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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

Overall we expect that further progress on our Strategic Way Forward will be reflected in our key performance indicators in the 2017/2018 fiscal year. However, it must be kept in mind that the economic climate is marked by great uncertainty and as a result sales and earnings in large parts of our materials and components businesses may be subject to short-term fluctuations. Uncertainties arise from geopolitical flashpoints and also the global economic situation and concern

  • the future economic policy of the USA, which carries both opportunities and risks
  • the performance of the Chinese economy as a key factor for global growth and as an important sales market
  • a possible change of monetary policy
  • the impacts of the exit negotiations following the Brexit referendum on economic growth in Europe, on exports and on future investment – above all in the UK itself but also in the other countries of the EU
  • the volatility and level of raw material prices as an important cost factor in our materials businesses and as a key factor for our plant engineering customers in the award of major projects
  • the overcapacities in the global steel industry, the corresponding competitive and import pressure on the European market, and the effectiveness of current and possible follow-up trade measures.

Nevertheless on the whole we take an optimistic view of developments in the 2017/2018 fiscal year and expect a significant improvement in earnings, value added and free cash flow before M &A.

Alongside growth initiatives in the capital goods businesses, a key driver for meeting our targets in the 2017 / 2018 fiscal year will be our efficiency measures: For the Group – now, unlike last year, without Steel Americas – we aim to achieve EBIT effects of €750 million under our “impact” program, which will counter the risks and market effects described above and further strengthen our competitiveness.

2017 / 2018 forecast: Further increase in earnings and value added with FCF before M&A again positive

Driven mainly by our capital goods businesses, the Group’s sales are expected to grow at a low to medium single-digit percentage rate (prior year, continuing operations: €41.4 billion).

With growth and improvements in our capital goods businesses, and depending on the continuance of the favorable materials market environment and possible translation risks, we aim to significantly increase the Group’s adjusted EBIT to between €1.8 billion and €2 billion (prior year, continuing operations: €1,722 million). To support this forecast we will systematically implement our transformation process and the associated planned EBIT effects under “impact” of €750 million.

  • Capital goods businesses
    • At Components Technology we expect a further improvement in adjusted EBIT (prior year: €377 million) from a mid to high single-digit percentage increase in sales and a further improvement in margin (prior year: 5.0%) also as a result of further progress with the ramp-up of the new plants and efficiency programs.
    • At Elevator Technology we expect an improvement in adjusted EBIT (prior year: €922 million) from continued sales growth in the low to mid single-digit percentage range and an increase in adjusted EBIT margin by 0.5 to 0.7 percentage points from restructuring and efficiency measures (prior year: 12.0%).
    • At Industrial Solutions we expect continued good order intake and a significant increase in sales in the almost double-digit percentage range as a result of higher order intake in the prior year. With the support of extensive transformation and restructuring measures under “planets” we expect a clear improvement in adjusted EBIT (prior year: €111 million). Margin will improve year-on-year overall but remain noticeably below the target range.
  • Materials businesses
    • At Materials Services, in a stable market environment, we forecast a slight decline in adjusted EBIT (prior year: €312 million). Restructuring and efficiency measures and the continued implementation of the business plan at AST will largely offset the expected absence of windfall gains.
    • At Steel Europe, subject to limited visibility, we expect adjusted EBIT at the prior-year level (prior year: €547 million); assuming prices on the materials markets remain stable at a high level throughout the fiscal year we forecast a year-on-year increase in adjusted EBIT, albeit with continued high import pressure and extremely volatile raw materials prices.

Our goal is to further strengthen equity with clearly positive net income; for fiscal 2017 / 2018, with restructuring expenses decreasing, we expect a significant year-on-year improvement (prior year net income, continuing operations: €271 million).

The Group’s tkVA is therefore also expected to show a clear improvement (prior year: €(651) million).

Capital spending in the Group before M&A is expected to come to around €1.5 billion in the current fiscal year (prior year capital spending, continuing operations: €1,535 million).

As a result of the further improvement in earnings and expected decline in net working capital, though with the implementation of restructuring measures continuing, we expect a clear improvement in the Group’s FCF before M&A with a return to positive figures (prior year, continuing operations: €(855) million).

We will take into account the development of our key performance indicators and progress with the implementation of the Strategic Way Forward – also keeping in mind economic justifiability – in our dividend proposal to the Annual General Meeting.

Source: Annual Report 2016/2017, p. 100-101

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