2021/2022 forecast

Forecast for 2021 / 2022 adjusted

Overall assessment and key assumptions

For key assumptions and expected economic parameters, see the Forecast section and the section “Macro and sector environment” in the Report on the economic position in the 2020 / 2021 Annual Report and this interim management report. The corresponding opportunities and risks are set out in the “Opportunity and risk report” that follows this section.

We are pushing ahead with our realignment as a high-performance, sustainable group of companies. The definition of our target portfolio in May 2020 placed a clear focus on the industrial portfolio and business models, development potential, competitive profitability and cash flow of our businesses.

Against this background, in fiscal 2021 / 2022 we will continue to focus on the performance, structural improvement and further development of our businesses as well as continuing targeted growth initiatives despite the significant increase in geopolitical and economic uncertainty. All midterm targets are backed up by concrete action plans.

We were able to complete the sale processes for the infrastructure business and the stainless steel business at the end of November 2021 and the end of January 2022, respectively. In addition, depending principally on when we receive approval from all relevant antitrust authorities, we expect to complete the transaction of the mining business from the Multi Tracks segment for which a sales agreement has already been signed. We will also develop other “best & fair owner” concepts towards a closing. An IPO remains the preferred option for further developing the hydrogen business.

The forecast for free cash flow before M&A for the current fiscal year was suspended in March 2022 in view of the current geopolitical and economic turmoil. At the present time, the specific extent of the direct and indirect consequences of the war in Ukraine on the business development of thyssenkrupp – such as rising or in some cases highly volatile raw material prices as well as considerable volatility in call-offs by customers from the automotive industry – remains associated with high uncertainties. To some extent, the geopolitical and economic turmoil only allows for a limited assessment of possible effects and risks and thus reduces the ability to make projections, especially in relation to the development of net working capital and, consequently, free cash flow before M&A.

Both the development of the economic conditions for our businesses and the underlying planning assumptions for the 2021 / 2022 forecast are marked by in some cases considerable uncertainties arising partly from:

• lack of clarity about how the war in Ukraine will develop – including the direct and indirect consequences – and the resulting trade conflicts and restrictions

• the continued need for a steady supply of fossil fuels (especially natural gas) and raw materials, particularly for steel production

• the volatility – including sudden fluctuations which are sometimes extreme and almost impossible to predict – and further development of raw material prices and factor costs (including energy, material and freight costs)

• the continued strained situation in the global procurement market and supply bottlenecks for industrial starting products (including semiconductors and cable harnesses), which could increasingly hold back growth

• lack of clarity over the further progression of the coronavirus pandemic including any new lockdown measures, especially in China and across Asia

• the possible slowing growth of the Chinese economy as a key factor for global growth and as an important sales market

Expectations for 2021 / 2022

Our forecast is based on the market forecasts and the description of opportunities and risks provided in the section “Macro and sector environment” in the report on the economic position. GDP growth in 2022 for regions of importance to us – Germany, the USA and China – is expected to be 2.0%, 3.3% and 4.5%, respectively.

Moreover, the 2021 / 2022 forecast is based in particular on the assumption that necessary fossil fuels (especially natural gas) and raw materials will continue to be available without restriction. It is also assumed that prices for raw materials and energy for the rest of the fiscal year will remain at the overall average observable levels of the 2nd quarter.

The disposal process initiated in the 2020 / 2021 fiscal year for the plant engineering activities of the mining, infrastructure and the stainless steel businesses in the Multi Tracks segment met the criteria for presentation as disposal groups in accordance with IFRS 5 for the first time in the 4th quarter of the 2020 / 2021 fiscal year. As the sale processes for the infrastructure business and the stainless steel business were completed at the end of November 2021 and end of January 2022, respectively, these businesses no longer form part of the forecast for the remainder of the fiscal year and are termed “sold disposal groups” in the following. The prior-year reference values remain unchanged. For the sales and adjusted EBIT of the Multi Tracks segment and the Group, the prior-year figures for the sold disposal groups are shown on a pro forma basis in the following.

The forecast assumes no effects from further possible portfolio measures.

In view of the forecast economic conditions and underlying assumptions, the structural

improvement in our business that we still expect and the increased uncertainties at present, we believe that the following view of fiscal year 2021 / 2022 is appropriate:

Sales are expected to be up significantly year-on-year with an increase in the low double-digit percentage range (prior year: €34 billion, of which sold disposal groups: pro forma €2.2 billion).

Taking the existing uncertainties described above into account, we are expecting a significant improvement in adjusted EBIT to a figure of at least 2.0 billion (prior year: €796 million, of which sold disposal groups: pro forma €61 million). This performance stems essentially from the significant earnings improvement at Steel Europe and at Material Services and a significantly reduced loss at Multi Tracks, partially offset by the currently lower earnings contributions from the components businesses. However, it will not be possible to compensate fully for headwinds in the components businesses due to supply chain issues – exacerbated in part by both the war in Ukraine and the new lockdown measures in China and Asian region – and further rising factor costs by means of efficiency gains and cost pass through.

• At Materials Services, we are expecting volumes to be down year-on-year. Thanks to dynamic price movements remaining supportive, we expect adjusted EBIT to reach up to €1.0 billion (previous year: €587 million).

• At Industrial Components we are expecting sales to be on a level overall with the prior year and adjusted EBIT to decline to a figure in the low three-digit million euro range (prior year: sales: €2.5 billion; adjusted EBIT: €322 million), mainly because of higher factor costs. A temporary regional slowdown in demand for wind energy is expected, particularly due to pull-forward effects already caused by subsidies in China. In the forgings business we are expecting headwinds for car and truck components from the ongoing bottlenecks in customer supply chains.

• At Automotive Technology we expect sales to remain largely stable (previous year: €4.5 billion). However, especially given the increased uncertainties at present, this depends on how planned customer call-offs develop due to ongoing bottlenecks in the supply chain. We are expecting adjusted EBIT to come in significantly below the prior year (prior year: €264 million), also because of the recent sharp rises in factor costs that can not be fully compensated by continued efficiency measures.

• At Steel Europe we expect a significant increase in adjusted EBIT by at least €1.0 billion as a result of a significant margin increase amid stable volumes and structural improvements from implementing the Steel Strategy 20–30. This performance depends particularly on further developments with the supply chain issues, and in the ensuing shipment volumes, as well as on further development of raw material prices and energy costs (prior year: adjusted EBIT: €116 million).

• At Marine Systems we project a slight improvement in sales and slightly higher adjusted EBIT (prior year: sales: €2.0 billion, adjusted EBIT: €26 million), also supported by improvements in project execution.

• For the businesses combined in Multi Tracks, following the sale of the infrastructure business and the stainless steel business, we are expecting a significant decline in sales (prior year: €5.7 billion, of which sold disposal groups: pro forma €2.2 billion) accompanied by a significant improvement in adjusted EBIT (prior year: adjusted EBIT €(298) million, of which sold disposal groups: pro forma €61 million). This will be mainly the result of the closure of the heavy plate mill, improved project execution in plant engineering and the ongoing restructuring measures.

• For Corporate Headquarters we anticipate adjusted EBIT slightly above the prior-year level (prior year: adjusted EBIT €(194) million).

Capital spending is expected to be down considerably year-on-year (prior year: €1,630 million). Investments will be approved on a restrictive basis, especially in light of the increased uncertainties at present, and depending on business performance. At Steel Europe, focus on the investments will be in conjunction with the Steel Strategy 20–30. Investments for targeted growth initiatives will continue to be made in the other businesses.

For free cash flow before M&A we expect a significant improvement year-on-year. Taking into account the above-mentioned assumptions (including availability of fossil fuels and price levels for raw materials and energy) and the currently elevated geopolitical and economic turmoil, which reduces our ability to make projections, we are expecting a negative figure in the mid-three-digit million euro range for the current fiscal year (prior year: €(1.3) billion). The improvement will come primarily from the increase in adjusted EBIT. A temporary increase in net working capital, particularly fueled by price increases and further cash outflows for restructurings, is having an opposite effect. In addition, cash flows from order intake and the payment profile of project businesses (especially at Marine Systems and Multi Tracks) might also have an influence on this development. Considering the high volatility at present, both in relation to raw material and energy prices and as regards call-offs by customers from the automotive industry, we do not rule out to respectively readjust the targeted range in the course of the fiscal year.

We are expecting net income of at least €1.0 billion (prior year: €(25) million).

The effects described above mean that tkVA is expected to be higher than a year ago and significantly positive (prior year €(622) million).

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: Interim Report 1st half 2021/2022, P. 35-38}