2022/2023 forecast

2022 / 2023 full year forecast specified for adjusted EBIT; free cash flow before M&A still expected to be slightly positive

Basic conditions and key assumptions

Despite the continued uncertainty about economic conditions, in fiscal year 2022 / 2023 we will continue to focus on the performance, structural improvement and ongoing development of our businesses and also continue our targeted growth initiatives.

The main assumptions and expected economic conditions on which our forecast is based can be found in the section headed “Macro and sector environment” in the “Report on the economic position.” For the corresponding opportunities and risks see the “Opportunity and risk report” that follows this section. This forecast is also based on the following key planning assumptions:

• Necessary fossil fuels (especially natural gas) and other raw materials will remain available and there will be no major restrictions on planned production as a result.

• Business development will not be held back to a significant extent by pandemic-related restrictions.

Partially volatile price levels for raw materials, energy and other factor costs (including materials and transportation) at times could result in corresponding fluctuations in sales and earnings development.

We anticipate the following basic conditions for our businesses in fiscal year 2022 / 2023:

At Materials Services we are forecasting total shipments at around the prior-year level, with support also coming from ongoing efficiency measures. These planned improvements will be negated by the absence of the strong support from dynamic price effects registered in the previous year. Overall, we do not anticipate further significant restrictions in the availability of materials on the purchasing side, nor significant disruption in important customer sectors.

Within the Industrial Components segment, the anticipated basic conditions for Bearings and Forged Technologies are as follows: For Bearings we expect that demand in the wind energy area will be at the prior-year level and that there will be sustained high demand for industrial applications. We are continuing our ambitious program of measures to mitigate rising factor costs. For Forged Technologies we anticipate sustained high demand for truck components and further strong order intake for undercarriages and construction machinery components. As well as systematic implementation of measures to enhance performance and passing on rising factor costs, our focus is on diversifying our product portfolio to make selective use of the emerging market opportunities.

At Automotive Technology we expect to see a recovery in our market environment this fiscal year, including normalization of customer call-offs. This is attributable in part to the high level of orders on hand at our customers as a result of bottlenecks in the supply of starting products in the previous year. However, there are still structural problems with the supply of semiconductors; as a result it may not be possible to fully meet market demand. We will continue our price and efficiency measures to counter rising factor costs.

Taking into consideration the challenging market environment, we expect shipments at Steel Europe to remain largely stable year-on-year. Additional structural improvements are expected to come from further systematic implementation of our Steel Strategy 20-30 to improve productivity and performance. Furthermore, having received EU approval for state aid, we are starting to implement our green transformation by building Germany’s largest direct reduction plant for CO₂-reduced steel.

We see additional growth opportunities for Marine Systems as a result of rising global demand and long-term structural increases in defense budgets. The current order situation – particularly in the submarine business – has confirmed the segment’s key strategic role. We still anticipate that positive effects will come from the new transformation and growth program. These will be supported in particular by our solid order situation for the construction of submarines and surface vessels.

At Multi Tracks, we expect investment confidence for plant engineering to be around the prior-year level. We anticipate further strong market growth for thyssenkrupp nucera’s hydrogen business and Uhde’s ammonia business. Any rises in factor costs in the automotive supplier business should be translated to a large extent into high sales revenues.

In the Multi Tracks segment, the disposal processes for the infrastructure, stainless steel and mining technologies businesses were completed in fiscal year 2021 / 2022 (see Note 03 “Discontinued operation, disposal groups and single assets held for sale” in Annual Report 2021 / 2022). Consequently, these businesses are not included in the forecast for 2022 / 2023 and are referred to below as “sold disposal groups.” The sold disposal groups are, however, included in the prior-year figures on a pro rata basis until completion of the respective disposal process. In the presentation of the prior-year sales and adjusted EBIT of the Multi Tracks segment and the group in the following sections, the pro rata prior-year figures for the sold disposal groups are therefore shown on a pro forma basis.

Hedge accounting for CO₂ forward contracts in the Steel Europe segment was discontinued at the start of the 2022 / 2023 fiscal year. As a result, changes in fair value are no longer recognized directly in equity and thus outside of profit and loss but in cost of sales in the statement of income. The corresponding income and expenses are special items and did not affect the adjusted EBIT of the Steel Europe segment or the thyssenkrupp group (see preliminary remarks in the management report). The effects from the valuation of CO₂ forward contracts are not included in the forecast for adjusted EBIT.

The forecast assumes no effects from further possible portfolio measures.

Expectations for 2022 / 2023

In view of the continued economic and geopolitical uncertainty, the reliability of business development forecasts is limited. Therefore, our forecasts are expressed as ranges. Based on the expected economic conditions as of the date of this forecast, the underlying assumptions and the anticipated structural improvement in our businesses, we consider the following view on the 2022 / 2023 fiscal year to be appropriate. Compared with the previous forecast in the interim report on the first half-year, we have specified the expectation for adjusted EBIT.

• Sales are expected to decline significantly, mainly as a result of the normalization of price trends at Materials Services and Steel Europe. The expected decline in the Multi Tracks segment is principally attributable to the disposal processes completed in the prior year (see above).

• For adjusted EBIT, we anticipate a figure in the high three-digit million euro range. This assumption is based, in particular, on the absence of the previous year’s strong support from dynamic price effects, which is the main reason for the declines forecast for Materials Services and Steel Europe, where higher factor costs will also have an impact. Improvements in earnings at, for example, Automotive Technology and Multi Tracks will mitigate this development.

• Capital spending is expected to be higher than in the previous year. At Steel Europe, the increase in investments relates principally to the Steel Strategy 20-30 and the green transformation. Furthermore, mainly non-cash IFRS 16 effects, especially in connection with a long-term service contract at Materials Services, will have a value-increasing effect on investments. Investments for targeted growth initiatives in our businesses are also planned. Overall, investments will be approved on a restrictive basis, depending on the business performance of the business and the group.

• We aim to increase the free cash flow before M&A to a slightly positive figure. This already takes into account the planned increase in capital spending to above the prior-year level, including the IFRS 16 effects mentioned above. The still significant increase compared to the previous year is due to the planned improvement in net working capital. Furthermore, cash inflows from order intake and the payment profile of the project business (especially at Marine Systems and Multi Tracks) as well as further cash outflows for restructuring will also have an influence on this development.

• Net income is expected to decrease but should at least break even. This includes both the impairment losses recognized to date in connection with the higher cost of capital as a result of the recent continuation of interest rate rises and the accumulated effects from the valuation of CO₂ forward contracts.

• As a result of the above effects and the increased cost of capital, tkVA is expected to decline to a negative figure in the high three-digit million euro range. Consequently, ROCE is expected to decrease to the low to mid-single-digit percentage range.

We will take into account the development of our key performance indicators – also keeping in mind economic justifiability – in preparing our dividend proposal to the Annual General Meeting.

^{Source: thyssenkrupp interim report on 9 months 2022 / 2023, page 32-35}