, it's very often if you have a pure player at steel, I mean, this is something -- and if you look at, for instance, other spin-offs which you saw in history, you maybe get another commitment from every kind of stakeholder you see. And this is something we are examining and we will take into account at the end of the day. And this is the reason why we -- from our point of view, it's something like a landmark and -- if we would take the decision not to divest, to make a stand-alone one. Then you're asking, is this a decision which will be, let's say, for the next 2, 3, 4, 5 years. I cannot say that this is then, of course, a decision where we clearly commit on investments and measures on a stand-alone basis and go ahead with this. And if on the way, in 3 or 4 years, it's something going on -- going to happen on a strategic basis, we will consider. But for the time being, this will be then our way. It -- I hope this is something you understand.
And on the CapEx?
Yes. The CapEx for steel or for...
I asked for the CapEx range for the current year. And how much would be steel? And what would be the main tickets -- big tickets you're seeing on the road for the next 2 to 3 years?
I mean the CapEx for the fiscal year, you know that we -- our depreciation is roughly EUR 1 billion, and we are planning to do investment. This is not -- we have decided this, but we have ideas to divest -- to invest more than EUR 1.5 billion. So this is something where we clearly have ideas, too. And if you look, for instance, at the steel business, I mean, these are strategic investments, I really have to say, yes. So this has something to do with, let's say, production capacities in wind energy with bearings. This has something to do with, let's say, supply chain solutions for Materials Services in the U.S. These are really good, let's say, projects where we have key projects behind with good rentability, which is really pushing us, enabling the businesses, these investments we have on the table. And of course, the steel one, this is something we also said. You know that in steel, we have the normal level of investment of EUR 500 million. And within the Steel Strategy 20-30, we are willing to invest, in addition to yearly EUR 500 million, EUR 800 million in the next 6 years, which then will be -- you can allocate this on the years now. So of course, this is also -- will also have an impact also in this year, yes. Okay?
Okay. That's -- my question, is there any landmark project on the steel road in this EUR 800 million you want to -- you can highlight as a particular one to boost the footprint?
Yes. It's -- of course, this is really one -- we are totally convinced in this investment. So the first investment is in Duisburg, and it is, let's say, the separation of [Foreign Language]. I don't know the English word for this, but it is...
Continuous caster.
The continuous caster. So we -- this is something where you really increase, let's say, the quality of -- in the process of hot metal and then cold strip. And this is -- you have to do this. And with this also, it is not only increase in quality. It is also, let's say, a bit of flexibilization of the production footprint because now having this [Foreign Language], the permanent caster is something -- is a bit -- if the volumes that come in is good but it's a bit inflexible, you can imagine that it is totally integrated here. The other one is investment in Bochum. It's [Foreign Language], which is...
It's an [ idling ] line.
A dilating line -- yes, [ idling ] and dilating line. And that one is [Foreign Language]. It is -- I don't know the English word for this, but this has something to do -- you really need these ones to go into the special grades for electromobility. And you really need this one to go into these grades for high-strength steel and crush-resistant steel. So you all -- you need this hot strip with better material, better quality and then also to make more processing to -- on the cold side with these aggregates I just mentioned to really go for the grades for electromobility and also high-strength steel, which we clearly see huge margin and growth potential in this area. This is -- these are the most important issues here when you talk about the strategic investment program.
The next question is from Alain Gabriel of Morgan Stanley.
I have 2 questions. If I may start with the first one. It's on the steel plate closures. Can you remind us if you anticipate any major rehabilitation costs in terms of cash outflows that are not really reflected in your guidance for restructuring for fiscal '21? And how much cash burn would you save next year once you exit plates? That's the first question.
I didn't get the second -- sorry, can you repeat it again?
Yes. The second part of the question is how much free cash flow or how much cash burn would you save next year by just exiting plates? What would be the annual run rate of savings you'd realize by exiting plates?
Yes, yes. I mean to the first one, the cash out of Heavy Plate business, it's -- everything is digested in the numbers. So this is the first one. And the second one -- question is -- my translation of the question is when will be the free cash flow positive. And let's say, is it what you're saying? Or is this -- do we see free cash flow positive next year, is this something -- what you're saying? Or...
What is the negative free cash flow that you expect this year from Heavy Plate, which will disappear next year, of the exit?
Okay. Sorry. So it is -- let's say, it is lower 3-digit million numbers.
Range -- okay. And the second question I have is basically on -- if you take a step back and just remove Multi Tracks from the business, remove Steel Europe from the business, what would be your cash needs for the remainco basically, for all the remaining businesses that you anticipate to keep, let's say, 3 years down the line, as you have mentioned, in terms of cash needs? I'm referring more to CapEx. So any other cash outflows in terms of taxes, financing costs and so on just to get a sense of what would be the breakeven EBITDA for everything that you plan to keep 3 years down the line?
Well, well, well, difficult question if you talk about investments. So if we would not have Steel Europe and Multi Tracks, this would be roughly, let's say, EUR 800 million or something like this, so a release of EUR 800 million in cash flow -- in investments. So this is the first thing I can say. The other thing is -- it is too quick to really say, but...
Other items that could be considered here that need to be considered in the cash flow bridge are then the pensions. If steel would leave, of course, then quite some of our pension payments would go. If you consider that EUR 4 billion of our EUR 8.7 billion of pensions are in steel, you can also then make pro rata calculations for our annual payouts. And other items that you need to consider in the cash flow bridge, of course, interest. Probably the effect would not so -- be not so much on interest since interest payouts, in the meantime, are not that high. It's about EUR 200 million in total for the year. And on the tax side, it really depends on the profitability, yes. So that's too early to say currently.
So we'll work and then come back to you later. So this is...
We can discuss it with you later.
The next question is from Luke Nelson of JPMorgan.
My first question is on normalized earnings, following up on Bastian's question a bit earlier. If I just take auto tech as an example, Q1 adjusted EBIT annualized, well over EUR 400 million, relative to capital employed in that division, implies something sort of over 20% versus the cost of capital of around 8% to 9%. We can do a similar exercise with Components Technology earning well above cost of capital. So maybe asking that earlier question slightly differently. Is the capital employed a realistic base to think about what the mid-cycle earnings potential for these companies are? Or were important impairments taken too aggressive last year? Or conversely, are we just in a point in the cycle where these businesses are potentially over-earning? That's my first question.
It was difficult to understand, so -- the first question. I just checked also here whether the impairments were too high, what we did last year. So we definitely do not think so. And this is -- you know that these impairments are done also with a long-term view on this, and the long-term view were not -- is not, let's say, so much influence on the, say, 1 or 2 years dip from corona. So we really take a long-term view on this. And so no, we don't think that the impairments were too high on this. What you're also asking for was the, let's say, normal level of earnings for the automotive business. I just give the answer that we will not, let's say, come to, let's say, the disclosure of, let's say, envisaged target margins. But the 9% we see in the Q1 is another one we can sustain on a continuous basis here. So this number we see not on this level for the ongoing time.
Okay. I suppose second question then on the change in tactic on -- following up on Steel Europe and the restructuring options. Obviously, Tata have spoken with regards to separate sales process falling over recently. I'm just wondering whether at all it's being considered, in the context of the European steel landscape potentially changed over the last 2 to 3 years, whether a combination of those assets in a stand-alone entity would make sense. Or was it palatable from a regulatory or competitive point of view and if that's something being considered?
Well, this is something -- this is a good question. If you ask me personally what will be the steel landscape in 10 years, I would say that we do not see so much players. So this is definitely a market for where the consolidation might make sense. So -- but at the end of the day, you have to find concepts where you have -- let's say, you have a win-win situation for all parties here. And we checked it in the last couple of months, and we did not find a solution. That's the reason why we go on this way. And I think we are prepared to do so, and we maybe are also prepared in a good way. So we do not fear the competitiveness here. What will be in 5 or 10 years, I cannot say to you. So -- but even if we are taking the landmark decision and clearly say that we want to, let's say, we stick to the strategy and we stay to the business plan and stay also to the investments, you never can say definitely that it's not going to be the time for consolidation afterwards. This is something which is clear.
Okay. And sorry, just one quick follow-up, just on the Steel Europe decision. Are there any sort of tax effects or anything on a deconsolidation basis that we should be aware of?
You mean tax effects if steel is going to be deconsolidated?
Yes. Under any of the sort of the different -- the 2 scenarios, either a sale or a spin-off of this, is there any sort of one-off or exceptional...
This is something -- we are checking this as part of the feasibility study. There might be some effects, but it's too early to say whether they are major or not. So this is something which is definitely part of the feasibility.
Okay. Perfect. We'll wait for the March update.
As there are no further questions, I would like to turn back to you.
Yes. Thank you very much, operator. And also, thank you all outside for joining our conference call today and for the lively discussion. We would now like to conclude the call. And as always, for any further discussion, questions, information, the IR department is always available for you. Thank you very much, and we look forward to staying in touch. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.