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Executives

Dr. Claus Ehrenbeck - Head, Corporate IR

Heinrich Hiesinger - Chairman and CEO

Guido Kerkhoff - Chief Financial Officer

Analysts

Michael Shillaker - Credit Suisse

Alessandro Abate - J.P. Morgan

Bastian Synagowitz - Deutsche Bank

Ingo Schachel - Commerzbank

Neil Sampat - Nomura

Carsten Riek - UBS

Jeff Largey - Macquarie

Rochus Brauneiser - Kepler

Hermann Reith - BHF-Bank

Sylvain Brunet - Exane

Alexander Hauenstein - MainFirst Bank

Cedar Ekblom - Bank of America

Anindya Mohinta - Goldman Sachs

Marc Gabriel - Bankhaus

Christian Obst - Baader Bank

ThyssenKrupp AG (OTC:TYEKY) F2Q2013 Results Earnings Call May 15, 2013 8:00 AM ET

Operator

Thank you for standing by. And welcome to the ThyssenKrupp Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation, followed by a question-and-answer session. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Dr. Claus Ehrenbeck. Please go ahead, sir.

Dr. Claus Ehrenbeck

Thank you very much, [Fiona]. Yeah. Hello, everybody. Good afternoon also on behalf of the entire IR team to you. Before we start with the presentations, just a few housekeeping remarks, all the documents for this call are available on the IR section of our web -- on our website, and for this presentation, we have added some slides to the version that we gave you this morning. So if you work with the print out of the presentation, please use the one that we provided for this conference call. And also shortly after the call we will make a replay of this conference call available to you.

That’s it from my side so far. I would like now to hand over to Heinrich Hiesinger and Guido Kerkhoff for the presentation. Heinrich, please takeover.

Heinrich Hiesinger

Yeah. Claus, thank you very much. Colleagues welcome to the conference call and after two years starting with our Strategic Way Forward, let me briefly highlight some facts and given that we really believe that the change process has gained visible momentum through our entire organization.

In the start of our Strategic Way Forward, 25% of sales and 50% of capital employed have been already divested or marked for sales, and result is that the exposure to the steel production is significantly reduced to less than 40% a day and will be below 30% after the sale of Americas. You very often claim that our company is too complex. We have now reduced the number of business areas down from eight to five.

And these portfolio changes are really complemented by significant improvements on the government and leadership side, we now have a new independent Supervisory Board Chairman, and the entire executive Board with myself as CEO with CFO, and Oliver as a new HR Director, we all joined from outside to crew.

And we are supported by another 18 external managers which are in the business area or the corporate function leaders, which really make sure that we add to our insight knowledge outside prospective and expertise.

And the governance and leadership changes are in turn completed by much leaner leadership and management structure setup. We have executive Board, we have cutdown by 50%, down to three members, also we have announced that we plan to add one colleague for legal and compliance going forward.

On the corporate and service function side, this will be cut by 35% from 26 functions down to only 17, and on executive level on business area we will cut or have already cut the functions by 44% from 32% down to 18%. And today we have announced that corporate headcount on corporate level and the A level on the administration functions will be cut by 20% from 15,000 down to 12,000, whereas 55% of that reduction will happen in Germany.

Now the current milestones of our Strategic Way Forward includes with respect to the portfolio of optimization definitely and most important the timely signing of the Steel America transactions, some more insight in that in a minute, but there are other things which we also focus and follow up.

We have announced the restructuring of Berco, the undercarriage business, headquartered in Italy, €500 million sales, 3,000 employees, where we plan to reduce the workforce by around 600 in order to facilitate the best owner process. We believe that the closing of the Tailored Blanks transactions, €740 million sales, 950 employees, can be completed in Q3.

We have newly added the divestment of the grain-oriented Electrical Steel activities in Germany and France, including the same business in India, all three adding up to €450 million sales and 1,800 employees. This is a part of the program quickly loaded we initiated in our Steel Europe business areas.

And just recently we announced the divestment of the Railway and Construction businesses at our Materials Services unit, a business with a size of €400 million sales, where 800 employees are working. So, just to remind you that besides the sale of Steel Americas, there are other transactions accumulating to €2 billion sales in execution.

With respect to the change management and performance orientation, we really have significantly improved our governance structures. As I said, we have now an independent member, let say, Chairman on our Supervisory Board. But I believe that also the way how the foundation has used the delegation right is a significant step forward, because the candidates were identified and selected by the Nomination Committee. They were recommended to the foundation. They follow the recommendation and both of them have no function at all with the foundation or have any relationship business-wise to the foundation.

On performance side, we believe that significant key milestone has been achieved at our ACT program. We clearly said we will not start just throwing a figure in the air. We have made a systematic and detailed analysis across our entire organization. We have reviewed all our G&A functions worldwide and we have redesigned roles and processing, and reporting lines and let say, based on that we have defined, what is an appropriated cost at resource level.

Considering this, we have identified an efficiency potential of €250 million and as a consequence, we plan to reduce our people by 3,000 out of 15,000, which is 20%. And according to our plans, most of those effects should be realized within the next three years.

On Steel Americas probably an issue which we’ll cover the Q&A section that’s intensively, it’s obvious if you listen to the rumors in the media. The reason that more and more rumors are coming is that we are in advanced phase of the divestment process. Its common knowledge that we currently do have leading bidder, but just to make it clear, we also continue talks with other bidders definitely with different levels of intensity.

But we also ask you to understand that the negotiations are extremely complex given the numerous parties involved, especially in Brazil, where we do not need to talk to a buyer but also need to include Vale and also the Brazilian National Bank. This is exactly the reason why we cannot nail the exact timing down to day or week, but our focus and our confidence remains absolutely unchanged on a timely signing.

Based on the current negotiations, we have adjusted the book value by another €700 million so now the book value represents €3.4 billion.

To be clear to address the market speculation about a potential capital increase which has really hammered our share price performance. The additional impairment which we have to do now in Q2 does not change anything on our very solid financial situation which Guido will explain you in a minute, but it’s definitely weighing on the book value of our equity.

Very clearly we can debate about the economic meaning of such a ratio. However, we need to monitor and interact very closely with our strategic customers. Being sensitive to our customers and really also considering the limited balance sheet capacity, that is exactly the reason why today we cannot fully exclude a capital increase for the next six to nine months.

We will make our decision on these questions once we have signed Americas and have more insight in the results of our compliance investigation and amnesty program.

On our compliance program, we continue and I can tell you rigorously to apply our program with the three pillars, inform, identify, report and act.

The measures on the identify are that dominated by the ongoing investigation in the so-called rail cartel and as well in the ongoing under trust investigation into ThyssenKrupp Steel Europe HE where the two follow up on an anonymous accuse the Federal Court Office is investigating. There was an initial suspicion of price agreement stating back to 1998 in the German automotive business.

What were our actions? Going back to the rail cartel, we have put additional provisions for anticipated fines and claims in connection with this cartel in an amount of €207 million and we have further significantly identified our compliance efforts.

This includes further supporting measures and a real catalyst for culture change. We’re really thinking how can we finally clean up the past, because we also say that by the fact that while we are going forward, we are continuously, let say, accused by issues dated back in the past and that was the reason why we have really opened up a temporary amnesty program running until June 15th to 23th.

With this, let say option, we believe we receive reliable information from within the group and allow employees who believe that our Way Forward is the right but had some wrongdoing in the past to really clean up the past.

We strongly believe that the amnesty program represents a real clear-cut for the group and all employees. One fact is clear any compliance violation discovered after the program ends will be dealt rigorously clearly in line with our zero tolerance.

I know that while a number of people are little bit concerned that all the issues around like portfolio and cartel takes us away focusing on operational improvements, I believe that our Q2 performance could prove this is not true.

We made important progress in improving the performance across the Krupp. We have achieved our operational milestones and delivered on the profit and cash targets in Q2.

EBIT adjusted from continued operation came out at €241 million, which is definitely at the upper end of the announced around €200 million and is slightly above Q1 results. With the important fact that all business areas providing positive contributions and the strong piece was again our capital goods business which generated 85% of the EBIT adjusted contribution.

Now, given the fact that we have achieved EBIT adjusted of €470 million in the first half year, we are well on track to achieve our full-year target of around €1 billion. Free cash flow from continued operations before positive effects from divestments came out at minus €80 million in Q2 better than promised and ahead of Q1 despite the fact that we have given you the information that higher interest payments happened in Q1.

And the reason for this is primarily our strong cash performance in Elevators and Industrial Solutions, both of them contributed or both together contributed around €600 million cash in Q2. The free cash flow before divestment in the first half year came out at minus 700 -- minus €278 million. This is a year-on-year improvement by €1.4 billion and this really demonstrates that we are well on track for our full-year guidance where we set around break-even.

With that, the net debt of our group remained on a quarter-over-quarter basis, broadly flat at around €5.3 billion. However, if we compare this on year-on-year basis, it significantly came down by €1.2 billion. Orders remain flat compared to Q1 in a very challenging environment.

We saw seasonally some higher volumes at our Material business and another record order intake at our Elevator business. Positive despite the challenging environment, our book-to-bill ratio is about 1 and we now have an order backlog for the group by €25 billion and the backlog in our very profitable Elevator and Industrial Solution business now reached a record level of around €20 billion.

And also the traction on our impact program gain momentum. We could add in Q2 cost savings of €190 million. So adding Q1, we have now a level achieved of €270 billion in the first half year. So our targets to achieve cost savings accumulating to €500 million for the full year, is we are well on track.

Now, if you look on our order intake, once again I think our figures show that our strategic ambition to move this group from a Street company to a diversified company, really pays off. Quarter-on-quarter orders remain flat compared to Q1. This time supported by seasonally higher volumes at our Material business which partly compensated a large ticket order in our Industrial Solution business.

On a year-on-year basis, orders came down by 13%. Two mainstream issues, we had a divested related degrees at CT and some weakness in the automotive business but most important, we had a lower volume due to the significant weaker material demand. The year-on-year and half year comparison also reveals the real growth opportunities in our elevator and project business.

We could really experience another record order intake in our Elevator business, which was really driven by very, very strong new installation demand in the emerging markets especially in China and Brazil. We had very good momentum also in our modernization and in our maintenance market, virtually across all regions.

We have another opportunity to grow in our Industrial Solution business, just consider the big ticket order of €1 billion for fertilizers plant in Q1 or €350 million cement plants from orders in Indonesia or Thailand booked in Q2. Cement orders were definitely even more important in the contribution of our capital good business on the earning side. The contribution from capital goods represent 85% of the adjusted EBIT.

Nonetheless, all business areas of continued operations were consistently able to provide positive contributions in a very challenging environment. Quarter-on-quarter, overall EBIT adjusted from continued operations came out at €241 million as said before at the upper end of our guidance around €200 million and slightly ahead of Q1 results.

This sequentially improvement in performance at the majority of our business areas, however, we had some pricing related lower but still positive contributions from Steel Europe. Year-on-year EBIT adjusted declined €361 million to €241 million reflecting some divestment effects and weaker markets in our component business but particularly driven by the volume but even more by the price related weaker development in our Materials related business. Against this, Industrial Solutions is quite stable and our Elevator business which could again improve its EBIT and margins versus prior-year quarter.

Coming to the outlook, as mentioned, result in the first two quarters and our expectation going forward are fully in line with our guidance. Therefore we too confirmed our outlook for the EBIT adjusted which we believe will come in at around €1 billion. And this discount is also unchanged that at Elevator we will see top line and margin improvements. But in the Industrial Solutions, the combination of Plant Technology and Marine Systems, we will see a broadly flat EBIT contribution where we would see or most likely we will see normalized margins which are compensated by higher volumes.

We will see some reduction in components technology driven by divestments effects and weaker markets in our automotive industry but also impacted by the ramp-up costs of our new plants primarily in Asia. In our Material business, we will see a reduction through weak markets and a very, very intense price competition.

We controlled our CapEx at the committed level below €1.4 billion and the good thing is within these targets, our CapEx which we spend for capital good business will be higher than the CapEx we will spend for our Material business. And most important, our commitment is unchanged to achieve a significant improvement at our free cash flow that works around break-even before divestments. And with the €270 million of impact measured by mid-year, we are really on track to also fulfill our commitment there.

To really sum up from my side, hopefully you can recognize that the entire group is in a very comprehensive transformation process. And just to highlight one here, this is accompanied by a major reduction of our capital employed, particularly at our Material business.

And this supports our commitment to you that in future, we will use our capital much more efficiently. This is supported by structural improvements in our earnings and cash flow profile and a much higher exposure to our more stable capital goods business. As you have seen with the actions which we are implementing, we are working towards a leaner and much more effective and efficient global infrastructure. And we strongly believe this will shape -- sharpen overtime our perception as a diversified industrial group and hopefully and this is hopefully your judgment, improve the ThyssenKrupp investment case.

And with that, Guido, it’s your turn now.

Guido Kerkhoff

Thank you very much. As mentioned, we delivered on our targets in Q2. EBIT adjusted from continued operations came in at €241 million well above the market consensus consensus of around €200 million and all business areas provided positive contributions, as we guided already for Q2 when we had our last earnings call.

Let me go over to all of our business areas. Components Technologies, quarter-on-quarter EBIT adjusted was up from €42 million to €63 million. We had improvements across virtually all businesses, especially at chassis where we already start to benefit from our successful restructuring at springs and stabilizers.

Just industrial components mainly undercarriages here were a bit weaker, but we have already announced the restructuring programmed facility of our best-owners process here. If you compare year-on-year, you also have to see that the decline divest related as well, where Waupaca is contributing by around €25 million EBIT per quarter.

Elevator, EBIT and margin is quarter-on-quarter seasonally down as we see every year. But if you take a look at the year-on-year performance, however, you will see as in Q1 that EBIT and margin are again up to prior year figures. This was mainly driven by topline and earnings where it’s most pronounced at Asia-Pacific, especially in China.

Industrial Solutions, quarter-on-quarter EBIT and margin is up to €180 million and well in line with our target margin of above 10% and also is very close to our prior year quarter, which benefited from a realized provision at Marine Systems.

We are currently with €16.4 billion order backlog at a new record level here at Industrial Services. Q2 orders included a cement complex in Indonesia of €200 million as already mentioned. We continue to add promising project outlook for petrochemical plants in the U.S. and a solid outlook for system engineering in Marine Systems where we have acquired a small Australian naval engineering company, AMT to strengthen our presence at promising Asia/Pacific region.

With that, I come to Materials Services. EBIT adjusted in a difficult environment down year-on-year, reflecting especially lower prices and lower volumes as well. Quarter-on-quarter, however, EBIT adjusted was up to €58 million as seasonally high volumes and management gains could compensate a price cost lead we were facing here.

Steel Europe, quarter-on-quarter EBIT adjusted down in fiscal Q2 by €9 million, as higher raw material costs and especially lower average revenues per ton could not be compensated by higher volumes.

Quarter-on-quarter, production was up 14%, shipments 21%, so seasonally we were up to around 3 million tons. However, that was not enough to compensate the lower realized average revenues per ton that reflect the weaker European spot prices at the end of 2012.

Nevertheless, with €9 million, we were positive as we outlined in our last earnings call. Corporate quarter-on-quarter was down by €23 million to minus €120 million. This was mainly reflecting an aperiodic sales tax payment we had to do.

On Steel Americas’ discontinued operation, quarter-on-quarter improvements of EBIT, adjusted reflecting operating progress and positive aperiodic tax affects of around €102 million ICMS negative fiscal was minus €34 million overall €68 million healthy.

CSA, quarter-on-quarter higher slab sales to third parties and improved fuel rate, as well as recapitalization of sales tax credits because of the higher sales to the local market. Steel USA, quarter-and-quarter, highest shipments with a higher share of coated products and high average revenues per ton.

The auto qualification is on track, the pipes and tube certification is completed. The performance overall in Q2 in H1 was backed by our first efficiency gains from our impact 2015 program. In Q2, we have realized €190 million, bringing the realized efficiency gains in H1 to €270 million. We more than doubled the Q1 effect in the second quarter.

So we are well in line with our target of €500 million for this year. We today announced efficiency potential from our Ag program of €250 million will further substantiate our overall €2 billion impact 2015 target. In the reporting quarter, operating results were impacted by negative special items.

EBIT as reported from continued operations came out at minus €4 million. This reflects the €245 million of special items, especially related to the additional provision in an amount of €207 million for a recognizable risk from anticipated times and claims in connection with the rail cartel.

Given an interest result of minus €172 million, which also includes Outokumpu stake €38 million, tax income of €99 million, reflecting increasing deferred tax assets. The income after tax from continued operations came out at minus €77 million. The net income for the group including discontinued operations came out at a negative minus €852 million, reflecting the fair value adjustment of €683 million of Steel Americas and additional deferred tax assets of minus €86 million we had to refer and smaller ordinary loss.

Free cash flow from continued operations before positive affect from divestments came out at minus €80 million in Q2, which was a lot better than promised and ahead of Q1 figures despite higher interest payments.

In Q2, we had just €10 million. In Q2, it was €240 million of interest payments. This was based on a strong cash performance at Elevator and Industrial Solutions, which together have contributed more than €600 million in Q2. This reflects the solid earnings and we had strong advance payments and we have to say, some advance payments that were already budgeted for Q3 already came in Q2, so there were supporting these figures well.

Negative free cash flow includes as well, corporate -- corporate may sound very negative at minus €500 million on the first glance. But this reflects the interest payments and the regular pension payments of €87 million, so more than two third of that was coming out of not operational spendings on corporate level.

Overall, quarter-on-quarter net debt of the group remained almost flat at €5.3 billion. Nevertheless, we had a temporary increase of the gearing from 123% to 148% and particularly explain by the lower book value of our equity, down to €3.6 billion up which internally reflects mainly the fair value adjustment of Steel America.

With the closing of that transaction, we expect significant reduction of net debt and therefore the gearing as well. Looking at the first half of 2012, ‘13, net debt overall is reduced by €2.5 billion to €5.3 billion. This represents a major swing compared to the €2.9 billion net debt increase in H1 ‘11, ‘12, which reflects the significantly reduced cash burn in our discontinued operation given the divestment of Inoxum and decreasing cash outflows at Steel America as well as the structural optimization by our continued operations.

The traction of our structural optimization, the cash flow profile of our continued operations becomes apparent in the year-on-year comparison of our performance. It is typically free cash flow negative in the first half, while excluding divestments still slightly negative in our H1 plus ‘13. Performance has been lifted by €1.4 billion compared to prior year level.

With CapEx virtually unchanged, this is explained by the structural improvement of our networking capital management. We have successfully moved away from disproportionate year end optimization, as it has been the case for a couple of years. And we have not only eliminated volatility, but also continuously improved efficiency.

We have seen in fiscal Q1, virtually no build up of inventories and no reversal of receivables and payables. This continues progress over the last five quarters was reinforced by a further improvement of our operating networking capital in fiscal Q2.

The liquidity of the group therefore is well secured. And the transformation of group is based on very solid financial grounds. During Q2, we have successfully placed the bond in two tranches with the total volume of €1.6 billion, 5.5 year maturity and the coupon of 4% that was the lowest funding level decay has every achieved with the bond offering.

This has further extended our balance sheet maturity profile and strengthened the debt capital market share in our financing mix. Available liquidity has further increased therefore during the quarter to around €8 billion. This includes the €2.5 billion syndicated loan facility which has a covenant of max 150% net debt to total equity at fiscal year end. Facility matures mid next year, it is currently renegotiated and undrawn.

Furthermore, please let me remind you to consider in your models that our 29.9% stake in Outokumpu, as well as well as €1.2 billion loan note is not part of our liquidity position and therefore does not reduced our net debt figure.

We targeting Q3 to achieve al least the quarterly EBIT adjusted run rate we launched in the first half and in improvement of our free cash flow in line with our full year target. This discounts broadly stable earnings at higher sales at Components, a temporary slight billing related decrease at Industrial Solutions. This will be compensated by at least stable results material services, sequential improvements from slightly higher shipments and average revenues per ton Steel Europe and seasonally higher sales and margin in an overall strong H2 at Elevator.

As mentioned, H1 result in an adjusted EBIT of €470 million, which is well in line with our full year outlook of €1 billion. This discounts with high visibility for Elevator, the seasonally and structurally stronger H2 and for Industrial Solutions based on record order books and EBIT adjusted at least on H1 level for the strong Q4. Its ability is much more limited at the higher cyclical components and materials businesses. However, from today’s perspective fiscal Q2 should have been the drop for Steel Europe and fiscal H2 should be seasonally stronger than H1 at material services broadly stable components. This also backed by increasing traction and further ramp up of Impact 2015.

Dr. Claus Ehrenbeck

Yeah. Thank you very much, Guido. Thank you very much, Heinrich. Operator, please take over for the Q&A session.

Question and Answer session

Operator

Thank you, sir. (Operator Instructions) Your first question comes from Michael Shillaker from Credit Suisse. Please ask your question.

Michael Shillaker - Credit Suisse

Yeah. Good afternoon. I’ve got three questions, if I may. The first question on, I guess, obviously Steel Americas. The auditors have given you a decent amount of leeway several times now in terms of the writedowns you’ve taken. I guess, the question now is have they been privy to the valuations you’ve actually been discussing? And is there any fundamental reason why they would give you actually a reasonable headroom on those valuations or would the auditors at this stage, given you’re so close, like you to close in on the valuations that you have actually been discussing is my first question.

My second question is on the equity side. What are your customers actually telling you is an acceptable level of equity to assets? Because obviously, you’ve published very clearly the 9.5% and I guess, that’s the crucial number. So what are your customers actually telling you is an acceptable level so that we get some sort of sense of lee way?

And is this not something you can just deal with effectively with a marketing program because when you were downgraded to junk in 2003, the management had a very aggressive marketing combine to rubbish the S&P methodology of including pensions and market this very strongly without actually taking any further remedial election. Is this not something you could do, given that this is accounting substance over the form of liquidity, liquidity is absolutely fine?

And my third question is on governance. Could you just give us quick refresher in terms of where we are on the auto sheet cartel. If there’s any moment there at all ? And has the amnesty actually thrown up anything new you so far? Thank you.

Heinrich Hiesinger

So, let me start with the Americas, Mike. As you know, the valuation you have to do and the discussion as we are getting closer and closer in the project, we have to closely negotiate with our auditors, where do we stand what is our best knowledge and that all has to be reflected when we have to do the valuation. And as I always said in the past, auditors are not risk takers in this approach. So definitely, there has to be something that we could see as a realizable value overall because it’s based on the fair market value, less cost to sell.

Coming, maybe, down to your second question on the customer feedback, customer as we also said, yeah, they look more and more on the balance sheet as we’re clearly far away from average tax standards. And if you take Industrial Solutions of all the companies, that are competing with us there, they are on different levels. But they are not giving us directly a clear level that they want to see. And the argumentation we’re doing around our equity ratio and this is what you see reflected in that our bond placement did go through so very well, is that there are some other aspects you have to taken into account, if you see just a pure value of 9.5%.

Definitely pensions do play a role. They are double as much than our equity. And if interest rates would go up, we have a significant effect directly on our book equity. And on the other hand, as they are long term, they are a different animal and there is some sort of equity portion in it. And this is reflected by capital markets as well.

Third thing, we also have to say and for many of our businesses, the some of the parts values are definitely a lot higher than what you see in our book equity. So people and customers do see that but we clearly have to communicate it appropriately. But at clear level, this is not communicated to us.

Guido Kerkhoff

Yeah. Coming to the governance guidance, specifically to your question, what is the outcome of our internal investigation and the amnesty program. First of all, so far we did not find anything which would support the accusation done. But in all the information which is available to us, we have given to the auditors. And clear, there is nothing which we should or could reflect in any case, let’s say in half-year closing.

But definitely as our investigation continues to run and the amnesty program is not completed, that is the reason why in our risk reporting, we clearly stated, if let say, in this running process something would come up, there is risk involved in it. Mike, we do not, let’s say, release whether anybody was participating in the amnesty program or not because we believe that if we would announce something, it would diminish the trust of our employees to really participate in the amnesty program. But as I said, the same is true for the amnesty program, out of this nothing was found which really as I’d say, let say would support the accusation in the steel business.

Michael Shillaker - Credit Suisse

Okay. Very quick follow-up to the second question, if people -- and I guess -- all lenders also are giving you the same comments on your balance sheet in terms of the way they look at risk. And if they are not actually giving you direct figures, this percentage or similar of equity that you require, how do you actually ultimately decide how much equity you actually need?

Heinrich Hiesinger

Well, the feedback from lenders is clearly that say 9.5% is to live but they want to see on the other hand is that we have a clear past and that we can execute the free cash flow and net earnings is getting both positive and that we can repay and strengthened by our operational performance. So they want to see a past that we get it up.

Guido Kerkhoff

And the other point is what they want to see and together with Mr. [Osburg] running the automotive business then I am personally involve in those discussions with our customers.

Their real concern is not specific threshold level. They concern is whether in terms of transition period which we are doing for ThyssenKrupp, whether we are ready to follow their path on innovation and on capacity side.

So we are going in really intense dialogue and showing, why we are transforming the company. We have increased our investments in R&D and that we are really building up five factories in China and in India.

And after such a detail discussion, they do recognize that why we are cleaning up the risk out of the balance sheet, we still make sure that we can support the growth path, let say, together with our customers for our future businesses.

So whenever we had a chance to go in such a detail discussion, we could convince customers. They were not asking are you at maybe a threshold of 15% or 20%, they wanted to make sure that we have the capacity to invest in the businesses which are important for them.

Michael Shillaker - Credit Suisse

Okay. Clear. Thanks a lot.

Operator

Your next question comes from Alessandro Abate from J.P. Morgan. Please ask you question.

Alessandro Abate - J.P. Morgan

Good afternoon to everybody and congratulation on the results. Just a follow-up question on the prior ones that have been asked by Mike, on -- what basically your customers are saying, what kind of impact can have on the kind of request to see potential capital increase to get a better equity ratio? What is the weight that your improving performance can have on they don’t feel relative to the capacity you have to follow them in the investment?

And the second question is related, of course, I don’t know whether you can actually reply, but you give us pretty much, split of the book value, two-third and one-third between CSA and Calvert. Can we recon on the same ratio more or less?

And the third one, if you can give a little bit more granularity on the impact program €190 million that you got in terms of service in Q2? Thank you.

Guido Kerkhoff

Could you repeat the €190 million?

Alessandro Abate - J.P. Morgan

Out of impact.

Guido Kerkhoff

The impact €190. Yeah, the impact €190, we saw largely split, but a big part of it was coming from procurement effect that we saw so far. So that was mainly supporting the increase that we have because we are more and more bundling on that one.

With the Americas and let me answer that one first, the two-third, one-third, well, we do see a bit decrease in the value for CSA more than for Americas, if you see the split between the two, that was definitely more driving the impairment that you saw so far.

On the capital increase and the considerations around that, I think there is not really so much we can say, we definitely by the end of the day have to go to the point where we see what can we achieve, what risk do we see and how can we by the end of the day once we finally can judge our risk and analyze how there is operating way forward move the needle and where do we stand after we can finally judge it all and then we have to make our decisions around that issues.

But mainly driving in our story that we get our operating performance turnaround to positive free cash flow and to a positive net earnings that will support than build of equity and the build up of better cash position by the end of the day as well, that’s going to be the key point driving our performance.

Alessandro Abate - J.P. Morgan

Basically, this is a vision that might be depend a little bit more on your approach going forward in terms of capability to support the growth of your customers, right?

Guido Kerkhoff

As well, yes.

Alessandro Abate - J.P. Morgan

Okay. Thank you very much.

Operator

Your next question comes from Bastian Synagowitz from Deutsche Bank. Please ask your question.

Bastian Synagowitz - Deutsche Bank

Yes. Good afternoon, gentlemen. I’ve got three quick questions. For the first one, is again on the cash flow, which I guess has actually been quite good and was much better than what your initial guidance had been implying. And if I look at Steel Americas, I guess given the impairment actually it’s quickly overlooked that the performance there had actually improved quite a bit?

And could you please let us know whether the €125 million free cash flow direct whether that’s a level for Steel Americas which is sustainable over the next two quarters, you obviously just give guidance for the continuing operations, but I guess most of the impact in the discontinued line would come from Steel Americas in the last two quarters?

Then my second question would be on Steel Europe, I guess most of your peers here in steel have some cut the guidance and I guess it did right in the sense of being more cautious at the beginning of the year, would you say that, although, you confirmed the group guidance, things have become more challenging in Steel versus early expectations, just I guess you just mentioned that we have seen the trough, but if I look at the spot market and also at the costs then there’s very little evidence which suggests that steel margins actually get better in the next two quarters and maybe I stop here before finishing with the last one?

Heinrich Hiesinger

Yeah. Just let me start with your last question related to Steel Europe. The reason why we said, we probably have achieved trough because there is always a delay between the prices for intake and the sales of the shipments.

And let’s say, the reason that it came at only €9 million for Steel Europe at this time because we now ship extremely low prices, which we got in order intake side in the period of October, November, December. So as the prices were slightly up in January, February, March, we believe that our Q3, let say have some upside compared to Q2 and that’s the reason why we believe in trough.

I think Q4, we still would not like to comment today because this is exactly what you stated, we have to see how the market is develop and whether it remains at that level or not, but, clearly the outlook for Q3 is better for Steel Europe than we had in Q2.

Guido Kerkhoff

Yeah. But having said that and I think coming back to what you assume, yeah, in the beginning of the year, when we distributed it through the quarters, we had a stronger expectation for the second half than for the first. And by the end of the day now after the first half we see that we came in a bit better than we had our original distribution of around €1 billion EBIT guidance.

So, therefore, with a bit weaker Steel Europe Q3 and Q4 compared to our initial expectations, we can still keep the guidance up which shows that especially on the impact program we have contributions that finally paid off.

On Americas, our cash flow for quarter was €125 or something, which is a good estimate. We don’t see any major changes going forward. And yes, you are right the cash flow overall was a bit stronger than we guided as we said we will be more or less on the same operational performance and we already were stating something on the interest amount which is due, but we have some tailwinds from down payments we got that was helping but it should happen more of.

Bastian Synagowitz - Deutsche Bank

Okay. Thank you. Then my last question would be on the new -- newly launched ACT program. The €250 million which you aim to save, is there a certain timeframe, I guess, generally, because this is in the holding, it should be much more linear than, basically, cutting costs in some of your operational units. So is this rather a back-end loaded number and any view which you could give us on how this materializes over time would be great?

Guido Kerkhoff

No. It is certain and with our impact €250 we believe that the majority of the €250 million to come in. The fact is following I think your statement that the majority is headquarter is not true. As I said, we have optimized the function through all levels of our organization meaning if we looked on controlling or accounting this was not only headquarter.

Clearly in the execution we have the fastest opportunity in the headquarter going down, let’s say through the functions, some of those redundancies require that we make progress on our deep (inaudible) implementation, the program where we can really automate financial and let’s say, accounting process. But we strongly believe that the majority will come in within our impact scenario until 2015.

Bastian Synagowitz - Deutsche Bank

Okay. Thank you.

Operator

Your next question comes from Ingo Schachel from Commerzbank. Please ask your question.

Ingo Schachel - Commerzbank

Yes. Good afternoon. I have two questions. The first one would be regarding your M&A preferences. In general, I think, a few quarters ago, you had commented in connection with the Americas transaction that you wrote in case of that you had a strong preference for a transaction with a relatively high cash component, now for any M&A transaction you would be confronted again with a tradeoff with a transaction that has a high cash component versus a transaction that has a higher transaction value and is hence more positive for your equity or balance sheet ratios, would it be fair to assume that your relative preferences for a high cash component have shifted more towards preservation of equity, given the balance sheet situation that you also mentioned in your introductory comments?

And the second question would relate to your Elevator business and the order intake in China, I was a bit surprised about your qualitative comments about the Chinese New Year, because most of your -- all of your competitors, Kone, Otis and Schindler, very consistently talked about 25% market growth in China in the first quarter and the expectation of zero percent growth in the June quarter. Given that you mention the Chinese New Year has effectively impacted the Q1 negatively.

I was wondering whether you could elaborate a bit more on why you saw currently a different market growth rate in China, whether it has to do with the markets in which you are active within the segment or with your order intake, if you can give me some methodology and if it’s also fair to assume that it also implies that your expectations for the June quarter is not as negative and that contrary to the other definition you would still expect significantly positive market growth rate in the markets in which you are active in China on the Elevator side in the June quarter?

Guido Kerkhoff

Let me start on the M&A. We still have the same preference. Cash is always preferred for us, but there is always a tradeoff of value and cash and what are doable deals. So, we -- therefore we have to see what the tradeoff is but our preference is unchanged, cash.

On elevator order intake in Asia and especially in China, yes Q2 is always impacted by Chinese New Year. But having said that in our case Q2 was above Q1, as we have throughout the last year always very strong growth rates. It was a weaker growth rate than we saw last year but still significant and a double-digit growth rate.

Heinrich Hiesinger

I think, you need to understand that let say the impact of Chinese New Year in order intake is less than it is on real sales because in the execution and the service and maintenance, let say piece, days off have an impact. Normally, in order intake you don’t see it very much because you can order let say even if you miss the week but in the execution side let say one week off in Chinese you will some impact. That is the reason why orders normally no impact and on the sale side and merchant side a slight impact from those which you let say have in our case very regular on the second quarter.

Ingo Schachel - Commerzbank

But on the order intake side, you would say that for Elevators in China, your order intake growth rate was below the market growth rate of 20% to 25%?

Guido Kerkhoff

Order intake for the quarter quarter-on-quarter was below 20%, yeah, but not that very much.

Ingo Schachel - Commerzbank

Okay. Can I ask a quick follow-up question regarding profitability in Industrial Solutions? Can you give us some information how much Marine Systems contributed or the former Marine Systems contributed to the earnings growth as opposed to the old Plant Engineering activities?

Guido Kerkhoff

Yeah. Marine Systems was -- was well on track compared to prior year. It was compared to the previous quarter, definitely stronger. So it was around €70 million…

Ingo Schachel - Commerzbank

Okay. Thanks.

Operator

Your next question comes from Neil Sampat from Nomura. Please ask your question.

Neil Sampat - Nomura

Good afternoon. I have two questions on the capital raise. I think earlier in the call, you mentioned that we’d get a bit more clarity on a six to nine-month view, I guess you can rule out a capital issue on a six to nine-month view. Given that Steel Americas, I inferred from your comments earlier that although you can’t set a specific kind of date or time, it’s coming within the next month or two, given your original target was May 2013.

And also, the amnesty will complete by 15th of June, presumably well before six to nine months, we should have a good idea of the moving parts, in terms of the equity ratio. So I was just wondering if you could clarify what the thinking is behind the six to nine month comment made earlier and whether we could actually get a bit more clarity, as soon as the Steel Americas deal is done whether we need a capital rate or not?

And then, secondly, on the need to raise equity in general, I guess, you’ve mentioned in the past the main issue is that customers who give prepayments are quite nervous about the equity ratio being low. Could you perhaps quantify what kind of financial impact you’d have if you were to lose some of those customers who are concerned about the low equity ratio, particularly in light of the record order book in some of these divisions?

And also, how you’re weighing the dilution of equity holders against the potential loss of orders here and also, just to give a bit of color, have you had any feedback from investors as to whether they would be supportive of this equity issue and what they would prefer you do as a management team?

Guido Kerkhoff

Yeah. Well, let me start with your question around the capital raise. As you clearly understood, we might be considering or we’ll be considering our situation given the risk factors and the two risk factors you mentioned are the amnesty program or the cartel issue on the steel things where the acquisitions have been there and the sale of Steel Americas are definitely two of the important ones. So there is nothing really to add to your conclusion you made. These are the two ones where we need to have clarity around to consider what we want to do.

The down payments, yeah, they are helping. Customers are a bit concerned, but it’s rather that they are asking for what kind of guarantees they can get behind and how far we can give more clarity on what we do and what we invest on R&D and how much safety is around the company.

So there are a lot of questions but so far we don’t see any negative impact on our order intake or that customers go because of that reason away or that we have to use different patterns of a less down payments and advance payments. So therefore, its concern but no real impact so far which we don’t see.

Investors feedback, I mean as you can read everywhere in the reports, it’s mixed on potential capital raise. So there is nothing to add with what you see on the reports. It’s quite a wide range of views.

Neil Sampat - Nomura

Okay. Thank you.

Operator

Your next question comes from Carsten Riek from UBS. Please ask your question.

Carsten Riek - UBS

Thank you very much. A couple of questions from my side. First, do the €3.4 billion for Steel Americas reflect now fair value for Steel Americas or is there further downside risk?

That’s the first one. Second one is also on the ACT program, you talk about opportunities of €250 million in benefit from this program, question as 3,000 people are involved, how much does it cost upfront?

And the third question is also, how much does the restructuring program in Berco cost? That’s it. Thank you very much.

Guido Kerkhoff

Let me start with €3.4 billion. As you know for accounting purposes, you have to use in discontinued operations the fair value less costs to sell so you have to convince your auditor that this is the value you put on your books is an achievable fair value that you see is possible consideration.

There’s always been risk for upside and downside as negotiations are still ongoing and although, there is one preferred route but other bidders on the way and there is always movement and some potential in all directions, so that we have to convince our auditors. I can only repeat that one that this is a doable outcome of our negotiations and they are not risk taking people.

On the ACT program, yeah, the 250,003,000 people are affected. We are still in negotiations with the workers counsel through over levels which we can only smarten out, what programs we will use and how exactly the program will be broken down, what measures we can use. So therefore we have not given a figure for the cost that will be allocated to it and we do not have built any provisions for it, same is true for the Berco program.

We’re still considering and when it’s appropriate, we will come back with the figures that we have to put on our balance sheet. So that we can have provisions. So far nothing is provided.

Carsten Riek - UBS

Okay. Thank you.

Operator

Your next question comes from Jeff Largey from Macquarie. Please ask your question.

Jeff Largey - Macquarie

Yeah. Hi. Good afternoon. Thanks for taking my questions. My first question comes back to more than mechanics of a right to show a capital raise. Correct me, if I’m wrong, but my understanding is that actually to say raise capital, you need approval from your AGM. And I just was curious, you could remind us if you already have that approval in hand or whether you would need to actually call in -- either have your AGM or call in EGM?

Guido Kerkhoff

No. We don’t have to call in EGM or AGM. You can read in our Annual Report we have the allowance for up to €195 million, Jeff.

Jeff Largey - Macquarie

Okay. And then just -- and then I suppose just building off of previous comment, I mean, I suppose -- I mean, yeah, I can see there is clearly some milestones that need to achieved before judging whether or not you actually issue capital. But I guess that comment on having this be a six to nine months type review period that sure seems to create quite an overhang for your share price for quite a bit of time.

Some would maybe argue that it’s just better to kind of rip the band-aid off if you will. Can you just talk about the thinking as to whether -- you mean, again, we need to have some of these key events of sales to Americas et cetera occur. But I mean, can you just talk about the thinking as far as creating this type of overhang for the stock for quite a bit of time?

Heinrich Hiesinger

I think, coming back because I made this statement, maybe, let’s say some of you were misguided by 6% to 9%. We know that right now we have actually three items hanging around, which really are burden on our share price which is really the signature on our Americas transaction. It’s a, let say, more detailed outcome of our amnesty program. And definitely let’s say a clear yes or no to write issue.

What we’re saying is, it does make a sense to handle one. Let’s say we will come back if we have an answer to all three of them in one package. Because I think you recognize that Guido and myself in the last two and half years, we decided on facts. And there is no tendency at all right now in any direction on the right issue side. We want to have a very clear understand what is the value we can achieve for Steel Americas. What is the outcome of the amnesty program. If we have substance to both, we will also make a very let’s say fast decision coming back to you, what is our response on the right issue.

Jeff Largey - Macquarie

So if I understand that correctly, it’s not necessarily a six to nine months timeframe?

Heinrich Hiesinger

Absolutely not. Absolutely not. As I said, the moment we can have a clear picture for Americas and let say clear risk profile out of the amnesty program then we will come back to immediately with decision, what is our position in the right issue.

Jeff Largey - Macquarie

That’s right.

Heinrich Hiesinger

All three elements which are, let’s say, impacting our share price at the same time.

Jeff Largey - Macquarie

Okay. That’s great. Thank you for the clarification.

Operator

Your next question comes from Rochus Brauneiser from Kepler. Please ask your question.

Rochus Brauneiser - Kepler

Yeah. Hi. It’s Rochus Brauneiser from Kepler. Just few follow-ups and maybe coming back on the new book value. Is it fair to assume that considering the decrease under minorities portion that the big bulk of the impairment of €700 million has been done for CSA, if I take the minorities and add it back on 100% basis?

The second question is again on this right issue. Apart from what your clients might think and expect in terms of your balance sheet requirements. What’s your view on the capital or on the equity requirements to be prepared for an external shock as we have seen a few years ago in (inaudible) existing global financial crisis? Is there any change in the thinking in the management and subadvisory board how to be prepared for such an event and how do you look at things in a sense, the bigger right issue will be the more level of comfort operations have to move forward whereas moderate right issue would keep the pressure high on operations to get better and increase the free cash flow to organically improve the balance sheet ratios.

And finally, maybe a word on Steel Europe, when I looked at the second quarter performance, average revenue per ton was down €70, was this a pure market pricing effect. Was there any major mix change. Obviously, hot rolled/cold portion has gone up quarterly quarter-over-quarter. Any particular reason, why the mix has potentially changed there?

Guido Kerkhoff

No. Let me start with €3.4 assumption that the impairment was mainly allocated to CSA. It’s definitely the correct one as you can see on the minorities there.

Rochus Brauneiser - Kepler

Yeah. Exactly.

Guido Kerkhoff

So it’s clearly. That was to mainly CSA. Regarding major shocks that could happen on our business, I think you have to consider but in a different way. As we know and as in the past, we had two parts of our business, two business areas that we’re contributing with a very negative EBIT which was Steel Americas and Stainless. And they have discontinued already. So in the steel and materials businesses overall, we are currently in a very weak position.

And still they are positive or close to zero. There is not such a big shock that could happen there and we’re not in a good market situation overall. And if you see numbers from competitors that are deeply in the red, they are definitely not positive talking about the current situation. They are rather talking about situations like in the big project.

And on the other hand, our industrial businesses, they have already proved in the crisis that they are stable or even increasing their performance there. So we have a very stable contribution here. So compared to a situation, if you take today’s P&L over the last quarter compared to the crisis situation where should a major deterioration happen, what’s more or how much deepest steel overall should be able to go on automotive businesses.

And you see that this is really a different picture as well on components that are cyclical yes. But in ‘09, that here in ThyssenKrupp, they took the opportunity and did the restructurings. So if we were in a situation like ‘09 where we needed some 90% capacity load to be positive on EBIT overall, we’re currently a lot better and can we act more flexible to volatility in the market.

So I think this company is much better prepared and you don’t have to prepare such shock scenarios because we are not coming from good times and have over stock customers. This is not there. Even the stock levels in Steel Europe, you will see our customers don’t have high stock levels, which was completely different in the crisis where you have very large stock levels for the custom base.

So I don’t see these shocks like in the crisis coming. Regarding Steel Europe on the second quarter, we did not see any relevant mix change overall. Pricing was not sufficient that was the biggest drop that we had.

Rochus Brauneiser - Kepler

Okay. Maybe one follow-up, based on the performance in the Steel Americas business in the second quarter, any update on the free cash flow requirements for the whole year? I guess back in December, you guided for some €600 million, €700 million?

Heinrich Hiesinger

It’s better.

Rochus Brauneiser - Kepler

All right.

Heinrich Hiesinger

I was - on the €125 billion, which was already asked for as, we thought that would be an appropriate run rate and I confirm that one.

Rochus Brauneiser - Kepler

Okay. Very good.

Operator

Your next question comes from Hermann Reith from BHF-Bank. Please ask your question.

Hermann Reith - BHF-Bank

Yeah, two questions, please. First is regarding your involvement in the rail cartel. Voestalpine has already reached an agreement with Deutsche Bahn and paid €53 million. Could you please say as where you stand on the negotiations with the Deutsche Bahn and whether €207 million reflects the current negotiations with Deutsche Bahn? And can we expect that you are close to an agreement with them? And second question is regarding the tax effect of Steel Americas. Could you please -- I think you told us the affect, but could you please repeat the tax affect of Steel Americas in second quarter?

Heinrich Hiesinger

Let me take the first question about the provision, which was made for the rail cartel of €207 million. This actually combines two issues. The first one is that most likely fine from the cartel authority, considering private customers and in the addition possible claims coming from Deutsche Bahn.

I think the reason why we are -- we have now a chance to make a provision was actually that there is a settlement between Deutsche Bahn and that’s one of the competitors. Where we are? We are in a continuos dialog. The point is that we know that in December Deutsche Bahn has started a court case. The court case did so far not claim -- let’s say any figure, any amount.

It was just a claim that they want to have a more detailed facts from us to be able to really come beg again with a clear amount. And we are in a continuous dialog and the moment we have such, let’s say a requirement, we will professionally react to it. But as I said, the process is running according to our understanding quite smoothly.

Guido Kerkhoff

Yeah. Tax Americas, it’s a tax affect in Brazil. A local sales tax is ICMS and you can get it back once you deliver into the country. And we couldn’t capitalize with huge amounts and we couldn’t capitalize with any more as deferred taxes, as there was not a high probability that within a given timeframe we can collect it back. So therefore, as we now sell more to Brazil, we could capitalize them back again. So therefore, we had around €100 million issue coming out of that.

Hermann Reith - BHF-Bank

€100 million, was that all in the second quarter?

Guido Kerkhoff

Yeah.

Hermann Reith - BHF-Bank

And could you please provide us also the annual run rate of shipments through the Brazilian market?

Heinrich Hiesinger

Something like €400,000 to €500,000, increasing. We were starting and we are positive on that one.

Hermann Reith - BHF-Bank

Okay. Fine. Thank you.

Operator

Your next question comes from Sylvain Brunet from Exane. Please ask your question.

Sylvain Brunet - Exane

Good afternoon, gentlemen. I have two questions left. The first one related to slide nine where you were showing the cost savings achieved. I just wanted to check if the €270 million, you were talking about for H1? Was the run rate at the end of the year first half was the actually realized number -- realized fully in the first half? And if you could still dealing with cost savings, give us a bit of color on what you think is proprietary to Thyssen Group relative to what everybody else is doing and which, well, unfortunately in these markets, particularly on the steel side could very well be shared with customers? My second question is on the cartel fine itself. I mean, was there a calculation there or was there just, at this stage an estimate? And are the lawyers able to give you like the worst-case scenario? Thank you.

Heinrich Hiesinger

Let me just talk on the cartel fine. I think what we -- it could clearly demonstrate besides the fact that those issues happen. We have a very good mode of cooperation with cartel authority. And naturally as the investigation on the rail issues is already ongoing for more than a year, I think we are now coming to a scenario where the fine for the private customers -- let’s say it becomes more mature. And this was the reason, why we felt able to give a better figure on the provision side. This is really -- and we believe that I think it’s a reasonable provision, considering the knowledge which we have available.

Guido Kerkhoff

The €270 million on the cost savings, it’s realized in the first half. We’re doing a bit more on our impact program, hopefully than others are doing. That’s why we always stated that 30% to 50%, we expect that they should over the time be on the bottom line.

Sylvain Brunet - Exane

Okay. Thank you very much.

Operator

Your next question comes from Alexander Hauenstein from MainFirst Bank. Please ask your question.

Alexander Hauenstein - MainFirst Bank

Hello. Thank you. Only one question left. The Steel Europe, when do you expect to get quite betters order from your German auto clients and could we expect anything to hear from you with regard to that before, or after the summer holidays? Thanks.

Heinrich Hiesinger

I think you could see that our -- let’s say shipments have increased significantly. I think we do not expect significant more orders from our automotive customs in Q3, Q4 because as you recognized and let me just take one caveat. The level of new registrations here in Germany actually was flattening. So in our guidance going forward, we believe that it remains flat on the automotive side for the entire business year 2013.

Alexander Hauenstein - MainFirst Bank

Okay. Thank you.

Operator

Your next question comes from Cedar Ekblom from Bank of America. Please ask your question.

Cedar Ekblom - Bank of America

Thanks very much. One follow-up question on Steel Europe and the impact plan. To what extent could we see impairments to the Steel Europe business from closures?

Guido Kerkhoff

On the closures, there might be some small impairments. But please take into account that for Steel Europe business, the book values we have for our fixed asset represent 10% to 15% of replacement values so and we do not shutdown the most modern equipment.

Cedar Ekblom - Bank of America

Okay. Thank you.

Operator

Your next question comes from Anindya Mohinta from Goldman Sachs. Please ask your question.

Anindya Mohinta - Goldman Sachs

Hi. Good afternoon. Just two questions, please. Can you give me the sense of where you are in terms of the divestment of the electrical steel business? And could you also just remind you us just the divestment proceeds of blanks, when that is expected to impact the P&L? Thank you.

Heinrich Hiesinger

On electrical steel, we are just starting the process. So currently, we are preparing for due diligence, covering up the data and preparing the data room. So we have early contacts with potential investors, so we are preparing. Overall, it’s too early to talk about a clear timeline when we will really see this. Tailored Blanks, as we said we expect a closing in Q3. Okay, for you?

Anindya Mohinta - Goldman Sachs

Yeah. Fine. Thank you.

Operator

Your next question comes from Marc Gabriel from Bankhaus. Please ask your question.

Marc Gabriel - Bankhaus

Good afternoon, gentlemen. Just two questions. You wouldn’t rule out the option to keep a stake in the CSA business, let’s say with 30%, like you did at the Inoxum deal, if I got that right? That’s the first question. And the second question, which has been early asked by Bastian but I didn’t get the answer right, was the run rate for the EBIT for Steel Americas for the whole year?

Heinrich Hiesinger

Okay. Let me say again, on CSA and on the sales process of Americas. We have a clear cash preference. Nevertheless, we always have to trade off what is cash, what is value we can realize and what are bidders potentially offering and what is the situation that makes sense? We have never rule out something else outs that could be considered if appropriate and we don’t have any changes here. Cash is clearly preferred.

On Americas, the run rate what we always said is that we will expect to triple digit -- mid triple digit figure of EBIT on a comparable level, if you calculated to prior year including the depreciation and amortization. On our account so far, we always have to take into account as discontinued. We have to take a figure without depreciation and amortization.

Marc Gabriel - Bankhaus

Thank you.

Operator

Your next question comes from Christian Obst from Baader Bank. Please ask your question.

Christian Obst - Baader Bank

Thank you. Just three questions. One follow-up on divestments. When can we expect the divestment of Berco? Can you give us an idea of how much we can expect for the restructuring, going forward? That was after the divestment of Tailored Blanks. Can we expect a positive impact in Q3 from Tailored Blanks? And how far do are you in the process of divesting Railway Construction? Can you give us the timelines there, or is this in the same direction like with the Electrical Steel divestment?

And the second one, the increase in corporate costs. In your report, you mention that you have also included consulting expansions, of course. In there, can we expect, if we deduct interest payments from Q2, can we expect roughly the same level for the coming quarters, going forward, because you are in these ongoing processes?

And the third one is on expected guarantees, maybe because of their low equity ratio you have to deliver guarantees for the downpayments. Does this eat into your margins, or starting to eat into your margins, obviously Industrial Solution business or in other businesses? Thank you.

Guido Kerkhoff

Okay. Let me start on the divestment timeline, we have never given a clear timeline for Berco. What we had to face last year was that the results were probably going down and that we have to launch the restructuring on our own before we could sell it so therefore. And so now we’re doing and undertaking the restructuring. We’re in very good talks with several parties and we have to see how we can carry it forward. But I don’t expect that short term within the next quarter we might see something there.

On Tailored Blanks, when we have a final closing you will see positive effect and you will see then cash payment that will be positive and helping to deleverage our company. On railway, the timeline overall is the same as we have for electrical steel. We just kicked it off, so it’s too early to say something about that.

Corporate costs, I think with your assumptions, items look pretty well. I think it’s a good way of calculating it going forward. Will guarantees eat our margin? As we said so far, we are talking then we see changes so far. We have to make more guarantees, more bank guarantees. Yeah, that will definitely then eat a bit into the margin, but so far we don’t see any effect then we are trying to avoid that

Christian Obst - Baader Bank

Okay. Thank you very much

Operator

You have a follow up question from Anindya Mohinta from Goldman Sachs. Please ask your question.

Anindya Mohinta - Goldman Sachs

Thank you. I just have one follow-up question on divestment timeline for Americas. Am I right in thinking that the message you’re trying to give us is the May deadline might not be adhered to and there could be a delay? And there were some press reports which you alluded to earlier on in the call where you said that, as you get closer to the end, you get all kinds of reports. But there were some talks about potentially a one-year delay. Could you give us some clarity on this? Are we talking a delay of days, weeks, months? It’ll be helpful if you can give some context around that?

Heinrich Hiesinger

As we clearly said, we expect a timely -- timing of the transaction of a possible transaction now. But you have to take into account. We have many involved parties, especially in Brazil, meaning we have our partner, Vale. We have a potential buyer then and we have to talk to the National Bank. They are doing the financing to parts of it. So that is many, many parties, many, many board meetings and discussion.

So you always have factors that can delay you a bit. Yeah, we’re a bit delayed. It might not be May as we said, but we are in the very late stages of what we’re doing. But we don’t expect to delay over year or something of so many months down the road, no. And as you can see in the Brazilian press, there’s so many rumors going around and people talking and giving their views, so obviously we are coming closer.

Anindya Mohinta from Goldman Sachs

Okay. That’s great. Thank you.

Operator

You have a follow-up question form Alexander Hauenstein from MainFirst Bank. Please ask your question.

Alexander Hauenstein - MainFirst Bank

Hi. Thanks, again. I’m not quite sure if you can answer here, but could you confirm that Arcelor is still in the Steel Americas’ process, or should we assume you continue only with one preferential buyer?

Heinrich Hiesinger

We have a confidentiality agreement with all parties and we keep up to them. So we will never comment on who’s in and who’s out.

Alexander Hauenstein - MainFirst Bank

Okay. So we shouldn’t over interpret the preferential buyer comment?

Heinrich Hiesinger

I would never overestimate what is written in the press.

Alexander Hauenstein - MainFirst Bank

Okay. Thank you.

Operator

There are no further questions at this time, sir. So please continue.

Dr. Claus Ehrenbeck

So, I think that from our side, probably from our side I would like to thank you very much, Guido and Heinrich and also to all of you for your extra questions for joining our conference call today. And we look forward to continue the dialogue within the next days and weeks. Look forward to speaking with you again. Bye-bye.

Operator

That’s does conclude our conference for today. Thank you for participating. You may all disconnect.

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Source: ThyssenKrupp's CEO Discusses F2Q2013 Results - Earnings Call Transcript

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