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

Michael Shillaker – Credit Suisse Ingo Schachel – Commerzbank Seth Rosenfeld – Jefferies Bastian Synagowitz – Deutsche Bank Sylvain Brunet – Exane BNP Paribas Christian Obst – Baader Carsten Riek – UBS Rochus Brauneiser – Kepler Cheuvreux Christian Georges – Société Générale

Welcome to the Conference Call Interim Report Second Quarter 2017/2018. At our customers’ request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone lines. [Operator Instructions] May I now hand you over to Mr. Claus Ehrenbeck, who will lead you through this conference. Please go ahead, sir.

Yeah, thank you very much, operator. Yeah, hello, everybody. This is Claus Ehrenbeck from the IR team of Investor Relations of ThyssenKrupp. And on behalf of the entire time, I would like to welcome you to our today’s conference call on second quarter numbers. As always the documents for this call can be found on the IR section of our corporate websites. And after the call, a replay will be available for you. With that I would like to neatly hand over to the presenters of today Heinrich Hiesinger; and Guido Kerkhoff. And please, Heinrich, you can take over.

Yeah, also from my side, a warm welcome to our half year conference call. Before we look at the Q2 and half year numbers, let me start with a current situation of the steel joint venture with Tata Steel Europe. As of now, the teams have the due diligence almost completed and viable solutions for key issues have been achieved. Currently as you can read in the media, our partner is in dialogue with its employee representative. So as soon as the consultation process is finalized, our board decision is possible. We expect this decision within the first half of this year and the signing of the steel chevy can take place shortly afterwards. Now let’s have a look on the figures. Order in take is down year-on-year. We had strong affirmed exchange headwinds in our prime currency U.S. dollar and RMB. And the prior year quarter benefited from large tickets orders at Elevator Technology and especially at industrial solutions more precise in marine systems. Nevertheless Components Technology achieved an organic growth in the second quarter, while our materials business is continued to benefit from favorable trading conditions. Our EBITDA adjusted increased by 21% on a year-on-year basis to $500 million. Thus reaching its highest level in the second quarter since we have started our transformation. Our material businesses continued to benefit from cyclical tailwinds. Corporate costs as indicated with our bench marking last year were again significantly better on a year-on-year basis. However, the continued high level of raw material price, the flip side of the tailwinds at the material businesses, weighted on the cost structure of our capital goods business. Also we defined a diverse set of measures, their effects won’t materialize immediately. Together with fixed headwinds came in at the high double-digit million figure – might even stay close to 100 million in the first half. Industrial solution is still significantly lower year-on-year mainly due to bigger sales and before positive effect from restructuring measures, which will come effective in the second half of the year. But let me – we fully delivered on our quarterly target with negative going forward definitely unexpected contribution from Industrial Solutions. In line with our good operation of progress, net income came in well above prior year due to the better EBITDA development, lowest special items, lower interest expenses and the lower tax rate. I think one of the most important let’s say step forward in the second quarter was that the free cash flow before end of the day for the group was finally positive at 168 million in the second quarter, mainly driven by the release of net driven capital at our material businesses and a strong cash contribution from Elevator Technology. Overall, cash flow in the first half developed notably better than in the prior year. Based on these figures, we are optimistic for the upcoming quarters and confirm our full year outlook for the group. Let me come to the order intake. In addition to the aforementioned adverse fixed effects, order intake at Components Technology in Q2 was characterized by a very robust demand for automotive and construction components as well as heavy vehicles. And by further marketing improvements for heavy truck components especially in China and USA. Nevertheless, demand from the wind energy sector for bearings in particular in Germany, Brazil and India remains challenging. Orders at Elevator Technology was down year-on-year not only due to the [indiscernible] this effect, but we also have technology that the prior quarter marked a new record high due to large number of big tickets for example we had two Airbus in last year. However this book to bill above one and the order backlog still at the high level close to $5 billion without service the profile going forward remains encouraging. Overall, growth was driven by new installations and modernization in the U.S. and in South America, supported by the major projects down there in Peru and some others in South Korea and in China. New installation units in China were slightly lower year-on-year in Q2, but accumulated from the half year slightly higher year-on-year. Orders in industrial solutions were significantly lower year-on-year as the quarter included rather small to midsized project all of them below EUR100 million. But also due to a very strong prior year quarter, which include a big ticket order from Marine Systems amounting to EUR1 billion in volume. Also the order intake mix was again healthy this quarter, we do need bigger orders to reach prior year levels. Overall, we see good demand trends for electrolysis and polymers as other basic chemical plants. For mining equipment, we see a stable and solid demand. However as the maturity of these businesses are rather small to mid-size projects we therefore expect the order intake for the fiscal year will be lower. Remember in the last quarter in mining we had a large project for Bevan Island. Our material businesses were up year-on-year, Steel Europe increased mostly due to higher prices despite overall volumes slightly down. Materials Services also up year-on-year on the back of higher volumes mainly due to stronger warehousing and service businesses. EBIT adjusted for the group was significantly up year-on-year marking the best second quarter since the beginning of our strategic way forward. Despite significant currency effects and raw material cost pressure together amounting to a high-double digit close to 100 million figure in H1 and an unacceptable earnings contribution by industrial solution. EBIT adjusted at the component business decreased year-on-year despite growth especially in car and construction equipment components as well as heavy vehicles. Adverse ForEx effects raw material cost pressure lower volumes and wind energy components besides costumer induced slower ramp of new plans in China dragging on earnings. Elevator Technology increased its EBIT adjusted margin for 22nd quarter in succession despite the persistently challenging environment, specifically a stronger euro versus dollar and RMB, continued pricing pressure and temporary higher material cost particularly in China weighed on earnings. All in all Elevator Technology still delivered a strong performance especially when we look at most recent performance of competitors who faced the same challenges as we did. EBIT adjusted in Industrial Solutions was significantly down year-on-year lower than expected progress in sales, a less favorable sales mix, as well partial under-utilization pulled earnings down. Nonetheless, for the second half we expect sales to ramp-up compared to H1 and the prior period on the back of accelerated progress and our project with largest contribution to sales. Moreover, we expect positive effects from the restructuring measures in the third and especially fourth quarter, leading to higher earnings contribution. Our material services earnings remain below the outstanding prior year figure as last years stronger price dynamic in Q2 but windfalls were mostly absent this quarter. Nevertheless, volumes in Q2 were up year-on-year, with a larger contribution by AST. EBIT adjusted its two year benefited from a positive spot price environment coming in significantly above last year and quarter-on-quarter. Higher selling prices as well as operational improvement are also reflected in the significantly higher margin year-on-year. EBITDA was above 100, 105. Corporate costs as indicated came further down this quarter, mainly due to lower expenditures for the group transformation initiatives and the G&A cost reduction that we outlined and clearly communicated last year. We’re ahead of our schedule here. Besides this, there is important contribution for sustainable cost reduction going forward. Coming to the outlook with a strong Q1 and Q2 results, we’ve laid a good foundation for the upcoming quarters. For Q3, we expect EBIT adjusted for the group to be slightly up year-on-year. Despite the substantial headwins EBIT adjusted at our capital goods businesses, elevator and components technology will be stable year-on-year, while we expect stringent operational improvement at industrial solutions leading to our higher contribution year-on-year. The materials businesses assuming a continued a favorable environment will contribute around the prior year high-levels. We expect free cash before M&A with an improvement year-on-year up towards break-even in Q3. Thus we can confirm both full year free cash flow and EBIT adjusted forecasts for the group. Nevertheless the recent significant impacts from changes in exchange rate, mainly U.S. dollar and RMB and the continued stable and high prices on the commodity and material markets lead to adjustments on the individual business area level. Specifically, the components we now expect sales up in the mid-single digit range and EBIT adjusted margin on the prior level despite adverse exchange rate effects and increased material costs. At elevators the negative effect from exchange rates puts pressure on the sales, which we now expect at prior year levels despite additional significant impact from material costs inflation in particular in China, the EBIT adjusted margin is expected to be at least in the prior year levels, which was 12%. Thus H2 in terms of profitability will be better than H1, which in the current environment is also the result of our efficient management and well balanced regional footprint. The extensive transformational and restructuring measures at industrial solutions are expected to support a significant earnings increase in the course of the second half. However, due to the layer major [ph] projects awards we have to reduce our order intake expectations, while sales are expected to remain at the prior year levels. The recent cyclical upswing in the materials markets continue stable and high prices make us confident that EBIT adjusted against the euro will be significantly a bias for [indiscernible]. So we’re well on track to reach financial strategic targets, following strong sequential improvements in the first and second quarter, with EBITDA adjusted surplus in prior year periods we’re very confident to bring full year EBITDA adjusted into the guided range of €1.8 billion to €2 billion. Like in the last quarter, I would clearly state we don’t exclude a higher range of that. Accordingly, earnings in H2 are expect to exceed H1 supported by stringent improvements in our capital and continue cyclical momentum at material business and flanked by cost and efficiency program impact. In line with good operational progress, net income is expected to significantly increase year-over-year on the back of improved EBIT, lower restructuring costs, lower interest expenses, – sorry as well lower tax rate. The strong sequential improvements in earnings are also reflected in our cash flow. Free cash before M&A was positive in the second quarter, maybe due to release of networking capital at our materials business. Nevertheless, and as expected, free cash before M&A was still negative in the first half, but already significantly better than the prior year period. Despite the fact that we will continue our restructuring efforts, especially at Industrial Solutions and Elevated Technology, the overall net working capital will come down, bringing free cash before M&A to positive territory for the full year. Before we jump to Q&A, let’s have a short look at the next steps. I said in the beginning, thyssenkrupp Steel Europe is currently in the consultation process with the employee representatives. Once that is concluded, the Board decision is possible, which we expect within the first half of this year. As already reflected in February, once the signing of the JV has taken place timely after Board decision, we will provide you with a strategic sharpening and update, specifically more granularity on how the reshaping of the group and further driving the former to affect our main KPIs, earnings and much more importantly, the cash flow.

Good. Yes, thank you very much Guido. Thank you very Heinrich. And before we now go over to the Q&A Session I would like to kindly ask you in the Q&A Session only to ask three questions person so that more of the attendees have a chance to ask their question during our conference call. And with that operator please take over for the Q&A Session.

Now we’ll being our question-and-answer session. [Operator Instructions] The first question is from Michael Shillaker of Credit Suisse. Go ahead.

Yes thanks so much. Good afternoon. And my three questions if I may. Just on the first question on the guidance, I think Guido you were saying that you’re comfortable the second will be better than the first EBIT wise and just a simple maths assuming Q3 is something around $550 million of EBIT. Then you only kind of need around $300 low $300 of EBIT to meet the low end of the guidance, which given your outlook doesn’t sound very likely. So why did you not feel more comfortable to at least squeeze the lower end the guidance higher, even if you didn’t feel comfortable to squeeze up the higher end of the guidance, so we could narrow down the range a little. This is the first question. Second question with industrial solutions, the guidance clearly in the last quarter was around $20 million of EBIT. Clearly, this quarter actually came in negative. Can you give us a sense of what can change so dramatically in the space of three months, that the business is actually still performing quite a lot we couldn’t even you guys still at three months ago. And is there any risk that you are underestimating the problems in this business and therefore the restructuring that is being undertaken just simply isn’t sufficient because a year ago we were talking about trending cash flow breakeven. One line the business is cash flow in the last quarter, which is still running almost a $1 billion a year of cash out. So do we really, really feel that we are in control of this business? I understand the second half is going to have restructuring similar, but I’m talking about the structural more or less the top line of the business, I guess. And then on elevators if you could give us a little bit more color on the extent to which the headwinds you’re seeing run the risk of you failing going forward to meet the ongoing margin increase you were talking about in the past $50 I think, in a year. And specifically in China, can you give us your outlook for units in China this year, year-on-year and also pricing because I think your peers have been talking about flat units in China but pricing actually up. And it sounds like that may not be the case for you. Thanks a lot.

Yes maybe I’ll start with a question to China, to elevator. Clearly as I said, if you look clearly on the potential of the measures the team is implementing on a normal run rate it will really brought us on the open 5% improvement. But to be honest, the impact of – let’s say the currency impact here more strongly of the significant increase of raw material is actually easing up and that’s the reason why we said we will not be able to have an improvement of open point five level. But I think we are clearly committed that we are targeting at least prior leave, which is in let’s say the presence of competitive environment if you look to the announcement of other competitors I think quite let’s say a meaningful ambition, the team is working against. Now if you ask for the number of units as I said, we were slightly above prior year in Q1, we were slightly below let’s say prior year in Q2 overall accumulate for the half year we are slightly above. We see the market is flattish, let’s say which really means probably zero to maybe maximum minus 3%, minus 5% but clearly there is a pricing pressure out there. And this is definitely precise let’s say the tendency of all major players now to really try to move the high raw material prices up, the competitive landscape let’s say limits the step you can do here. This is I think how we are able to describe the situation in China for elevator.

Yes, let me come to the two other questions you asked, Mike, on the guidance I mean as we have already outlined in Q1 and whenever we had meetings out there that we said 1.8 to 2. We don’t exclude higher range, we thought look at consensus already slightly above two. And we see positive and negative signals, you see we’re not confirming clearly the steel sector overall. But on the other hand, what we see the material cost and you’ve seen ForEx and material cost were $100 million, almost $100 million for the first half. For the full year you can assume up to $200 million on this one. These are quite a fact we have to reflect that’s why we took it down, that’s why we thought we’d leave it where it is and our wording is unchanged, we don’t exclude the high range of that one but we have to reflect it. I was a bit surprised that the reaction if we saw stock price this morning was so heavy, it was not what we expected and was definitely not our intention. So we are as confident as we have been before but it’s a mixture of several effects. And clearly let me underline we see that elevator going forward and components are still on the same track. This is a temporary thing. This is not a thing that is lasting forever. So we will continue, we will put it over, push it over to our customers and continue our way. So it’s no setback in any way. Now on industrial solutions, yes, you’re right. Three months ago we were a bit more positive, we were more positive on the top line and milestones that we saw coming from new orders as well and smaller levels. We saw order intake was ok-ish outside the big contract but below our expectations therefore revenues to some degree missing in that we’re pushing a bit. But on the earnings, are we underestimating the problems, no, I don’t think so. The team is really working hard to get a better mix in the order intake getting it down to the level that we have worked down to say a level of 50% it takes indeed, we are currently at about 70%, around 75% that we work it down so we are in the cash out phase. So it takes a bit longer. Now bigger order intakes as we clearly said we see a bit less than last year. So therefore we have to reflect that it will take some time to get it back. We’re not underestimating problems, if reactions have to be taken we will clearly do so and we are working closely with a team on it. But we have to reflect what we currently see and this is what we say that the second half will be clearly better. We will see improvements in results, we have more milestones. On revenues that we have with our current ongoing projects so therefore we see an underlying trend of improvement in the operating performance coming out. But still this won’t lead to in any way acceptable levels that we have to continue with our restructuring and getting the orders in to fix it.

Okay, thank you.

The next question is from Ingo Schachel of Commerzbank. Please go ahead.

Yes, thank you. I’ve had two questions. The first one would be on the elevator segments. Again on the whole raw material and then pricing question, first on raw materials, could you quantify for us the raw material cost increase that you expect for elevators. Specifically whether that be $70 million or $80 million this year and on the pricing can you clarify what you mean with the price pressure in the Chinese market. Clearly its a very competitive market but where you are sort of trying to suggest that your nominal prices are cutting you to go down or have you also been able to at least nominally increase prices in Q4 and Q1, maybe not enough to cover the raw material price increases. And the second question is on industrial solutions. And I appreciate your optimism that the different areas should be able to benefit from restructuring and so on. But you also both make very clear that you called it was unacceptable, can you just clarify that what that means in fact and then something is unacceptable i.e. I guess you would present new margin targets for the segments. And then if they don’t reach it in a few years time, well what’s the actual consequence of the business area doing unacceptable things over a prolonged period of time. Would that ultimately mean that you put the business area into question or at least check for the certain business units that don’t really fit in there? How would you see the process of dealing with the unacceptable outcome of a prolonged period?

Yes, let me start with your second question, first. I think first of all, also it’s a lower number but we clearly see that the structure of the orders is a much better than we had in the past. We have to accept the fact that without projects above $100 million, probably the normal run rate in present trading environment is $900 million to $1 billion. What we really appreciate the team, let’s say deny to accept to an order where terms and condition were not favorable, whereas, let’s say, liabilities, we are now in certain high levels. So they clearly control that they do not bring in again orders which we, let’s say, move us into difficult territories going forward. The other thing is you might also have – or you probably have read in the newspapers that we are not anymore participating as one of the bidder for the, let’s say, service based in Germany. Again, let’s say, the term Navy force us to compete on a price, where our team said, this prize was a present functionality, is not possible to reach. So what you’re saying is, what we’d like to see is, that the team is not going crazy on the order intake side, they rather accept if terms and conditions are not meaningful or, let’s say, they would only achieve a price in, let’s say, taking risks into our company that they really stay firm on, that would then rather work firmly in the direction more mid size and small orders even if this was mean that we are slightly below prior because this is really about what is important. Now we only say, when they made the announcement last year that they will take us around about 2,000 people, the negotiation started immediately in September, but the agreements took us, let’s say, until autumn. And as it normally takes four to six months until, let’s say, the impact is coming, we always did know that impact of the restructuring is coming only in the second half of the year. Now if you look on the order intake more precise, they are primarily or you can very simply explain it with two orders; what makes the difference between the EUR3.1 billion a year ago and the EUR1.8 billion this year. More than EUR1 billion is clearly the two submarines and around about EUR200 million to EUR250 million is the large cement order, which we had last year, while this time we had only smaller cement orders in the million. So two projects are the difference between the order intake a year ago and now. In order also to really make sure that, let’s say, the capability to really make our restructuring programs working, we also made a change in the leadership team of Industrial Solutions. We clearly recognized joining together with Johan that he appreciates working closely with customers and he’s now focusing on our most important customers. While as a CEO on the board level we were now able to bring [indiscernible] from a competitor who is long, long experienced also in the plant business. So with that I believe, first of all, the funnel also smaller, is under control and well managed. The reason as I said why it’s small is marine systems and cement only, and the rest is rather on prior levels. And if he look on the measures, as they have all the potential to turn that business going forward. Now on the Elevator segment, I think that the difference is between the timing before order intake, let’s say, which is primarily out of the backlog. Clearly with the tremendous raw material prize increased specifically on the steel side, which is a mid double-digit figure in percentage wise. I think all major players are now trying, let’s say, staggered approach to move that additional costs towards our customers. But we only see this approach in the order intake tickets. While the intake says which are the companies are booking probably through, let’s say, to a large extent throughout the year, is out of the order backlog, let’s say, where we have quoted the prices not knowing that this dealer prices will be such a high increase. By, let’s say, you asked more precisely half year, the impact is middle double-digit million figure negative raw material price increase in Elevator.

Okay, thank you.

The next question is from Seth Rosenfeld of Jefferies. Please go ahead.

Good afternoon. First my question is a follow-up on Elevators, I guess. You commented that, I guess, mid double-digit impact for the Elevators business from raw materials, I think you said $100 million for the group as a whole. Help me understand how confident you’re that you will see a return to the margin growth story within Elevator’s looking further out into 2019? In your expectation, are we looking at maybe a six-month delay for this or do we need to bake-in something more extended for more stagnant margins before you really going to be passed on to customers?

Sorry, go ahead.

No, please, go ahead.

Our, let’s say, assumption really out of the day is that we had to guide you that the team is working this year to be at least as the prior level, but business has a potential to make another step forward in the year coming in the range which we have, let’s say, proven the years before.

Yes. And the order intake in general has, say, a timeline about a year.

Yes.

So if you really want to pass it on, it takes you about a year.

Okay, thank you. And secondly, within Steel Europe, obviously, you’ve seen some very strong market tailwinds in that business in the last couple of months. Can you give us a sense of your expectations for volumes and also for realized margins going into your fiscal Q3? When you recognize some of the tailwinds you’ve seen in terms of metal spread in the spot market, has that already been fully reflected in your P&L or should we expect some incremental margin expansion in the coming quarter? Thank you.

Seth, we’re already on a pretty good level. So if we can keep it there, we don’t have any indication that it should reverse. So it looks pretty good. We have a longer contract than other. So we have a good visibility. Q3 should be a good quarter.

And on the volume side please.

Volume as well. We’re producing in highest levels that we can do, so running as much as, yes, so no significant increase basically same level.

Okay. Thank you very much.

The next question is from Bastian Synagowitz with Deutsche Bank. Please go ahead.

Yes, good afternoon, gentlemen. My first question is on cash flow, actually the delivery he has been – it has pretty decent, but it seems that it has been mostly driven by steel our materials as a whole while an Industrial Solutions well or the performance was pretty much as weak as last year. I remember earlier said that you do aim for a significant improvement in cash flow and Industrial Solutions on the business unit level as well this year. Is this target still valid and realistic? Or do you know essentially expect a better cash contribution from steel, but actually a worse contribution in Industrial Solutions? That would be my first question. The second question is on Elevator’s, so talk about margins being at least flat after having delivered really well on margins everything a quarter for many, many years. How confident are you about still being able to deliver further margin improvement or have we essentially reached a level where it has become much more challenging to push the margins up further and improve operationally in any small offset back essentially runs the risk of falling through to the bottom line in the business right away. And then just my last question again on Industrial Solutions on the operating side, you obviously talked about is already little, but given the measures you’re putting through what is the margin level you’re basically confident about reaching in the next two to three quarters in this environment, given these restructuring measures or which you basically plan to implement. Thank you.

Let me just say on the Elevator side. Look, in the first half of the year, we actually improved by 0.5% it’s quite. Yes, so we are even until today, we’re well on track as committed. The only thing we guide you in a very honest way. And normally our second quarter is even better. And when we look on the backlog and the fact let say how strongly the steel price has increased. We recognize that all let say that impact out of the measures which we continue to drive will be even up that effect. And this really means that we also all the measures are running, we only see that we can let say at least achieve prior level, but we will not be able to go to the 0.5%. But as I said going forward, we still have enough self healing measures by reducing the complexity of our portfolio by turning Europe to the level where others part of our regions are, so we have enough ingredient to continue that path as soon as, let’s say these one or the especially effect offer a material prices is really going out. Now looking on IS, look you cannot runs such a business with a margin potentially in two – one or two quarters. We clearly say that the potential in the plant business has proven that many, many years ago 6% to 7%, but we will see how the order backlog is developing how far we can turn it from an age backlog in a renewed backlog to give you a better guidance, let say how – what are the steps towards the 6% to 7%.

Yes. Let me come to the cash flow there, because on IS, yes, overall if you take a look at the picture it doesn’t look that much different to previous year. For lastly, we don’t think it’s a compared to last year for the full year is going to worse, but if you take a bit a deep of look into the first half, you see compared to previous year Marine Systems was significant worse, because last year they had a very big order intake in the first half as well. The other three was better than not in part significantly better than. And that balance out to this negative cash flow. So if you do see some public different medium, so although the overall numbers disappointing. And steel is on a good track. Yes, but, compared to cash flow from last year, where were at minus 800, we need to be better to achieve to bring it positive.

Okay. But then just on Industrial Solutions, so does this mean that you basically expect pretty much a flat performance in terms of free cash flow contributions from Industrial Solutions this year versus last year.

I said at least not worse.

Okay, thank you. Then maybe just one follow-up on Industrial Solutions and appreciate it’s obviously very hard to forecast particularly looking at the order intake side of things. But is there basically a margin level, we would say, we’ll – this is post restructuring measures level, which we are confident to achieve and then essentially anything on top coming from additional orders improved profitability in these orders essentially is, I think on the cake, but basically there is a minimum margin, we aim to achieve with these restructuring measures.

Look, this is a combination of both, because we clearly said if we only have restructuring, but the order fund is not coming, then we came on majesty on the utilization, there you cannot safer at those, what I clearly said, the plant isn’t save the potential to go to 6% to 7%. As we have prove until two years ago. Now the combination of the impact of the restructuring plant, the order intake, they will really define what are the steps from where we spent today to where we are going. It will try to do when we outline also, let’s say the shopping complex straight of our strategy. We will try to give you a better guidance how the steps will look like.

Okay, thank you.

The next question Sylvain Brunet of Exane BNP Paribas. Please go ahead.

Good afternoon, gentlemen. So my first question was on free cash flow and mostly on the CapEx segments, after we done some good work on the working gap, I’ve notice each one CapEx was low. What should we expect in H2? My second question is one the former marine orders, when should we expect the order intake to become a bit more visible and processing of these orders visible next year. And my last question is related to the strategic review, to understand, can only take place after we see some progress on the data side. Do you expect to say that industrial solutions should fully be reviewed as well as part of this portfolio restructuring? Thank you.

First of all, you asked about, let’s the funnel of marine systems. That a year-ago, the Norwegian government announcements that they have translated us is a strategic partner right now, we are in tendering phase and also Germany has announced that they will join, let’s say, the Norwegian design and probably order in addition to, let’s say, pertained the process is running as expected, we do believe that the award will be done at the end of 2019.

So that was the order line from marine systems not going to come this year. There might some smallest stuff, but no real big ones we expect. Free cash CapEx, you’re right, H1 was below previous year. We don’t see a fake changing number, but it was not likely behind previous years. So I think we’re very well inline with our free cash flow guidance and with our CapEx guidance overall, so no big change maybe bit below. I ask being part of any kind of strategic revenue now. The strategic revenue is, we will tell you something about it, ones we have announce, which start out something we can do and then we will talk about that. But, again, you’ll seen how clearly we’re committed to turnaround by that. And that our team is quickly on it and I think it is – it’s a work – it’s a pretty good part of ThyssenKrupp and we know clearly what we’re doing and we will worldwide and well receive as a partner in this respect on a good technology.

Look, it’s a low asset business, whereas a potential to really provide the platform for service growth. With the sizes probably is what we have to live through right now. But in a past, until two years ago, it was a 6% to 7% margin business as it was also strongly cash contributed. Even if you accumulate, let’s say, the years to day, they are let cash positive. So the potential of that business going forward is really at least the €300 million cash positive. And this is really where we drive the business going forward.

Would you say, I mean, that’s the number and aggregate, but would you say, if you go deeper into the different segments, because it’s like several divisions within the same division. That every – in every division you would say you’ve got assistant and also competitive advantage at a time, imaging, markets in China particular are pushing outside of their borders as well with one all. Do you have a competitive advantage in every single of the Phase four business is you were operate.

At least we have let’s say a differentiation point in the market, which we select lucky hole, let’s say, luckily if you see depress and development, but I think hardly any major engineering company is present in China neither or we, we only have some system and product business. And probably also the countries around China which are the major target of the [indiscernible] it’s been never our target because we clearly look on customers which are not looking for the initial investment cost but really rather on how robust is the equipment running, what is the output and rather look on a life cycle. And by the fact that we could be in a large order let’s say in each of the last two years and also had made throughout, show that the customer recognized this one. So I think what we clearly see is, what said already before, if you look at all the intake the only two negatives right now is the comparable audiences amend and in marine systems all the others are above or on prior level. If you look on the cash flow asset by Guido all – let’s say, system engineering our cement and mining business and also our chemical business they are above prior in the cash flow but the negative effect of marine systems is the one who is meeting above. So we see that we have the potential what the business did already because we have different technologies. They were really careful in selecting technologies which they will not – let’s say, continue to serve the markets part of them was sold and those where we really can make a different. So it’s rather not selling total businesses but within the broad width of technologies which we have in our hand to really define market-by-market, which technology is ready to win and which technology does – let’s say, fit to specific market needs. This is really done market-by-market. And this, let’s say, make sure that we are not riding dead horses.

Thank you.

The next question is from Christian Obst with Baader. Please go ahead.

Yes. Hello. I have three questions and first is at – one is on Elevator. Europe is the last area where you have a major restructuring effort in place. Can you describe in more detail maybe what is going on currently there and when this will end? And when it comes to China you have done some kind of restructuring, you reorganization what can you do going forward if the current development in that kind of market is persisting? Then on industrial solution, the restructuring of course compromises production of 2000 employees, what are the main other measures what you have taken to employees in for the next three to four quarters. And then last one on the steel joint venture we have seen declining costs in UK, there is an ongoing risk of a hot Brexit looming in 2018 and we saw some kind of weak Tata results in the last quarter. Does that worry you when it comes to steel JV? Thank you.

Let me first come to – let’s say, the Elevator structure in Europe. I think there are several dimensions that clearly, one drive a restructuring that made some markets in Europe starting first in solid Europe but then also heading in France, they’re rather shrinking new installation and really require that we adjusted our resources. The second area where we have a focus on restructuring right now is really on our manufacturing footprint. And you heard about it in-house and right now in newspapers also Homburg. We clearly see that we have to adjust significantly our making by decisions going forward. And this is where the team is burning right now. And the third one which is a global issue but most pronounced in Europe is really the complexity in our portfolio. If you really look on a number of different product range, we have the highest number here in Europe. So while we had a better starting point in other region of the world but the growth was actually in Europe because each and every market has historically different let’s say specification. And that’s a reason why it takes longer in Europe from these very, very diverse portfolio, now to move in that area. So these are the major areas for restructuring. First adjusting result is where the market in new insulation remains rather flat. Then the production line it’s completely different made whereby footprint. Third, continue to drive complexity out of the organization with a much slimmer and more contented, if a product portfolio.

Sorry. And yet you like to read through that’s within the next 12 to 18 months?

No. It’s definitely, as I said, it’s a longer story because there’s a market in Europe. It’s only a flat – only growing a little. Especially for you to give restructure plans, it could probably roll a company out for the next two to three years. Maybe not extend the figures, which you will see on between EBITDA and adjusted EBITDA, they are as high in the past. We previously said, that will be lower. But we really try it forward because there is a major lever also to go in the years coming at the 0.5 percentage points forward because also we are right now in the 11.8%. There is still a way to go and this way to go needs to be supported by restructuring efforts.

Yes. On the industrial solutions, it’s not only the restructuring measures with the people. It’s 2,000 will take out that clearly but other measures that we have in place procurement, it’s designed, more designed to cost it. Let me give you examples on the mix, where we have more say components we are producing in India where we help suppliers and support is coming from China to have a better mix in the cost base. So there is a lot of other measures that we can do and that they are currently investigating and already doing to improve the performance.

Okay.

And the coming to UK. Two questions around that, we could talk to results and car sales in the UK. Well I think it’s too early to say how Brexit referendum, it will look like still car sales on a pretty good level everywhere in Europe. Even including the UK and whatever the Brexit will be lead might be in advantage for the mills that are in the UK might be disadvantages. That remains clearly to be seen once we can find the evaluate the Brexit. We’re very closely watching it. So we’re very careful does it really threaten us currently and give us bad feelings. So far not.

I think we just see that way the Tata planning, let’s say UK is the only major plant to serve that market and they are not self sufficient. They need to import in any case. So even if the markets are going down a little bit there is enough room, let’s say for a plant operating directly in their environment.

And can you give us an indication, how will you implemented different options for the upcoming Brexit in signing of the deal. Can you give us some idea about that?

Look, we can – the deal is not even signed that means we cannot make any comment on assets…

Okay. Thank you very much.

The next question is from Carsten Riek of UBS. Please go ahead.

Thank you very much. Just very quickly on the – a few questions, first on the corporate line. It was very low cost in the current quarter. Was there any other than the less IT spending, which I heard any other impact which is lasting and what is the run rate we should actually going forward. That’s the first one. The second one I have is on Elevator. Because I saw in your remarks at the FX rate it hampers your margins. Just trying to understand in what perspective could be usually FX rates would lower sales and lower the EBIT. But do not do really anything on margins, I might miss something here. Just want to want to get clarity here. And the third question I have is on industrial solutions. If I look at the recent developments in Iran, I’m just wondering whether you had any exposure to that country because we see in the news that BAs has a $6 billion project there, predominantly on the petrochemical space, which is now under risk. Are they any orders in your portfolio and industrial solutions which have exposure to Iran? What might have exported to Iran? Thank you very much.

Looked in the recent years, we did strictly follow all the rules and regulations, let’s say, when the sanctions Iran very it’s assisting and that means our business was actually zero. Now when – let’s say the sanctions were lower. Then we made sure that in any offer remade in any contract to which we are [indiscernible] we have a so-called snap back clause. So the business right now is not the relevant by size. We are not even close to any figure, which you have mentioned before, it’s rather for us that probably an over tune has taken away for project in the future, but it’s not decided for our project panel right now.

No, no. We’re taking project in some RFP, so there is no real order intake that we will have to restate.

Okay, perfect.

On the Forex margins were elevated as you know our U.S. business has above average margin and therefore in the mix the Forex is really have an impact on the overall margin mix that we do have. And it’s just translation by itself, but in the mix of Elevator for us part smaller than you if you have the U.S. dollar moving up. The corporate cost line, yes Q2 was low and the first half even was very low, but keep in mind with some real estate sales as well and some one-time effects there on interest rate that was supportive on some provisions. So overall we had a mixed double-digit number that was positive was not recurred, so the run rate, if I come to the run rate is sort of going forward – for the full year significantly below the previous year, but still about 100 and a bit plus per quarter.

Okay, that’s helpful. Thanks.

Like functions IT and G&A, of course you can clearly see, is less people in the region, less people in here and less IT and project cost, and that’s got – and increasing the cost reduction in G&A. We just have on the plan to get 25% out of the benchmarking of functions reductions this year, meaning 75% of the 100 million still to come.

Okay. Thank you very much for answering the question.

The next question is from Rochus Brauneiser of Kepler Cheuvreux. Please go ahead.

Yes, hi, Rochus Brauneiser of Kepler Cheuvreux. Just a few questions left. The one is on the raw material cost pressure you’re mentioning a couple of times today. Can you give us a bit of flavor what kind of mechanism are there in place allowing you to pass on these to the customers trying to form a surcharges or other pass through closes in area and particularly in areas where this is apparently not the case. And I guess Elevators maybe one of those, here you’re running up to a year behind the cost. Can you give us a sense, whether you’re doing any hedging or other instruments to make sure that your performance is not getting in troubled as obviously is now the case. The second one is on your cash flow outlook, following this good Q2, you now guiding for towards breakeven for the third quarter given. Can you provide us the elements which are impacting negatively the free cash flow performance between second quarter and the quarter. And then third question is, on Steel Europe. I guess on the margin side business looks pretty good. However, with all the tailwinds in the market it appears, but the shipments a bit behind what the market my might offer right now. Can you give us a sense whether there are technical issues, while you are maybe a couple of 100,000 tons below capacity or what is else driving the volume side see at the moment?

But let me start with the last one you know what we’re really brought into the new leadership team around Andreas got in Premal Desai is that we are not accounting plans, we optimize not and is really that we said supply any more tons where the profit contribution is not let’s say steel or not good enough for our company. So the team is really with the new organization where we have market driven business unit, is really going through the entire portfolio steel grade by steel grade and really looks where can, let’s say is March, and let’s say an area we would like to see it, where it’s not in an area and then we either reduce that volume or completely stop selling it. Because ton is let’s say not or what we want to maximize it’s rather that we go to maximize the profit and we’re quite happy to find a little team, is acting in that direction. And we want to have these team going forward, because it all the size when we decide on CapEx. We will not approve CapEx for steel grades, which are not contributing. On the other hand we are ready to support that business was degrade, which will make a difference in the future going forward.

Let me come first to the cash flow. We don’t see any negatives for Q3, but you always have a variability. But the tax payments, interest payments, raw materials that are acquired payment terms. So that’s all the things you have to take into account, but we don’t see any negatives that’s the usual normal up and down. Now, with the raw materials and pass on closes that depends a bit from business-to-business, yes for Elevator overall, it’s an amount that is serious amount, but if you take order-by-order, it’s not that much, that’s why usually you wouldn’t go for any kind of hedging, sometimes it’s a bit positive, sometimes it’s a bit negative, that you’ve seen – see process going up like this in such a short time is very rare, in other businesses it’s different. In components businesses, very often you have a pass on close in the contract if you have a longer-term you passed this one on to customers not always, but very often. And there’s some other businesses like for example in Industrial Solutions once you sign a contract, and then you know you have to buy for a lot of steel for example going forward. You would try to hatch and you can hatch on the market or you can fix with your supplier on that basis, but even then they might get into trouble. So, it’s not such a black and white decision, and usually, we saved to hide a long-term agreement, you to hedge unless it’s not material, that’s our policy, because I don’t want to see any speculation there. once there’s a contract you’re obliged to hatch at doable.

Okay. When you’re saying that you think that you can return to the usual margin improvement in Elevators next year, how does that work because you’re saying you took – take up to a year to do all these raw material price movements are sweating through your P&L, is this because you are now stepping into additional cost measures or initiatives to offset that raw material cost pressure, what is creating that confidence?

,:

Okay, that’s very helpful. Thank you.

The next question is from [indiscernible] of Macquarie. Please go ahead.

Thanks very much. Just one question left from my side in terms of the FX headwinds you flag, is it fair to assume that they will weigh on sales across all capital goods divisions well into fiscal year 2019 due to the lag between order intake and sale realization? Thank you.

Yeah. I think again, this Forex developments we won’t – we don’t expect going on from 2019 onwards. So that we think of that was given our guidance that we will do somewhere later than in November again. We can give you a clear picture, but we hope that we can overcome this in turn see that volatility going onwards and therefore be back on a stable track like we’ve been so far and this fees deteriorations will therefore be digesting on that.

Okay, but if we look at the lag between your booking at quarter and actually realizing up through the P&L. What sort of lags apart from Elevators, if we look at the components or Industrial Solutions, what sort of flags that we’re talking about, is it a couple of quarters for the components or is it a lot longer for Industrial Solutions and any idea there would be very useful actually?

Yeah. Well, on an Industrial Solutions look as I said, once we have the order, we always try to hedge as much as we can to the currency, where we’re in. So, I don’t see that pick, in fact coming out of the margin, I think for Industrial Solutions all the other effects we’re talking about restructuring, changing mix procurement whatever we can do it and the lot more important. On components of the coupe of quarters then it’s done passed on and through.

Okay. thank you.

The next question is from Christian Georges of Société Générale. Please go ahead.

Yes. Thank you. Just two questions. First, this inflation in raw material orders in steel prices. I’m granted you’ve got longer contracts than many. but surely in the third quarter, we should – that surprise you had on the higher steel price should have an operative impact come in 3Q and 4Q on your accounts in the C division, I’d just like to confirm that. And the second thing is that deal that seems to be dragging a bit, and we see we’ve got your guidance for end of the first half and what’s a frame of mind, I mean should we be a bit more worried, perhaps or there’s a problem on that side and the deal may not be completed in the end or do you see no such danger? thank you.

Now, let me come back to steel. It’s – you’re completely right with the longer contract terms that we do have. We always have more stability on the pricing side, that’s why we’re reacting to uptakes and downturns always a bit slower than other ones. So currently, that should be favorable for us. so, our visibility and our guidance therefore we increase it for the second half, because we’ve put some visibility into our third and fourth quarter. on the Tata, no worries about it, look with the unions and with all other involved parties country-by-country, you have different systems in place. for us in Germany was allowing us to get in negotiation up and running, which was very, very noisy and much louder than the one you currently do see in the Netherlands, but it already passed, it was October, November, December, where we had all that noise. We could solve it. now in the Netherlands and in the UK, the consultation process is somewhat different. you need to have full plan in place before you can really start it. And with that, therefore, Tata could only address it a bit later. now there are – there is renewable ongoing noise with that, so no worry. Time wise, we would have liked to accomplish it earlier as we could solve our problems in Germany earlier, but we have to face that in the Netherlands and in the UK. The systems are somewhat different and we have to respect that and we do it. So, no worries for that.

Okay. Thank you.

The next question is a follow-up of Carsten Riek of UBS. Your line is now open.

Thank you very much. Just to follow-up on the top of the negotiations with the unions. Should the terms be better than the ones, where you guys negotiated with the German unions? Could that actually trigger some renegotiations with the German unions and put the deal into jeopardy or are you watertight here? thank you.

First of all, both counterparties like us and Tata both committed they will negotiating the framework, which allow us to really harvest the synergies and execute the strategic plan and run this JV as an integrated company. now, if we look, let’s say what we hear today, then the negotiation might not be equal line item-by-line item. but if you look on the full taggers, we believe it’s very, very comparable and nobody is writing on the bag on the other. So we clearly said going forward for example, for the 2000, it will be 2000 from ThyssenKrupp and 200 from Tata and this is really what we believe Tata will execute, and also if we look at some other elements on let’s say employment guarantees they are rather similar. So this is really what we wanted to going forward.

Yeah. and it’s a typical gambling; everybody wants to be a winner. so don’t get distracted by that. Tata and us, we’re not new to this game.

Okay, perfect. thank you.

[Operator Instructions]

Well, if there are no further questions, I think we can now close the call. We thank you very much for your participation for your active questionings and as always, the IR team is available for you in case you might have further questions or we need further information. So we look all forward to staying in touch with you. thank you very much and look forward to talking with you soon. bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.