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2017/2018 forecast

The following forecast relates to the full Group in its current structure (including the fully consolidated Steel Europe business area, i.e. without effects from the potential contribution of the European steel operations to a joint venture with Tata Steel); no longer included are the operations of the former Steel Americas business area which have now been sold.

Overall assessment by the Executive Board

  • Increase in Group sales; order intake down from high prior year
  • Adjusted EBIT at €1,276 million: continued positive materials environment and faster than planned cost reduction at Corporate; but at Industrial Solutions major project awards remain slow and earnings significantly impacted by additional project expenses in 3rd quarterNet income down due to write-downs of deferred tax assets on loss carryforwards in connection with the steel joint venture in the 3rd quarter as well as additional project expenses at Industrial Solutions
  • Free cash flow significantly higher year-on-year in both the 3rd quarter and the 9-month period, but negative mainly due to impact of continued low order intake and high expenditures from ordersin hand at Industrial Solutions
  • Continued significant effects from changes in exchange rates, mainly USD and CNY, particularly at our capital goods businesses Components Technology and Elevator Technology
  • Also, continued stable and high prices on the commodity and material markets with positive income effects on Steel Europe, negative effects due to higher material costs at Components Technology and Elevator Technology
  • Adjustment of full-year forecast for the Group and at our capital goods businesses reflects in particular the above effects

For key assumptions and expected economic conditions see forecast section and “Macro and sector environment” in the report on the economic position in the 2016 / 2017 Annual Report and this interim management report.

2017 / 2018 expectations

  • Group sales to increase in low single-digit percentage range (prior year, continuing operations: €41.4 billion)
  • Adjusted EBIT of the Group expected around €1.8 billion (prior year, continuing operations: €1,722 million), supported by €750 million planned EBIT effects under “impact”
  • Capital goods businesses
    • Components Technology: increase in sales in mid single-digit percentage range, with adjusted EBIT slightly lower year-on-year due to negative exchange-rate effects, increased material costs, and weaker productivity at Springs & Stabilizers; excluding exchange-rate effects and material cost increases higher year-on-year (prior year: €377 million)
    • Elevator Technology: due to negative effects from exchange rates, sales slightly below prioryear level (prior year: €7,674 million); adjusted EBIT and margin slightly down year-on-year with significant adverse exchange-rate effects and additional impact of material cost inflation particularly in China; on a comparable basis higher year-on-year (prior year: adjusted EBIT €922 million, margin 12.0 %)
    • Industrial Solutions: due to slowdown in major project awards, overall reduced order expectations; adjusted EBIT clearly negative mainly due to slightly lower sales, additional project expenses, and partial underutilization (prior year: €111 million)
  • Materials businesses
    • Materials Services: adjusted EBIT close to prior-year level (prior year: €312 million)
    • Steel Europe: assuming prices on the materials markets remain stable at a high level throughout the fiscal year adjusted EBIT significantly higher year-on-year, in addition, stopped regular depreciation charges (prior year: €547 million)
  • Net income: significant increase year-on-year despite additional project expenses and writedowns of deferred tax assets on loss carryforwards in connection with the steel joint venture in the 3rd quarter (prior-year net income, continuing operations: €271 million)
  • tkVA: accordingly, also significant improvement (prior year: €(651) million)
  • Capital spending: expected around €1.5 billion (prior year, continuing operations: €1,535 million)
  • FCF before M&A: significant improvement versus prior year but negative owing to low order intake and delayed milestone payments at Industrial Solutions (prior year, continuing operations: €(855) million)

Source: Interim report 9 months 2017/2018, p. 20-22

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