Claus Ehrenbeck – Head-Investor Relations Heinrich Hiesinger – Chief Executive Officer Guido Kerkhoff – Chief Financial Officer

Michael Shillaker – Credit Suisse Ingo Schachel – Commerzbank Seth Rosenfeld – Jefferies Sylvain Brunet – Exane BNP Paribas Alain Gabriel – Morgan Stanley Fraser Jamieson – JP Morgan Cedar Ekblom – Bank of America Merrill Lynch Rochus Brauneiser – Kepler Cheuvreux Carsten Riek – UBS

Dear, ladies and gentlemen, welcome to the conference call Interim Report First Quarter 2017/2018 of ThyssenKrupp. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] May I now hand you over to Mr. Claus Ehrenbeck, who will lead you through this conference. Please go ahead, sir.

Thank you very much, dear operator for this introduction and dear participants, a very warm welcome to our today's conference call on our first quarter number for fiscal 2017/2018. We released the numbers very early this morning and as always, all the numbers and relevant documents are available on the IR section of our website and a document – a replay will also be available shortly after the call. I think with that, I can hand over to the speakers today. As always, will be Heinrich Hiesinger and Guido Kerkhoff. Heinrich, please take over.

Thank you, Claus. Also from my side, a warm welcome to our Q1 earnings release. In the first quarter, we made further progress on our transformation into a strong industrial group. Together with the union, IG Metall, we reached a negotiated settlement on the planned JV with Tata. We clearly welcome the approval given by the IG Metall members at the beginning of February. What is important to mention, the agreement enable us to pursue our strategic and operational goals, including the synergies for the steel joint venture. Our partner, Tata Steel, is also in dialogue with its employee representative in the Netherlands and UK. So as of now, we are on schedule with the due diligence and the signing process. Now let us have a look at the figures. Order intake, sales and earnings all are up year-on-year. Adjusted EBIT reached its highest level in the first quarter since we have started our transformation, with four out of five business areas well above or at prior year levels. Components Technology and Elevator Technology continue to demonstrate reliable structural progress. At the same time, the material businesses benefit from a very positive spot price environment. Corporate costs, as indicated, came down this quarter. Industrial Solutions is still temporarily weaker year-on-year. Nevertheless, we expect effects from restructuring measured from the second half year onwards, leading to a planned higher full year contribution, as guided. Order intake figures came in strong and are promising. Components Technology and Elevator Technology are significantly up year-on-year, driven by robust customer demand, while our material businesses continue to benefit from favorable trading conditions. Net income is well above the prior year period, driven by lower special items, as well as lower interest expenses. However, higher tax expenses due to our better operating performance as well as the one-time noncash charge from U.S. tax reforms, partially offset these developments. Without the effect from the U.S. tax reform amounting to EUR87 million, net income would have been even higher. However, from Q2 onwards, we will already benefit from the lower tax rates in the U.S. As said to you in November, cash flow in Q1 has been clearly negative but is already above the prior year period. This is explained by a seasonal increase in net working capital as all material businesses, due to more favorable market conditions and volatile raw material prices, as well as by working down the backlog in our Industrial Solutions businesses. However, both Industrial Solutions and Materials Services showed substantial improvements compared to last year. Based on these numbers, we are optimistic for the full year and confirm our guidance. As mentioned, the order intake profile remains encouraging, benefiting from the positive spot price environment in our material businesses and marking a new record high at Components Technology. Specifically, order intake at Components Technology benefited from a strong demand for automotive and construction equipment components, while the market for heavy truck components especially in China and USA, is improving. Nevertheless, demand from the wind sector, in particular in Brazil and India, remains challenging. Orders at Elevator Technology were up year-on-year with the book-to-bill ratio above one and the order backlog at a high level of EUR4.9 billion. Overall, growth is driven by new installations and modernization in the U.S. and Canada and supported by some major projects, in particular, in South Korea. New installations in units in China are also slightly up year-on-year. Nevertheless, price pressure and have some countervailing effects. Regardless of our low order intake Industrial Solutions due to a lack of big tickets order, the project funnel across all verticals continues to be strong. We see good demand in chemical plant engineering and cement from the MENA region as well as from mining from the MENA region and Australia. In the past quarter, orders included multiple small and midsized tickets. This is our targeted structure, for example our medium-size refinery contract in Germany, cement medium-size orders in Mexico and Marine Systems with smaller maintenance and service tickets. At System Engineering, outlook remains positive. We see a robust demand for production systems in the automotive industry above all here in Europe. Our material businesses are up year-on-year, mainly due to higher prices. Steel Europe at prior year with order volumes slightly down, Materials Services significantly up, mainly due to strong warehousing and service businesses.

Now let me jump over to the EBIT. EBIT adjusted is significantly up year-on-year, marking the best start to our fiscal year since the beginning of our strategic way forward. EBIT adjusted at the components business has further increased year-on-year, reflecting growth, especially in car and construction equipment components. Despite lower volumes in wind energy components and adverse FX effects, however, margin is slightly down year-on-year as ramp-up costs for new plant as well as product mix effects diluted margin expansion. Elevator Technology increased adjusted EBIT and margin in the first quarter year-on-year and then overall more challenging environment. As you know, some competitors already flagged that they are dealing with adverse effects, especially in raw material costs, while we, for the 21st quarter in succession, increased our margin despite offsetting exchange rate effects U.S. dollar and CNY and higher material costs, particularly in China. Adjusted EBIT at Industrial Solutions were significantly down year-on-year. Lower sales, a less favorable sales mix, as well as partial underutilization dragged on earnings. Nevertheless, we expect positive effects from restructuring measures to materialize from the second half of the year onwards, which as pointed out at the beginning, leads to a higher planned contribution in the full year. At Materials Services, earnings remained on prior level, with a larger contribution by AST and supported by performance measure and positive market developments. Last year's Q1, stronger price dynamic lead to windfalls that were mostly absent this quarter. Positive market effects were also the main driver to Steel Europe's adjusted EBIT, coming in significantly above last year. Higher selling prices as well as operational improvements are also reflected in a significantly higher margin year-on-year. Adjusted EBIT at corporate, as promised, came down this quarter. Next to lower expenditures for our group transformation initiatives, we had a positive effect from our real estate sale in the size of EUR16 million. To be clear, even without this positive effect, corporate costs would have been clearly better year-on-year, setting the basis for sustainable cost reductions going forward, mainly by G&A cost reduction, lower cost for transformation program. In a nutshell, despite countervailing effect such as FX and raw material prices, we're confident that our strong Q1 results have laid a good foundation and thus bode well to reach our full year earnings expectation. As said to you already in November, free cash before M&A came in well above EUR1 billion negative after the first quarter, nevertheless, with improvements year-on-year. The higher-than-expected cash outflow is mainly explained by significant temporary increased net working capital reflecting an increase in inventories at our materials businesses due to favorable market conditions and volatile raw material prices, which led to a higher-than-expected net working capital build up, in particular in the second half of the quarter as well as growth investments, especially at Components Technologies. At Industrial Solutions, despite worked out a project against limited milestone payments and partial underutilization, improvements year-on-year were already visible, especially due to an improved payment profile from percentage of completion. In line with our typical seasonal pattern, we expect significant sequential improvements to our free cash before M&A with an improvement towards breakeven in Q2 and to positive territory for the full year. We saw significantly higher earnings especially at our cap goods businesses. Free cash flow throughout the rest of the financial year will benefit from a significant release of net working capital of Steel Europe and Materials Services. Nevertheless, we will continue our restructuring efforts especially at Industrial Solutions and Elevator Technology. As said before, we're confident that our Q1 figures have laid a solid foundation for strong earnings growth this year. For 52 weeks, we expect adjusted EBIT to increase towards EUR500 million. Based on improvement especially at Steel Europe, our cap goods businesses, Elevator Technology and Industrial Solutions are expected to be flattish year-on-year, while Components Tech is expected to be down year-on-year due to adverse ForEx effect. After an exceptionally good quarter last year, with strong support also by windfalls, earnings at Materials Services will be lower year-on-year. Quarter-on-quarter, we expect improvement at four out of five business areas, except for Elevator Technology experiencing the same and some seasonality here, for example, Chinese New Year. And in the winter, there's construction less in the markets where we currently do have winter. Consequently, our full year outlook remains unchanged. We will build on an overall good start and show strong sequential improvements in earnings and especially in cash flow, bringing full year adjusted EBIT to the guided range of EUR1.8 billion to EUR2 billion and free cash before M&A to positive territory. As already reflected in November, once the signing is taken place, we will put volume with more granularity on how this reshaping affect our main KPIs, earnings and much more important, cash flow. Overall, we're confident that by further executing our performance and efficiency programs across all BAs and thus, continuing to close the margin GAAP step-by-step, we bring a lot of untapped market and business potential to each business area and thus, upside for the group as a whole. This enables us not only to reach a positive free cash flow before M&A for the full financial year that brings us also further on our transformation journey.

Okay. Thank you very much, Guido. Thank you very much, Heinrich. With that, we can hand over to you again, so operator, please take over in order to manage the Q&A session.

Thank you. Now we will begin our question-and-answer session. [Operator Instructions] The first question is from Mr. Michael Shillaker, Credit Suisse. Your line is now open.

Thanks very much for taking my questions. My first question, if I may, just on Industrial Solutions, if you could give us a little bit more help with the outlook for the business. I mean, I think we’ve fully understand that the order intake as well the sales are lower, we're still dealing with a lot of cash out from big ticket items in the past, where the prepayments came in, they've gone and that's why the cash flow is so bad. But just looking at the numbers today, again, EBIT where it is, EUR368 million of cash out in the quarter as well. And I'm looking at the employees, whether this restructuring program, I thought it was mainly aimed at cutting employee headcount to fit the group to the new size. And yet I'm seeing 2,000 more employees in the current year than the prior year year-on-year. So can you give us – the first question, a greater road map for when the big ticket items, the expense for that that's going out rolls off. When we’re actually going to see a very, very serious cut in headcount or whatever – whatever you need to do to get the structure of the business right for the size of what you think? And when we actually should expect to see earnings genuinely pick up with momentum and cash flow actually starts to go structurally positive? That's question number one. Question number two is just on a couple of promises you made this year. Firstly, the targets that you're going to report on the signing of the steel deal in Q1. It's great to see you’re going to lose up a bit on free cash. But will you also be giving us much more granularity on, A, the timeframe of those targets? And B, also the road map to get there because I think this feels a little bit like an eternal carrot – I mean, under the donkey's nose right now. We know we can work out what your targets are, but it's very, very difficult for the investor base to actually get quiet when we can achieve that and exactly how we're going to achieve that. And the second promise I think you've also made this year is on a full strategic review. Can you give us some kind of sense in May, what is the scope of this full strategic review and what exactly is the endgame? Is this going to be a look at every single business within ThyssenKrupp and to decide whether this fits or it doesn't? Or is it going to be a much higher level review than that? Because I think again, and I think sort of your shareholders made this point, just looking at Industrial Solutions, have this been standalone business maybe there would have been a greater sense of urgency to restructure this but sitting within the conglomerate may be that urgency isn't there, which is why it continues to bleed cash and we haven't seen the restructuring come through quite as quickly as possible. So if you could give us some kind of sense of the scope of the strategic review you are planning. Thank you very much.

Yes, may be Michael, I’ll start off with the second first. Clearly, our strategic review, we will give you the details as requested. Because the reason why we have only given the targets per business and as for a company as a whole that we always said, well, actually in the steel business is so high that it does not make sense. Clearly, with the JV in place, this argument is significantly reduced, so that means we will give you a more precise target range both for cash flow and earnings and also more precise timeframe. This is what you can expect from our side. Now let me jump on the IS side and then put you through some of the figures. First of all, the order intake. Sometimes the success of the quarter earlier is the negative a quarter later because, look, we came in at EUR6.4 billion last year to be quite frank and open with you, our target actually was EUR6 billion. And one of the projects which we had actually planned for Q1 came in at the very, very last day. So from a storytelling, it would have been much better to come in EUR6 billion last year and EUR1.3 billion now in Q1. But it doesn't matter, the most important is that it's part of our backlog. Now, let's say, going forward, let me start with the headcount. I think what you should not neglect is that by mid of last year, we had the consolidation of Atlas. This is roughly 2,300 people. If you take that out, then you see already the beginning of the restructuring impact virtual game piece significantly in the running year. Despite the fact that we have grown our service and regional set up in our core plant technology last year, we have, let's say, globally taking out 1,200 headcounts. Now the reason why in this business here, the major impact especially here in Germany are coming in the second half of the year is the following that we have outlined the restructuring demand of roughly 2,000 persons in August. We have said two-third in Germany. The team was successfully in finalizing the maturity of the negotiation with the unions in the first quarter. But that means the impact that people leaving the company, the majority will be effective starting on 1st of April. This is the reason why the majority of the restructuring really, let's say, comes in the second half of the year and from that moment onwards, you will achieve in both in the headcount reduction, but also in the EBIT development. So hopefully this, let's say, clarifies some more insight in the IS business. So we clearly see the trend with the fundamental shared by Guido and myself that they will be significantly better in all respects going forward. Now from the cash flow, you said they're still up EUR360 million. That's true. The major reason is, let's say, the age of the order backlog, but if you compare who made the biggest improvement within the business year is actually its IS with an improvement of roughly EUR180 million compared to last year. It's not where we want it to be, but at least you see that they gain some momentum going forward.

Okay. All right, thanks.

Thank you. We have received another question from Mr. Ingo Schachel, Commerzbank. Your line is now open.

Thank you. The first one would be on IT and T-Systems. I think some of us were surprised that you terminated the contract of T-Systems. So I was just wondering whether you could shed a bit more lights on the reasons for that but not really more on what that means going forward, First United has been a very important part of the equity story, just wondering whether the plan is now through the same thing. And in-source basis or whether you feel its the right time to reconsider some of the things to look for more decentralized approach, more segment-specific or whether that’s really just the same thing on in-source basis? And the second question would just be on the margin progression and Components Technology. You mentioned ramp-up costs and maybe my expectation was not quite right there, but I thought that most of the order ramp-up cost peak would have already been last year and now the pace of ramp is a bit lower. Could you just remind us what you would expect in terms of progression of ramp-up costs in the Components Tech whether that’s already better in the second half of this year? Or whether in light of a very strong commercial vehicle, passenger vehicle market products you might even have come up with new growth projects on the Components Tech side?

Ingo, let me start with the IT. Yes, we probably canceled the contract with T-Systems because we both had to see the targets we had and what we wanted to achieve for more than two years now with them couldn't be achieved anymore. And in the meantime, the structure of underlying IT change, so we are moving less or more away from data centers to cloud solutions nowadays. So that's why jointly, we decided to cancel this contract. This doesn't change that much our IT strategy overall just a little bit the approach. So the target to unify and to centralize our data center structures throughout the BAs remains unchanged. Some will now move a bit faster into cloud solutions. But the targets are basically the same, but the way we wanted to approach it with T-Systems finally failed, so we couldn't continue that one. But again, it's not going to be there for a much more decentralized or different approach. It's just the way how we want to achieve it, will change a little bit. Now coming on to the CT margins, the compression to a certain degree was ramp-up cost, but you have some ForEx effects there as well because we have some cross-currency deliveries that we have in here. So the ForEx development was indeed for the – we have some transactional effects coming out of that and that was leading to a bit of margin compression in that business.

And to add to that one, it was also portfolio mix because we had the highest growth in automotive systems, where you know, it has the lowest margins. While we had some headwind in one of the, let's say, highest margin business in our wind arena, which will also impact Q2. So in addition what Guido said, the mix of the sales was – had also some impact.

Okay, thank you.

Thank you. The next question is from Mr. Seth Rosenfeld, Jefferies. Your line is now open.

Good afternoon. I have a couple of questions just digging into the Corporate costs, please. Can you help us understand some of the drivers of a meaningful sequential drop that you saw in Q1? And to better understand how sustainable this is, I think in the introductory comments this represents the efforts to cut Corporate overhead in the longer-term, but what is the run rate we should expect for the next couple of quarters during fiscal 2018? And then just more broadly, can you give us a sense of exactly what you're doing to cut that overhead cost or ultimately to better allocate back to the individual business units? I think it's been an area of a lot of confusion amongst the key investors. Thank you.

Yes, thanks for the question, Seth. I mean, the EUR75 million, as you can see, that's what we outlined with this effect coming out of the sale of real estate, which was adding another EUR16 million. Overall, we would say that we have really reduced our Corporate line, but going forward we would say a stable line is still somewhat above EUR100 million. So even if you adjust for the EUR16 million, the overall run rate per quarter is still slightly above EUR100 million. What have we done? I mean, we have given out with our benchmarking of functions where we compared ourselves to others in other industries and to find out what we can do on G&A costs is we have definitely changed the approach, and we've given our targets to all the people here, and we want to cut by EUR100 million gross in Corporate overall in three years out of which we want to achieve at least 25% this year. We're on a pretty good track here, but – and these effects will be reached without changing allocation mechanism. This is not what we've done just judging it out to business areas and hiding it somewhere else. That's not the target here. We want to get our indeed the primary cost that we do have here down and improve the approach. And it is cost driven, not only headcount driven. Very often headcount is the driver of it and where do we have your people allocated be it here or in other countries. But we've clearly argued with all our functions, what is your cost target, and they worked on it, and they work it down now.

Okay, thank you. And if I could just ask a second question, please. With regards to Industrial Solutions, can you give us an update on the general order intake mix between larger projects and smaller scale projects as well? You noted that in the recent quarter the success in small-, medium-sized products but of course total intake fell quite meaningfully. How have the effort progressed to really try to de-risk this business by walking away from some of the kind of white elephant-sized projects? Thank you.

Yes, thank you for that question because while the overall figure was slightly above EUR800 million, it's clearly disappointing for the reason that we did not have a large scale project. The structure is a positive one because we still reached this EUR800 million, let's say, the biggest project was basically shortly above a three digit million amount. So that means that are intended target that we have a much more robust and solid and, let’s say, lower risk profile. This – it will really worked out quite nicely in Q1. So this went extremely well. And the maturity of all those orders were really identified and acquired by the regional organization. Again, this is the reason why we restructure very heavily in the headquarter, while we build up some resources more closer to our customers in the regions. So the structural target Q1 was a good confirmation for that direction.

Thank you. One last question, can you confirm if those margins on those new order wins were above or below the long-term target for the business?

No, they’ve fully confirmed the long-term targets, which we have outlined to you.

Thank you very much.

Thank you. The next question is from Sylvain Brunet, Exane BNP Paribas. Your line is now open.

Good afternoon, gentlemen. First question maybe on the overall guidance number. Just to confirm, you do agree with the math that – if we run like EUR500 million EBIT for three quarters given the – nearly the strong finish that we get from the caps goods business on top of what you assured already in the first quarter. It’s hard to see how you could be below EUR1.9 billion. So I’m wondering – I know you want to be cautious, it’s only February. But would you agree that the high end of the guidance with the steel markets we are seeing at the moment is definitely on the cards? My second question is on Industrial Solutions. Could you talk a little bit about the Marine side of the business, if you could give us sense of how much of the order backlog comes from this part of the business. To the extent, you can comment and partly it was a higher margin business? And lastly, if you could explain what the production issue goes at the heavy plates, you mentioned in the Steel division at contributed to the lower tonnage of these plants?

Yes, let me first start with the lower tonnage. The major impact in the lower tonnage actually was the logistic issue. Because I’m not blaming business partner, but we struck heavily with the performance of Deutsche Bank. And this probably has cost us maybe even up to 100,000 tons in shipments, which is part of the networking capital increase sitting right now, on our side. This was really the one of the major impact significantly larger than, let’s say, some issues on the heavy plate side. Coming to your first question, our EBIT guidance, we always said, if the dynamics in the material market will carry through throughout the business year, we are targeting the upper end of our guidance and this was also always our comment. But as we had some learnings in material business, we only guide what we can see. For the next six months, we see clearly at that type very positive run rate. So overall with that assessment, your statement is a true one.

Yes. We’re confident on the guidance. And on the Industrial Solutions, the overall backlog in total is 11.2 out of that, about half is Marine Systems.

And would you say we should expect some prepayment effort to contribute from the second half as these orders get into…

No, in the Marine Systems, this year we do not expect large project. They will rather coming 2018, 2019. So the – let’s say, this would be year of the order intake will be driven really by our top line business and system engineering. And only – let’s say, the major business in Marine Systems will be upgrade extension from service, but [indiscernible] Marine Systems this year.

It will be helpful, but unfortunately, not to be seen.

Okay. No, change compared to your Q4.

No.

Okay, thank you.

Thank you. The next question is from Alain Gabriel, Morgan Stanley. Your line is now open.

Yes, good afternoon gentlemen. Two questions from my side. If I can go back to Components Technology business. Do you mind putting some numbers behind the ramp-up cost that you face during the quarter and how quickly they expect those to – if you can remind us how quickly you expect those to fallout? And the second question is on the working capital build, also can you quantify the spread between the working capital build on the Materials Services and Steel business on one side and the cap goods businesses on the other? Thank you.

If you recall our, let’s say, year-end earnings release, we clearly said the ramp-up cost in Components and Technology were to a mid higher two digit million number. For the running business here, it’s definitely I said before suffer [ph] slightly lower, so this year we probably come back to mid-two digit million number, it will go down step-by-step over time.

Yes, on the working capital build, what we see at Materials Services and Steel Europe is about EUR100 million each and about EUR100 million more in the cap goods business, more than we expected when we started the quarter.

Okay, thank you.

Thank you. The next question is from Mr. Fraser Jamieson, JP Morgan. Your line is now open.

Yes, thank you very much for taking the questions. Couple, firstly, on elevators, you’ve obviously done a good job over the past few years, increasing the margins there. For quite notable when you look around the rest of the industry is the fact that margins on – for your peers are coming down a bit. So just in terms of your ability to push margins further from here, to what extent are you still confident and ultimately pushing up to the sort of 15% level that I think you’ve spoken about in the past? And what features of your business are such that gives you confidence around that? And then the second one was just on the restructuring charges, obviously, very, very low numbers for the first quarter this year. The pattern really has been that they’ve tended to come later in the year. And I think on the last quarterly results, you talked about kind of similar restructuring charges for this year as left. Just wondering if you could outline your views on those restructuring charges and how they might come through the remainder of the year, please?

I think you – let’s say, there’spositive evolution of our progress in our Elevator business, we do not discuss whetherit would be about the 50%, the business has a potential to the significant improvement. We rather focus on improvement year-on-year and, therefore, what we guide is that we are targeting 0.5 percentage points a year. Clearly, we cannot, let’s say, decoupled from the reality of the market. Also our Elevator business saw headwind from FX but also from the commodity price increased primarily steel in China. But in Q1, the team did a great job and could really completely compensate for that and – but we also see extremely positive that they could really slightly grow in the units year-on-year in China, clearly also see – here we saw a price pressure, but overall, I think it’s a good performance and the team is meeting right now, in Brazil. I will – sorry, in Barcelona, I will, let’s say, join them tonight, and we will really identify how can we work against that headwinds, so we have potential in our organization that we continue that improvement track and whether, let’s say, at the end 50% is the right figure, let’s discuss the – this point, when we have much closer there.

Yes, coming to the restructuring, yes, your analysis of our pattern throughout the year is correct. So it’s always in Q3 and Q4 more than in the first half. So that’s why the 22% will not be a run rate for the full year probably. But what we clearly stated already last year that we’ve seen the peak. We do not expect this year to be at the same level as last year. It’s going to come down and it’s going to be a significant stuff.

Okay, thank you.

Thank you. The next question is from Ms. Cedar Ekblom, Bank of America Merrill Lynch. Your line is now open.

Thanks very much. Hi gentlemen, I’ve just got a question on – its early days and you’re approaching the plans to come out with a sort of full strategic review of the company. And if we’re looking at the business over the last sort of 5 years since you originally came out with Strategic Way Forward, there have definitely been some improvements cash flow generation is moving in the right direction, but in some businesses, margins continue to lag targets and Components Technology margins went down year-on-year despite the fact that you still maintain the 6% to 8%. Now you’ve spoken about why the margins aren’t improving, and I think we can all appreciate that. But I’m just wondering as you’re approaching the strategic review process, are there businesses where you actually say, we can’t get to the margin targets as quickly as we’d want to under our own steam, and maybe there’s bigger gains that we can make by EBITDA wasting businesses, looking at strategic tie-ups like you’re doing in steel? I’m just wondering how you are thinking about this process? Are we going to get Strategic Way Forward 2.0, which is basically the old plan dusted off and a few more details that ultimately the same targets? Or are you approaching this with a fresh set of eyes and saying, can we actually do this completely differently to how we’ve been thinking about it in the past? Thank you.

Look, I’ll share the plan with you in May. But one of the major reason why, let’s say, our step improvement and here I have to correct you, if you look in our components in those last four years actually did improve also smaller steps year-by-year and the reason why its only smaller steps is, there are significant time lag between investment in new products and the time when we can really see it in our sales and significant better margins. Even though in such an earnings release call probably even more in our regime I have given two examples and that’s example one on our steering business where we really started to build up the portfolio in 2012, we have now all the ramp-up costs both in R&D in getting prequalification with the customers and building the new plants and all this needs to be payout out of the old backlog, where the margins are still challenged. And the only starting in 2018, 2019, will have the much higher backlog with much more promising margins and this is a major let’s say, contribution despite, let’s say, cost efficiency, which will change significantly our earnings profile. And all the rest, how we approach the strategy, I think we do it in one, let’s say, complete picture in May.

Does this answer your question, Cedar?

Yes, it does. Thanks very much.

The next question is from Rochus Brauneiser, Kepler Cheuvreux. Your line is now open.

Yes. Thanks for taking the question. Few ones left on my side. One on the joint venture with Tata. Having listen to the call of the Tata Steel, you could have gained the impression that the realization of savings from staff reduction on the operational downstream side would come earlier than those on the SG&A side. And in that respect, I’m interested to understand, have the full amount of workforce reductions already 2,000 on your side, been fully discussed with the unions at this stage, also the one for the SG&A side? The second question is, can you help us a little bit on the free cash flow improvement you have envisaging for the rest of the year? So last year, you had a situation where you turnaround EUR1.1 billion in the residual nine months, now it’s a minimum of EUR1.5 billion. But this year it’s against EUR200 million of restructuring. You have the similar working capital build of EUR1.8 billion in the first two months. So maybe can you help us a little more how much is working from the working capital side this year and what comes from other areas?

Let me start with the joint venture first. When we have signed the memorandum of understanding the Tata Steel, both sides clearly committed that we will ensure that the agreements made with the unions allow us to really step up to the synergies committed to you to the EUR400 million to EUR600 million. And to make it more precise, we both have the challenge now, and I think we are, let’s say – have done our homework. That we settle an agreement with the unions, which allows us to really reduce up to 1,000 people in the G&A functions and another 1,000 in downstream. And by the way, this is really reflected in the agreement, which we have signed in the IG Metall. Very often I mentioned that there is a site guarantee. First of all, a site guarantee does not mean that you we cannot close part of that site and for three specific sites, where we see the necessity to adjust, we have not given such a guarantee. So it was a very honest and transparent dialogue with the unions to really make sure that on the one hand, where we don’t see a need at all, our employees, let’s say, feel more secure. But we were also honest enough, where we see the necessity for adjustments that this is also reflected in an agreement. And absolutely the same commitment was made by Tata in the MoU, and they are working on it.

Yes, coming to the free cash flow improvements that we want to see for the second half. Working capital definitely, as you know, there are always some year end effects here. Two player role, but that’s why we explained a bit more in detail why the EUR1.5 million and what EUR300 million, we basically saw that we think our seasonal especially in Materials Services in Steel Europe, where you we saw working capital went up a higher prices and higher volumes, largely due to the shipments we had in Materials Services and some problems in logistics on a higher working capital in tonnages at Steel Europe as well, so where we think that this will turn around as well. On the other hand, we do see an improvement in our adjusted EBIT figure. Don’t forget that which will help that overall the cash coming from the business should be on a higher level. So that – if you take that all into account and compare it to the previous year, should give you a way how we want to achieve it.

All right. Thank you very much.

Thank you. We have received another question from Mr. Christian George from [indiscernible]. Your line is now open.

Yes. Thank you. Good afternoon. Two questions, one is on your distribution, steel distribution operation and services, excluding AST. In the third quarter, you that you’re down on profitability year-on-year, so we have a steel operation seems to have turn the corner on volume and on prices and that seems to be trading steel. So looking forward to the next quarter, should we expect that we’re normalizing this kind of profitability levels? Or we adjust on the lower sequential type of quality profit? And the second question is on your tax looking forward, so in the quarter, we’ve had a one-off impact, which, I suppose, adjusted, gives you again about a 40% tax rate. Going forward, do you get a benefit from the changed tax environment in the U.S.? And if so, what magnitude should we expect? Thank you.

We see our performance in our distribution business different. Please keep in mind that in a – let’s say, you made a reference over the last three quarters that in last year, especially in the first three quarters, we had tremendous positive impact by windfall profits, which are not existing right now, so what you see it flat right now, but, let’s say, now windfall profits are now replaced by operating performance. So overall we do not see, let’s say, that this business is turning negatively on the operation side. It’s rather the opposite that one-time gains, which we could benefit over the last year are now, let’s say, up this operative performance.

Yes. And coming back to the tax question, yes, our tax rate will go down once the lower tax rate will be there coming from the U.S. So we expect it for the next years to go down within the 30s.

And does that impact Q2 or that’s later on.

We would see it in Q2, but the next years going forward the mix blended tax rate should come down as well.

Okay great. Thank you.

Thank you. We have received another question from Mr. Fraser Jamieson, JPMorgan. Your line is now open.

Yes. Thank you for taking the follow-up. It was just on the JV. There was some comments I think you made this morning about a commitment to six-year holding period for U.S. stake in the JV. I was just wondering if you could outline if that is likely to be a hard commitment or is it something that could potentially be reassessed, dependent on market conditions and obviously what the agreement of both parties? Thanks.

We see the future agreement as a positive one because if you look what they actually demanded at the very beginning is that we commit as thyssenkrupp to 50%, which would not have allowed us to go into an IPO. I think – which we now have negotiated than those Tata and thyssenkrupp together will keep 50%, which would allow us even from day one onwards to play as part of the JV if they are very successful to the market. So this was let’s say, it is an agreement, so it is a commitment but it offers us quite some flexibility also to consider IPO options also limited to – let’s say close to 50%. So I think it’s a meaningful agreement which you could make here.

And it shows on the other hand that the unions are not completely shut or close to good ideas. I mean that’s what you see a reflect that that they allowed that from day one. They see an IPO as a signal of strength, brings money into the JV. So they’re open for good arguments.

Okay. Thank you.

Thank you. [Operator Instructions] We have received another question from Mr. Sylvain Brunet, Exane BNP Paribas. Your line is now open.

Sorry. Just a very quick follow-up on the timeline for the JV to clarify you would discuss impacts and the targets on the day this signing is effective, which is still time – timing towards end of March or early April to the best of your knowledge. Is that correct?

Early 2018, is what we’ve said, no change in our wording.

Okay. Thanks.

Thank you. We have received another question from Mr. Carsten Riek, UBS. Your line is now open.

Thank you very much. Just very – two very quick ones. The first one is on the steel. If I look at the sales per ton progress you had in this business, you clearly like the progress from – or from other steel companies especially for [indiscernible], which has a similar profile. Why is that? Is it just a longer lag effect, do you have longer term contract than first or why do we see that pattern. And the second one is, on the free cash flow, you seem to be quite confident to actually get to the positive free cash flow by the end of the year. What in your opinion would change your mind? What could actually happen that you would miss the free cash flow target you set out earlier the year? Thank you.

I have to correct you in one respect. We consider the portfolio of [indiscernible] and not similar to others. I think we have again significantly higher margin definitely on heavy plate which is reflecting about 15% on the competitor you mentioned and we believe it is quite profitable. Let’s say, we are falling behind a little bit in heavy plate, let’s say in the period where we invested in the Americas. And the second reason is exactly, as you mentioned, that, let’s say, the lead time in our contract business is slightly longer. So these are the two major reasons the impact you have seen. So we definitely believe that we will, let’s say, improve from the point you see today going forward.

Yes, yes, say we develop positively given by the contracts that we are currently using. Now second thing you asked, one can always expect the free flow guidance one thing that is always important that we’ve seen in the materials business is strong hikes in the price of raw materials, coking coal or iron ore, especially shortly before a quarter-end, given strong volumes. This always can affect certain variables. On the other hand, always down payments, these are the two big strong levers that you cannot 100% control when contracts are signed. But having said that, given what we currently see we fully confirm our guidance what we achieved positively this year.

All right. Thanks. Hit on the last point what – in your calculations, what kind of iron ore price and coking coal price that you use actually?

Okay. What we usually use the current forecast you can see, and when you always as to judging over what timeframe can you really bring it down to the market, so something like three to six months lead time and you have a bit of a payments schedules. So that’s what you always have to take into account. But we usually take current forecast that you see on the market.

Okay. Understood. Thank you very much.

Thank you. There are no more questions at the moment. I would hand back to speakers.

Very good operator. Thank you very much. Thank you very much for managing the Q&A session. The attendees, participants of the call thank you very much for your questions and for participation. And we look forward to staying in touch with you. If you have some more questions then please contact the IR department, we are always happy to help you further. And we also look forward to seeing some of you on the road in the next two weeks. Thank you very much and we wish you all a nice day. Bye-bye.

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