ThyssenKrupp's (TYEKY) CEO Discusses Q3 2014 Results - Earnings Call Transcript

Aug.14.14 | About: ThyssenKrupp AG (TYEKY)

ThyssenKrupp AG ADR (OTC:TYEKY) Q3 2014 Earnings Conference Call August 14, 2014 8:00 AM ET

Executives

Claus Ehrenbeck – IR

Heinrich Hiesinger – CEO

Guido Kerkhoff – CFO

Analysts

Michael Shillaker – Credit Suisse

Alessandro Abate – JP Morgan

Ingo Schachel – Commerzbank

Jeff Largey – Macquarie

Bastian Synagowitz – Deutsche Bank

Sylvain Brunet - Exane BNP Paribas

Carsten Riek – UBS

Rochus Brauneiser – Kepler Cheuvreux

Alexander Hauenstein – MainFirst Bank

Seth Rosenfeld – Jefferies & Company

Christian Obst – Baader Bank

Kim Huff – RBC

Operator

Ladies and gentlemen, thank you for standing by and welcome to the ThyssenKrupp Earnings Call Q3 2013/2014 Conference Call. At this time, all participants are in a 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 first speaker today, Dr. Claus Ehrenbeck. Please go ahead, sir.

Claus Ehrenbeck

Thank you very much, operator. Welcome everybody to our today’s conference call. Also on behalf of the entire team a very warm welcome. As always you can find the documents for this call on the IR section of our website. What is important for this call also is that we would like to ask you only to ask three questions per person in the first round of the Q&A session so that more analysts and investors have a chance to ask their questions.

And with that I would like to hand over to our speakers today, Heinrich Hiesinger and Guido Kerkhoff. Heinrich please.

Heinrich Hiesinger

Yes. Once again welcome to our Q3 conference call. I think Q3 once again confirms that we have made significant further progress on our strategic way forward, but even more important that our performance program has significant impact on our profitability, driving our EBIT adjusted up virtually seven quarters in a row to almost 400 million euro in Q3.

The strong traction of our impact program – the progress that we are making, derisking, but also the strong growth which we could see in our capital goods business allow us another slight upgrade for our full year earnings outlook as we now expect that to double our EBIT adjusted and a breakeven to slight positive net income.

While with that performance still away from respectable or targeted earnings levels, we believe the numbers are a strong evidence for the progress, which we are making in changing our [Indiscernible] toward stronger performance orientation. Further evidence is really also visible from our capability to tackle issues with the recent completion of the sale of the loss-making Swedish naval business, Kockums, which will result in a small disposal gain, which we will report in Q4.

Moreover following the tactical loan note and asset swaps [Indiscernible] we have now finished a comprehensive analysis and review of the business models and plans for VDM and AST. For AST it was decided to implement a performance oriented strategic action plan to address the structural marketing and production imbalances and to leverage the existing distribution network and end customer access, which our business area of material services is providing.

The overall program is targeting a significant mix improvement and a cost-reduction program with an impact of more than €100 million a year after full implementation. At VDM, the focus now on intensifying and supporting the identified restructuring programs and growth initiatives, as well as the necessary headcount adjustments. The details of both the restructuring programs are now subject to very intensive discussions with all the stakeholders both in Italy and Germany. We from the leadership team we are convinced that the concepts and the initiatives are well-balanced and required to lift the performance and attractiveness of these businesses.

Let me summarize the financial highlights in Q3. Overall our progress in performance ambition and de-risking becomes visible in the consistent top line growth driven by our capital goods business and operational improvements across all business areas. Top line continued to grow in Q3, order intake came into €10.2 billion in the reported quarter. On a comparable basis, meaning excluding currency effects and portfolio adjustments, it gained 5% with all capital goods business up on a year-over-year comparison and giving us a total growth on the capital goods side of 12%.

Adjusted EBIT in Q3 was €398 million, having almost tripled on a year-on-year comparison with positive contributions from all business areas, meaning for the first time we can also report a positive EBIT adjusted for Steel Americas. The operating process brings us to a positive net income in Q3 and after nine months, which as mentioned before also makes us comfortable to upgrade our full year outlook from towards around breakeven to breakeven to slightly positive net income.

Net debt remained broadly stable quarter-on-quarter with a slight increase, which can be explained by a temporary networking capital investments. Guido will give some details of that. In Q3, we achieved additional impact savings of €260 million giving us now achievement of €750 million after three quarters and therefore we are confident that we will exceed our impact target for the current fiscal year.

All in all, in Q3 as mentioned operational progress has been well in line or slightly ahead of full year targets and we thus confirmed or slightly upgraded all key elements of our full year outlook. EBIT adjusted for the group should now double on a year-on-year with impact measures exceeding €850 million and Steel Americas is turning EBITDA positive earlier this fiscal year.

Clearly looking forward in Q3, we will see the very normal seasonal effect that our Q4 EBIT contribution will be slightly weaker, and this year we have additional maintenance repair and realigning work at Steel Europe. Net income for the year should improve to breakeven to a slight positive. Sales, cash flow and Capex expectations remain unchanged.

Some more details on the order side. In an overall continuing challenging environment, where we do see very intensive price competition, particularly at our material services business, our capital goods activities were key drivers for the underlying growth on the order intake side. Overall, orders in the first nine months increased to €31 billion, up 5% on a year-on-year as reported, and up 6% on a comparable basis.

Our capital goods activities we are growing by a decent 9% on a comparable basis. If you look on the individual business areas, components technology has recorded strong year-on-year gains in all three quarters and overall we can see a 30% increase in the first nine months.

The demand recovery for automotive components in Europe continued and the market environment for components for wind turbines further improved, especially in China. Order intake at elevator is up 7% year-on-year on a comparable basis, mainly driven by ongoing strong new installation demand in China, the US, and South Korea. Our business in industrial solutions improved its already strong prior year performance on a comparable basis by plus 7%, and was benefiting from ongoing good demand for our cement plants in emerging markets. For example, in Q3 we could really book major orders in our cement business from Saudi Arabia and Bolivia, which is again a confirmation of our strategy to combine the technological expertise of our [organization] with strong low growth organizations, which are sitting close to our customers.

The current order trend at mining is still affected by the very tight customer budget for new installations, but largely cushioned by our oil sands business, where we do see equipment orders and our growing components and service business. The project pipeline for our petrochemical plants, includes promising opportunities still related to fertilizer plants, but also associated with off-site utilities, as well as further value-added processing steps, which we do see coming forward, for example, for polymer plants.

Our Production systems business for auto and aerospace saw slightly weaker demand in the first half of the year, but we do see a very strong Q3 and we do expect that Q4 will run on a similar strong level. Marine Systems offers a big ticket for two submarines for Singapore in Q1, seasonal promising demand with a good project pipeline primarily coming from Middle East and Asia-Pacific.

The total order backlog for the group increased by 70% on a year-to-date basis to more than €24 billion. The contributions here from elevator is up by 11%, now on a new record level of around €4 billion and the backlog of industrial solutions remains above €14 billion securing the sales for more than two years. So we strongly believe that this strong position with orders in hand at our elevator and project businesses form a very strong and reliable base for the targeted profitable sales growth.

The order intake at our material businesses were really influenced by M&A, specifically the sale of our Tailored Blanks and up 7% in Q3 versus the prior year quarter, but virtually unchanged on a comparable basis. If we look at material services, we need to reconsider that the numbers to now include the contributions from VDM and AST and hence are up 25% on a year-on-year and up 8% on a quarter-on-quarter basis on a reported level.

Excluding VDM and AST however, orders and sales were only on the prior year level, which really reflects changes in our product mix, as well as very, very low prices for rolled steel and most of the raw material segments. The Q3 volumes were further impacted both on a year-on-year and quarter-on-quarter basis by the fact that strategically we decided really a year ago to withdraw from our rolled steel warehousing business in Russia.

We no longer saw an attractive business case in Russia, where we do compete with direct sales with Russian steel producers. Overall, this should further reduce the steel moderate exposure in Russia. If you look on our business volume a year ago, less than 1% of our total sales of ThyssenKrupp was related to Russia and with the decision a year ago to close our material services business, so it even goes significantly below 1% of our sales.

In all other regions, the shipment of material services increased further. At Steel Europe, orders were down by 6% on a year-on-year basis due to the disposal of Tailored Blanks, and partly to the continued inadequate steel prices, which we still do see on our European market. On a comparable basis, orders were up by 1% as lower prices were broadly compensated by higher volumes.

The quarter-on-quarter intake in Steel Europe was down 10% and order volumes were down 11%. Here we clearly had to recognize that the preceding quarter was positively influenced by some positive market dynamics and some restocking, which we could see on the customer side. I think a very positive development in Americas, not only on the EBIT adjusted side, also on the reported figure, new orders were down by 70%. This is clearly driven by the divestment of our Alabama plant.

On a comparable basis, orders were slightly up by 2% and similarly, if you look on the value of orders, this decreased by 28%, but the order volumes went up by 13%. So we could really ship 1.1 million tons in Q4, and this confirms once again that we have very good chances to achieve 4 million tons for the full year.

With that, I would like to hand over to Guido.

Guido Kerkhoff

Now coming to the EBIT side, similar to orders and sales, but even more important our capital goods businesses have again strongly supported group earnings. In all capital goods operations, EBIT adjusted was significantly up year-on-year in the first nine months and with the exception of a slight decline at CT in Q3.

Let me come to components, slight decline in Q3 was partly due to higher repair and maintenance expenses, while the prior year quarter benefited from a provision release and a one-time payment. Operationally positive in fact from strong light vehicle business were offset by ongoing challenging crop markets and weak performance of undercarriage with Europe still not improving. We expect quarter-on-quarter seasonally weaker sales and EBIT in Q4.

Elevator and industrial solutions achieved higher earnings year-on-year all three quarters and we expect this to continue in Q4. Elevator specifically, EBIT adjusted of €193 million is up to a new high, and driven by top line growth and efficiency gains with continuously improving EBIT adjusted margins. Year-on-year they are up 30 basis points in Q1, 50 basis points in Q2 and 1 percentage point in Q3.

Industrial solutions EBIT adjusted was €190 million or more than 20% up year-on-year, reflects ongoing order billing for the fertilizer plant contract and our chemical business, as well as gains from impact measures across all business units.

In our materials related businesses, material services could slightly improve quarter-on-quarter and keep earnings largely at prior year level in an environment with continuing fierce price competition. The net contribution of AST and VDM in Q3 was minus €2 million. We expect quarter-on-quarter weaker earnings in Q4 due to seasonality, especially at the Italian stainless operations.

Steel Europe, quarter-on-quarter higher EBIT adjusted as weaker shipments from production and logistic constraints, we had some severe weather impacts not on our assets, but on the railway logistics in Germany, were more than compensated by a slightly higher average revenue per ton, and lower raw material costs. We expect quarter-on-quarter significantly lower EBIT adjusted in Q4, not reflecting operational changes, but reflecting the normal seasonality due to the blast furnace 2 realigning, lower production volumes, and other maintenance and repair costs we will have along with the realigning of the blast furnace 2, and less fixed cost dilution, and we have some storm related lag effects on shipments till at the logistics, especially for trains have not been completely intact, and we will not catch up all of it – all of the losses in Q4.

On Americas, quarter-on-quarter EBIT adjusted was up in fiscal Q3, reflecting higher and more efficient utilization, the optimization of costs, such as the structural improvements of the fuel rate, lower raw material costs and then higher average revenue per ton with the favorable US prices, as well as a reimbursement payment related to the last year’s damage of the blast furnace, which we had in May 2013. So you see a positive EBIT figure, but if you take into account the payment we had it was not just that, but still very close to it.

We expect quarter-on-quarter at least a stable contribution in Q4, and that is now clearly a positive EBITDA for the full year. Hence, overall net-net we expect the group’s earnings quarter-on-quarter to be down driven by seasonality of our components and European materials operations, as well as by the aforementioned temporary factors at Steel Europe.

The operating progress brings us to a positive net income in Q3 and after nine months. After special items, EBIT came in at $349 million reported in Q3, special items included several restructuring and valuation charges, especially at components to restructuring of a steering development location in [Indiscernible], some personnel restructuring at elevators and material services and Spanish operations and in America, we had an updated valuation of the long-term freight contract.

After interest and taxes, net income for the quarter came out at around €40 million. The high tax rate in Q3 as well as in the first nine months is explained by significantly declining, but still negative effect from not capitalizing tax loss carry forwards, especially at CSA, as well as by non-tax deductible expenses from the Outokumpu transaction, and offsetting [tax fee release] of remedy provision benefiting the discontinued operations. So tax and the tax saver indeed cannot be taken for a projection for the full year. That would change a bit.

For the next fiscal, we expect higher earnings and less discrete items that the tax rate should hopefully more normalize towards than still a 30% to 40% range at still these effects from Brazil will impact overall the tax rate, but it should normalize overall over time now, and not be so going up and down like in the last quarters.

Quarter-on-quarter net debt was broadly stable at €4.1 billion by the end of June, negative free cash flow before divest was 179. In Q3, it was mainly explained by networking capital investments of €300 million that was especially at material services, €200 million, where we clearly saw that higher volumes led to more networking capital. So if you include networking capital overall, and take a look at the DSOs, DPOs, and days of inventory outstanding, you do not see so much changes here, but it was rather driven by the volumes and that we have AST and VDM now back on our hands.

We do expect to work down the networking capital in Q4, helping us therefore on the free cash flow, especially inventories at our material related businesses should reflect the seasonality as well as the realignment of the blast furnace at Steel Europe, will bring volumes down by almost 0.5 million tons. This should overall more than compensate for quarter-on-quarter higher Capex and thus in line with previous years as we have seen supportive seasonally stronger cash flow performance in the second fiscal half over the first and bring full year cash flow before divest to the guided number of a low three digit million euro negative range.

If you take a look on our impact program, we have made important progress here, and derisking the group and improving the performance ambition across the entire organization. We have once again delivered or slightly exceeded our operational milestones in Q3, and thus confirm or slightly upgraded the key elements of our full-year outlook. We are far away from acceptable or the targeted levels, the Strategic Way Forward still is gaining visible traction and financial KPI start to build an encouraging profile on the back of measures by impact.

Impact is driving improvements in earnings and cash flow and of course, the impact program will not stop at the end of ’14, ’15, we will continuously drive to improve our performance. This needs a lot of homework and improvement potential at every [BA] and therefore needs clear value upside for ThyssenKrupp.

Claus Ehrenbeck

Yes, thank you very much Guido. Thank you very much Heinrich. We are now ready to take the questions from the audience. So, operator please take over.

Question-and-Answer Session

Operator

(Operator instructions) And we have the first question from the line of Michael Shillaker. Please ask your question.

Michael Shillaker - Credit Suisse

Yes, thanks a lot. It is Mike Shillaker of Credit Suisse. So my three questions, the first on elevators, can you give us your view of the Chinese market growth rates, any risks you are picking up, we have asked this obviously I think in the quarters before, but obviously I think some of your competitors are giving a slightly mixed message on China. So we would like to give – to get your sense of A, the underlying growth rate in the market that you are looking at and B, how you are participating still in that, are you taking market share and similar? Second question is more one of capital allocation, with the debt obviously I guess heading down in the fourth quarter, at what level and what stage do you think your net debt is low enough to start thinking about moving away from debt holders is the key focus, and then can you therefore give us your sense of how you are prioritizing the future between equity holders on one hand, dividend policy, what that will be, and potential for acquisitions on the other hand because I guess you are still pretty hungry to actually add some businesses in the areas you really want to grow. And the third question, a little bit of an admin question, I guess, but what is your risk assessment of your direct and indirect impact from Russia please in terms of your earnings risk there? Thank you.

Heinrich Hiesinger

Michael, let me start with our elevator business in China, the market is a very big one, and just this morning we were sitting together with our Chinese team and their assessment is clearly that within this year the market growth in elevator will be above 10%. If we look on our performance for the first nine months, our growth in order intake was above 20%. So clearly we said what do we expect mid-term is rather a growth range in the area of gross range the area of 6% to 8%.

We do not plan with double-digit for mid and long-term, but today we do not see any frightening signal for the completion of that year most likely, not for the, let us say, calendar year. So, no signals today. If we come to the risk on Russia, as I said our direct exposure is rather limited as we have only a sales volume of €200 million to €300 million. So as I said significantly less than 1%. So we would rather be impacted indirectly if the overall situation of Russia would drive, let us say, a general cooling down in Europe. Guido would you?

Guido Kerkhoff

I will take over the question of capital allocation, equity, bonds, potential acquisition and dividends. Firstly we now have reached a level where we have a net income that is for the second quarter in a row, positive and operationally this quarter was slightly positive, not strongly, but slightly positive. So we are heading in the right direction, and we will possibly be in the [Indiscernible] for year-end for the first time after three years, which would be quite an achievement, but it is not by itself already a strong number.

And therefore, you have to see that the free cash flow will remain negative this year. It will be a lower three digit number, but nevertheless it is negative, so – and our debt levels could be reduced, equity is not that strong. So I do understand your questions, but we should take it all at the right and appropriate timing, and so far we are now working against a positive net income, which would be a step and once we have the final actuals, then by the year we will decide on what we do on dividends.

There are arguments on all sides as I said, cash flow is negative and net income might be slightly positive. We are on a good track to continue our way here, but let us decide once we’re there and then we will see what we can do.

Heinrich Hiesinger

This is clearly, I think how we always reacted in the recent years when we have all the full picture at the year-end and we will make our proposal to the advisory board, but clearly we are aware that we demand a lot from our shareholders in not paying dividend in the last two years.

Michael Shillaker - Credit Suisse

Okay. All right, thanks.

Operator

The next question comes from the line of Alessandro Abate from JP Morgan. Please ask your questions.

Alessandro Abate - JP Morgan

Hi, good afternoon, really congratulation on the results. My three questions, the first one is really to the elevators, I’m very, very interested in understanding what kind of levers you have used to increase visibly the margin and related also to the recent announcement of the predictive maintenance, what was the contribution of the system or the system still has to be implemented, and what kind of contribution might be you foreseeing in the next few quarters from that. The second one is really to industrial solutions, because since the incorporation of the [Indiscernible] order on the ThyssenKrupp brand name, not in assets being added to this potentially the value of rebranding. Do you see any tangible sign of the two subdivisions working as a whole.

The third one, on Steel Europe, what is exactly the cost of maintenance repairs remaining on the blast furnace and whether you foresee additional cost for maintenance repairs in 2014, 2015, and that is it. Thank you.

Heinrich Hiesinger

Alessandro, we just learnt that let us say, my comment was broken, maybe I do start from the beginning.

Alessandro Abate - JP Morgan

Yes, please. Thank you very much.

Heinrich Hiesinger

Okay. Sorry for that mistake [Indiscernible]. So, let me start with elevator first. I think if you look back on the explanation given by [Indiscernible] for December on the [Indiscernible] then, he really has three drivers on the profitability side independent of the growth side, which is first manufacturing new installations. We said by the fact that we have grown that position, we have higher complexity in our portfolio, which as a consequence drives in average higher installation hours per shaft than we would like to see, and also the complexity in our value chain, both in our factories, but also in serving sites has some potential. The second one was the service that we take more out of service and modernization I just underarm Mike, maybe I do start from the beginning. Sorry for that mistake, so let me start with elevator first. So I think if you look back on the explanation given by Andreas for example in December on a cable Dave, then he really has three drives of the profit side independent of the gross side, which is first manufacturing new installations. We said by the fact that we’ve grown by decision, we’ve a higher complexity in our portfolio which as a consequence drives in average higher installation hours per shop than we would like to see and also the complexity in our value chain both in our factories but also in serving sides have some potential.

The second one was the service that we take more out of service and modernization, not only accounting the UVs under maintenance but also the value which we can take per elevator on the maintenance. And the third one was clearly a portfolio and restructuring, in portfolio we’re not only reducing complexity what I mentioned before, but we’re also much more richer if we assess the turnaround or the improvement in regions. Where we do not see let’s say a good way forward is that develop the countries or return the business model where we do not see attractive new installation in a fewer service model and clearly where we see volume issues for example, we saw in France, we go for a much more aggressive restructuring.

These were the three elements which drive profitability in the event of growth, clearly we’re very happy that we have growth opportunities in emerging markets in addition.

Guido Kerkhoff

Let me come to industrial solutions on the rebranding and on the combination of the two that we have merged. Well, we expect there is couple of things, one is definitely together with a more regional organization that we have into here, industrial solutions business, we hope to be closer to the mark and that should help us on two sides. We want to be better on revenues, we want to gain more orders in the country as we’re closer to our customers and can make better and much more visible our offerings and our offerings portfolios that will be closer to the markets. Therefore, you can’t see drafty but we expect overtime that we can increase our share of volume and be earlier and better than. On the other hand as our service and our engineers will be located right in the regions therefore as well and we hope that new installation of making the engineering and getting it dumped having therefore effects that we can balance out with the people according to our requirements and can build up better entities. That’s the key and that’s how we hope to use the rebranding over – and get these people close to these engineers together because what they’re doing independent of the business lines behind is similar and they can help each other.

And for the blast furnace number 2 and the cost of maintenance and repair, there is couple of things to say and while we hit our P&L, it’s not only that we’ll see cost B part of the cost of doing the realigning and the other maintenance and repair we do for the hot rolling mills accordingly and that period of time where we have less production will be capitalized. But, we will have certain cost with it that will hit the P&L, but will hit the P&L as well as that we have lower volume that we’ll produce overtime and therefore we’ve for certain parts of our production under utilization that goes along with it. These all will definitely be a double digit year number and therefore reduce compared to Q3 of our performance in that period.

With all the things we had on the rail issues in Germany that we should rather to-date send out more material which will last. This is my helpful therefore Q4 but because of these one-timers and we cannot lever all utilization thereto at the right level will be hitting Q4. It’s not a structural issue that it’s just this time that we have to improve our performance, but it’s going to be positive to be clear on that one, but with 100, with a pretty strong Q3. So don’t be afraid if the number looks worst on that one.

Heinrich Hiesinger

Just to a give an additional detail, naturally as we plan to the realignment, we’ve shifted a lot of maintenance on after rolling as into the time slot. So, this is a accumulation of maintenance which is normally distributed that we do not see it, now for reasons in Q4.

Alessandro Abate - JP Morgan

Just a follow up on the elevators issue, this three levers you just mentioned head the strongest weight in the performances, I mean, probably portfolio restructuring, and on maintenance cost for (inaudible) clearly of course, you’re going to get less volume, lower volume, but could you quantify the impact in terms of middle and versus the normalized standard seasonal maintenance? Thank you.

Heinrich Hiesinger

As you have seen the elevator business is distributed in several 100 branches thought it’s not so easy, if you try to make then definitely it’s equally distributed as manufacturing takes a little longer because we have to simplify the portfolio, I would believe that probably little, let’s say slightly larger portion is coming from service modernization and credit restructuring whereas the manufacturing units later will take a little longer because here we first have to simplify the number of elevator which we sell to the market.

Alessandro Abate - JP Morgan

Okay, thank you. So also on industrial solution that is up until now there is no either value from the rebranding, right?

Heinrich Hiesinger

Absolutely. We clearly have some cost savings here in the headquarters in Europe which we reinvest with our regional setups. This is a growth, we clearly said it will remain flat on the EBIT margin, but we had to acknowledge the fact that we were not satisfied at all with the gross performance both in the overall volume, but secondly in the service portion and we clearly identified that one of the reasons especially on the service side is that we’re not closing off to customers and therefore we’re now building up regional clusters which I’m, let’s say with a closeness in presence are able to service our customers each and every day and secondly with that closeness also fully understand what is the most successful approach to get new orders in.

So it’s a re-shift of resources that we take out in the hit course in Europe but we will re-invest it in the regions where we have seen growth opportunities. But, as I said it will take some time so we cannot harvest on it. We’re in the execution.

Alessandro Abate - JP Morgan

Thank you for the answer.

Operator

The next question comes from the line of Ingo Schachel from Commerzbank, please ask your question.

Ingo Schachel – Commerzbank

Yes, good afternoon and thank you. My first question would be regarding components technology and the repair costs in the (inaudible). Tell us whether we should expect more of such, one-off events in Q4 and maybe for the full year, remind us what the total amount of more or less one-off type costs and component technology was so, repair costs, ramp costs, product launch costs and backhaul losses? The second question is regarding CSA and be interested whether you’re still shifting flaps in September quarter to this quarter and if you could remind what the transfer pricing mechanism is, obviously you said that it’s on flanks, but especially at the current point in time obviously very difficult to judge from an extended perspective what lengths would mean in this context, is this probably fair to say that the transfer pricing levels closer to what you’re achieving in the domestic market than what you’re realizing at Alabama? And the last question would be quickly elevators, I know you already received a few recent questions and gave some commentary on the intake patterns, but I think the development in Spain, China and most of the countries you mentioned was pretty clear and I would be interested to hear whether there was any European country that’s suppressed you or your elevators in particular positive in recent months for example, Benelux or countries like that?

Heinrich Hiesinger

Yes. Maybe let me start with components. We had in Q3 regarding the one-offs 4 to 5 million so was not significant. We might have, might be facing something for Q4, but we’re still in discussions for smaller months. In smaller months we’re going to see that. Regarding the ramp ups that we had, as and in the past as we were always talking about negative contributions that we had in building them up, in fact, these are still negative, but are improving. So that’s why relatively compared to price you see something but there still on the water, we haven’t made the full breakeven there. But according to our plans, so that’s working.

On CSA, where we see in September, we will have some shipments to (inaudible) not big volumes but especially for the blast furnace number 2 and we will have some shipments there. The transfer price, I mean, I cannot give you all the details what we’re doing, but we’re applying it consistently through the positive now, and it’s what you usually use driven by what tax authorities want to. So, we have a pricing mechanism that’s stayed and the Alabama contract you were mentioning yes, that was positively contributing to the result overall. As we always said it was a positive contract and the prices are higher than we had in the past, yes.

Guido Kerkhoff

If you look on the elevator growth for each, as I said, we had given the growth for China which was above 20%, we can say we do see growth in all regions, in Europe we’re flat. Here we have a different development, we see some positive momentum in the north of Europe, we have a stable situation however on a low level in south Europe. And we’ve a disappoint in France. So France is really the elevator margin in Europe which is going in the wrong direction, so this overall means that in Europe, in our elevator business we’re flat with these three elements contributing to that life.

Heinrich Hiesinger

Adding here, clearly on Europe what we, on the other hand see that a lot of performance measures we’re doing margin wise are supporting here.

Guido Kerkhoff

Yes. So, margin wise also Europe moved up, but as you ask for order intake, but this is really where our, we’re very happy with our elevator team, they saw France and they acted in France. This is a reason why they still could move up margin with the positive trend also they saw some issues in the market.

Ingo Schachel – Commerzbank

And as a quick follow up regarding situation in France because it did a lots and where you did – so let’s say in steady state in 2 or 3 years time, should we expect France to be similar to Spain with much lower volumes at similar margin from the elevator business?

Heinrich Hiesinger

No. I think, also I said France is a negative trend, let’s say what we’ve seen in Spain was the significantly most that we just by the fact if I think you’re well aware that you housing in Spain at a level which combines new housings in France, Germany and U.K. together. So it was by far the largest new housing market in Europe. And here we lost around about two-third, maybe to three quarter, this is not what we’re seeing in France. But we see a negative trend maybe around minus 10%, so difference be it, but minus 10% still is something which we would not like to see and we’ve to adjust our resources in order to maintain or even increase our margin.

Ingo Schachel – Commerzbank

Okay, thank you.

Operator

Your next question comes from the line of Jeff Largey from Macquarie, please ask your question.

Jeff Largey – Macquarie

Hi, good afternoon and congratulations on the progress. My first question is on CapEx, I was just looking at how CapEx has evolved through the first nine months of the year and it implies quite a big catch-up in the fiscal fourth quarter. Is this how we should expect it to play out or should we, is there a possibility that we have a free cash flow surprise from CapEx coming in below what you expected to spend?

Heinrich Hiesinger

We haven’t exceeded in the CapEx guidance in the last year, so let me put it that way.

Jeff Largey – Macquarie

And the guidance is still kind of the 1.4 billion level?

Heinrich Hiesinger

The guidance is that but we’ve never exceeded our guidance in the past on the volume. It’s not as significant then you can expect there, guidance is 1.4 that’s it.

Jeff Largey – Macquarie

That was my question. So the CapEx guidance is still 1.4 billion?

Heinrich Hiesinger

Still 1.4.

Jeff Largey – Macquarie

Okay, great. The second question I had was, just thinking about raw material costs on the material side, on the steel making side in particular have been flowing through, would you say that both in terms of steel Europe and in CSA, the margins we’re seeing now, is there still more benefit to come say from lower iron ore and in coal costs or is most of it already reflected in the margins we saw here in the past quarter?

Heinrich Hiesinger

You have to judge the two a bit differently because the time horizon that it goes through the P&L is different. You buy iron ore and in coal, free on board where you buy it, so it has to come from Brazil or Australia to Germany that means that we happy the fact of the price change be it up or down reflecting our P&L takes half year, customers do react a lot sooner meaning in a time where you normally have reduced iron ore prices or cooking coal prices and your customer ask for low price from end customer market in the first step you suffer because you still have higher let’s say six months of volumes on your balance sheet and it takes half year to gradual it goes through your P&L. In the end it might help, but it’s the question where how far you can get it through the end customer markets. So very often therefore increased pricing helps you short term in Europe on better performance and then it hurts you, while lowering prices hurts you first and brings the effect a bit later that’s a typical European pattern you see. We are trying to recover a bit through this cycle with lower iron ore prices but customers are very well aware of what’s going on and ask for reductions and you don’t see that there is a huge part you can really gain on this.

So, we had some support because it was a longer period of time where raw materials cam down and in Europe this is a bid to continue, it’s not all that adjusted in the P&L but customers already took a big chunk out of that. So that’s not so very helpful. In Brazil it’s a bit different because the iron ore is coming from (inaudible) so we pay it and we have the value of the time we put it in the blast furnace, so the reaction is bit more immediate and then we ship it to the U.S. while the U.S. pricing develops completely independent more or less it’s rather scrap based and not so much iron ore based. So therefore, there you see the result of the lower iron ore with a more or less stable scrap and a good price development in the U.S. and there we can really make something out of this spread which was a big negative part in the past, so it’s recovery and this is helpful here but, you have to judge it a bit in a different way.

In Europe, we don’t see that the lower prices will help us that much, we try to recover as much as we can but still some competitors always seem to give it and pass it onto the customers.

Jeff Largey – Macquarie

And just my last question kind of going back to free cash flow and how it evolves, can you just remind me or help us to understand sort of the either level that we should be thinking about where you start to generate material free cash flow?

Heinrich Hiesinger

Well, as we always had and if you take a look now at our guidance and we say we double our EBIT compared to prior year this leads us if you exactly do it bit below 1.2 which will be the outcome it’s 1160, 1170around that level and as we clearly say it’s mid three digit negative, you can always assume that we have something like say a billion coming out of taxes and of interest payments, all in all below the EBIT, CapEx is more or less in line with the depreciation, it’s a bit more in fact. So if you then assume for a moment pensions will always have around 500 million more payout then we have in the P&L which is an additional fact as we have a very aged and old pension plan in Germany mainly. So you can see that the level of 1.2 is not enough it’ll lead us to something three digit negative number, so we have to improve to levels of 1.5 plus it’s definitely higher depending on what you see on the working capital changes and what our requirements there so.

Jeff Largey – Macquarie

Okay. Great, that’s helpful. Thanks for the answers.

Operator

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

Bastian Synagowitz – Deutsche Bank

Yes, good afternoon gentlemen. I have got a couple of questions, my first one is on cost cutting, you seem to be pretty track with regards to the net cost cutting program in almost, I think I have achieved the original target which you have set for this year. Does this mean that the $2.3 billion have upside potential on the overall headline number and then secondly could give us an update on where you stand with regards to the ACT program targeted to 250 million central cost savings, how much of those anything if anything happened realized already and how much is still to come?

My second question is on the industrial solutions business, I think your top line here grows quite nicely and is up 11% year-to-date but if I look at the order intake and try to clean it up for the orders of the marines business, the plant technologies business, head a book to bill ratio, I think below one in each of the last five quarters and I think this year orders are roughly down 30% year-over-year. Are these trust projects which you are working on and which have not yet been placed and maybe you can give us an update here how far you are really on track for the target of above 5% volume growth? Thank you.

Heinrich Hiesinger

Yes, maybe on the cost cutting your assumption that we might end this year bit higher than the announced 850 is pretty clear and we stick to the 850 of next year, so therefore overall there is some upside last year we announced 500 to 600, yes so overall there is if you assume some offside it’s fine. We stick to the program as it is announced probably this year we will be higher and we are targeting 850 for next year, still there is nothing change, so confirmed a bit. The add program overall the 200 million, the CNI impact program, we are well on track and especially let me comment here on our corporate level where we sit and want to release 150 FDs which we did, which has been accomplished until October last year, so the cuts have been there and the rest of the programs have been in the business areas, we have the new wave of now doing it, we’re well underway. So, we will as you can see on the impact figures overall. We will achieve our targets that we have announced there.

On industrial solutions your calculation is right but the bulky project that’s exactly where you said last year on certain of these projects we had positive effect on very bulky ones especially in the U.S. the fertilizer projects and therefore we see, and you have to take that into account what we saw on the other hand on demand and on our chemical plants, we’re working well underway on the mining sector overall that worst overall a downturn, nevertheless our overall exposure as we are in oil sands and some other parts not only iron ore or in coal, is a bit different to what you see on some of our competitors. But, we saw some negative things there and people being a bit shy to give out a bulky projects at least but you always have to assume a bit that these bulky projects always distort a bit sequel development quarter by quarter.

Guido Kerkhoff

I think, if we really look as in the 5%, I think we all have to look there on the sales and the 5% sales growth are really supported by order backlog. On the index sign, we always have this bumpy thing for the orders coming, we have a very strong quarter if one of the bigger shift that we have for this quarter, so I think if you really look on a year-on-year growth, the more let’s say reliable and consistent development is on the sales side and here the 5% and clearly confirmed going out of the backlog which is above $14 billion.

Bastian Synagowitz – Deutsche Bank

So it’s tough to understand and follow up on that, so you basically seem to grow about 11% this year, does it mean then with order intake being on 30% next year will be rather flattish or you will have –

Guido Kerkhoff

Synagowitz, we will see what comes in the Q4, we might have, if you look on the funnel, the fund clearly confirms that growth whether it comes in the Q4 and we can report a very strong and at the end we will be, the customer will decide, yes.

Heinrich Hiesinger

And you don’t see the effect immediately in the next year as you see the funnel is 14 billion at a revenue of above 6, so it’s more than 2 years but we out there so you don’t see it immediately, the backlog is there that we will have on revenue predictable growth.

Bastian Synagowitz – Deutsche Bank

Okay. Thank you. Maybe just one follow up and how this actually impacts your working capital and cash flow via the prepayments and the orders which are built and given that the order intake in plant has been a little bit, we cut of it, mean that we will get some reversal of the negative working capital i.e., the business will continue to deliver good EBITDA contributions but that one necessarily translate into better business cash flow as it negative working capital partially declined?

Heinrich Hiesinger

That’s absolutely true. Less order intake means less down payments and therefore we always have cash flow effects coming out of that over a time this evolves but that’s true if you have less order intake this effects a networking capital on that one, yes.

Bastian Synagowitz – Deutsche Bank

But, we have not seen that probably impacting so far that’s probably to come, right?

Heinrich Hiesinger

Absolutely, as I said we are happy temporarily, you might facing the quarter but if you look on our funnel that if you’re sure, if you make an average assessment of the performance then the growth part is confirmed.

Bastian Synagowitz – Deutsche Bank

Okay. Thank you.

Operator

The next question comes from the line of Sylvain Brunet from Exane BNP Paribas. Please ask your question.

Sylvain Brunet - Exane BNP Paribas

Hi good afternoon. My first question was on the steel side, how would you define, what should be an acceptable return in your view, whether that takes two or three years depending on market condition if something else but what would you define as an acceptable return. My second question was on the current CapEx level, would you what you say this is a sustainable level or is this deal “crisis type” cash management level and if there are an implication on what you would have done otherwise on innovation R&D to improve the product mix where that we’re taking cap goods on steel? And my last question stainless steel whether you got already some expressions of interest even conceptually on potential consolidation given the outlook supported by the nickel market, is better than it’s been for a number of shares? Thank you.

Guido Kerkhoff

If you look on the steel business then we announced our big reloaded program and the team clearly committed that they will take out costs to an amount 500 million, this target was clearly reflecting our ambition to and our capital cost which will really imply that our steel Europe business goes back to an EBIT level of some of that within 500 million to 600 million. This is a minimum expectation which we do have on each, at every of those businesses. Clearly, I think this is not where we would like to see it, we clearly struggle right now with the fact that and this is primarily driven by the over capacity that my understanding is that still some players in the market rather fill their plans then focusing on moving up their merchants and earning monies. In order to increase our differentiation we have also increased R&D in steel to really move our portfolio going forward into highest strength steel or in combined material like life cure where we combine steel, plastic steel or steel carbon fiber steel, but there is a matter of that it take a while before this material has significant contribution to our sales just by the fact that the moment we can produce material we have to produce some sample coils those are then tested with automotive OEM but it takes a while until they release it for new car equipments or overall the average time from new material coming out of our innovation pipeline until start of the production, the significant volumes maybe take up to 5 years unfortunately, but the direction you described absolutely in the right way this is where we are driving our steel business.

Heinrich Hiesinger

Let me come back to stainless, we do see at very positively that the nickel is going up and we have recently launched our plan on AST how we want to improve the performance and that we completely show that we can bring it back to positive figures and we currently focusing on that one. Having said that overall it was a tactical move strategically we don’t want to keep it that’s can be said about this process.

Sylvain Brunet – Exane BNP Paribas

Okay, thank you.

Operator

The next question comes from the line of Carsten Riek from UBS. Please ask your question.

Carsten Riek – UBS

Thank you very much. I just word to have for one question on stainless focusing more on VDM, if I now read the report it looks like you wanted to keep this business and intensifying the restructuring and headcount reduction first before putting it to market. Is that correct or am I reading too much into it?

Second question on materials, the free cash flow seems to be negative in this business in the third quarter it’ rather odd, can you explain why we have seen actually a negative free cash flow here, did you build up inventories?

Third question, just to a clarification, in steel America you guided for flat EBIT quarter-on-quarter for the fourth quarter is that based on the $16 million including the insurance claim or is that without? Thank you.

Heinrich Hiesinger

Yes, on stainless. Thank you, you’re reading a bit too much into it. As we have seen that the performance of VDM overall compared to competition and some others was bit weaker than expected in the past, we have to do something and that’s what we launched this is what you have to do it in any case and on top of that I can only repeat what I said on the AST because both is true about companies, we focus on that and we made a tactical and other strategical move so in the middle and long term we don’t see it, nothing else to be said on this process. On material side you were right it was inventories we had volume loss clear off swing and so it was right 20% up. So therefore we have to build up a bit on inventory and on.

Guido Kerkhoff

The statement made was without insurance.

Heinrich Hiesinger

So without insurance, so it’s breakeven slightly positive.

Carsten Riek – UBS

Okay, just very quickly on stainless one follow up, it’s obviously I have seen a lot of headlines on the AST recently strikes etcetera, etcetera as well as some statements saying you put the restructuring measures on hold. Is that true or is that not true?

Guido Kerkhoff

No, I think we need to understand that this is now a restructuring case, we have started an open discussion in that manner because we have publicly announced the statement that we are going for a very comprehensive restructuring program which will also imply that we reduced workforce out of the 2,600, we’re targeting 550, we have already clearly said that they would like to see a cost or did see an impact including all measures on the cost side above 100 million Euro a year after implementation and this is probably the difference what you can experience, we’ve made similar announcement to the unions in Germany with VDM there is no public discussion, but I think it’s the nature of the European countries that we have now a discussion in the media, we followed the process. We are in a constructive but not easy dialogue now with the stakeholders to redefine the solution on that restructuring case.

Carsten Riek – UBS

Thank you very much.

Operator

Our next question comes from the line of Rochus Brauneiser from Kepler. Please ask your question.

Rochus Brauneiser – Kepler Cheuvreux

This is Rochus Brauneiser from Kepler Cheuvreux. Just few follow-up questions from my side on the restructuring of a (inaudible) can you give us any indication already what kind of restructuring cost might be associated these initiated if they would be realized in a proposed form as you mentioned early on – can you give us anymore details on VDM in terms of this goal might plan to get the improvement up and on AST, I guess there is a clear need to do that do you see any difficulties to push that measures through at the end of today, if by Q1 next year, the European commission might decide in favor of on dumping duties and then maybe the Italian counterparts would argue more aggressively against it?

The second question maybe I missed that part due to this interruption and on the outlook for elevator and think in the slide it was said as Spain and France were weaker, so for clarification if Spain, has Spain showed some renewed weakness here and in terms of the French weakness in the market would that require now further restructuring measures and if yes what kind of timeframe and scale you are seeing here for to you to stay on track with your 15% EBIT target and finally again on Steel America’s performance was pretty good in terms of volumes and can you give us a sense how the incremental volumes which have fallen off for Alabama been allocated so you have been, you had an increase of probably some 1,000 tons which went either to the Latin American market or do you spoke any idea how that breaks up roughly?

Heinrich Hiesinger

Yes, let me start with AST. Definitely it will not be an easy process this is for sure. But I strongly believe that you’ll find solution because at the end we’re exactly doing what let’s say the politician and but all the unions in Italy are demanding from us. They want to have a sustainable, a future oriented solution for AST and it’s obvious that in the present setup let’s say acceptable profit levels are not possible because we have a significant mismatch between our let’s say hot capacity and the cold rolling capacity and the contribution margin in our capacity is still not acceptable. And that is the reason why we said we have to adjust the mix and we also let’s say have to trust the workforce and we also on the present assessment of the situation, planning that we closed one of the furnaces when we have prepared let’s say the equipment for higher output in 2016, these are very openly shared statements with all the stakeholders and now we work it’s true, but I’m convinced that at the end or so it will not be an easy process everybody will understand this is the only way to have sustainable business case for the remaining more than 2,000 employees, this is let’s say my strong belief. Also if you look what happened at the beginning where we reduced 600 people, it was a very difficult process at the end we find this is – we find common plant. For the restructuring case I think clearly we will not keep a very specific figure, but it will be a double digit amount and nothing of you let’s say should really has significant change outlook.

Heinrich Hiesinger

Let me come on Americas, let me start there with the incremental volumes and we have strong volumes to the U.S. to Alabama and beforehand we were already increasing compared to prior years with some problems there rest was distributed we have new customers in the Brazilian market that we are paying, so we’ve additional traction there, some volumes to Europe not a lot more than last year. So indeed, this year’s strong volumes in the U.S. and our customers as well as California’s deal where we have good volumes well, so overall therefore the volumes driven from that point.

Coming on elevator, France has the stronger restructuring there we will see some efforts in the future. We cannot talk about the timing we’re in discussion, so we can’t give any additional guidance. Spain, yes Spain was weak but not weaker than before. We are on the bottom left.

Rochus Brauneiser – Kepler Cheuvreux

Okay. Thank you.

Operator

The next question comes from the line of Alexander Hauenstein from MainFirst Bank. Please ask your question.

Alexander Hauenstein – MainFirst Bank

Hello, thanks for taking my question. I’m not sure if you answered one of them already I turned late I’m afraid. Could you elaborate a bit about the Europe Q4 please what it means in terms glass furnace number 2 realigning effect and what is the impact from the storm here in terms of EBIT loss, is it a fair assumption maybe to target about $40 million adjusted EBITDA or is that way too negative. The second question what happened in Q3 on the corporate line on adjusted EBIT, is there any one time thing included here or what should we expect here in terms of run rate going forward in Q4 and the third question regarding your savings target that this mean that you have accreted it for this year but you have been bit quicker about overall the amount 2.3 billion have you state the same or would that imply for the room for trading and last question you stated in component that this quarter was effective by repair and maintenance cost to power train and could you leave a quick view on that and is there any spill over into Q4? Many thanks.

Guido Kerkhoff

Yes, let me start on see as we outlined before glass furnace number 2 it’s not only the cost that occur to that we have additional repair and maintenance we do in line with that one and therefore will have some under utilization, we are the fact coming out of the seasonality we have the facts coming out of the lowest shipments due to the logistical problems we had due to the storm here, so rail was not working as we expected it overall that will lead to a positive but more negative preserve than we seen in Q3. Q3 was an extraordinary strong quarter in the development throughout the year that we said to that one, for Q4 now it’s stays in line what you seen in previous years under development, yes Q3 was slightly weaker, I think we are on some projects where more invoice system we had in the past that’s no structural. The savings overall as I said this year we will over perform on the 850 and we stay with the 850 for the next year, so implicitly there is some room for that we do a bit more and on components we have some repair and maintenance especially we have something in the U.S. as well and that’s an effect that will take a bit longer we will see some effect of the repay in the next year as well.

Heinrich Hiesinger

I think the guidance which we have given that probably the effect of the cost was around 5 million in the quarter.

Alexander Hauenstein – MainFirst Bank

Okay. Thank you very much.

Operator

Next question comes from the line of Seth Rosenfeld from Jefferies. Please ask your question.

Seth Rosenfeld – Jefferies & Company

Good afternoon gentlemen, Seth Rosenfeld from Jefferies. This two last follow-up questions first on CSA and then second looking at outlook for industrial solutions. On CSA with the stronger production in the period capacity utilization rates perhaps north of 85% and is above guidance you provided the last quarter, following sustainable into the fourth quarter this year and also into 2015 as well and for industrial solutions I wondered if you could give little bit more color and what sort of outlook you are seeing from mining processing plant demand and I imagine it still quite weak, how that’s being offset in your portfolio? Thank you very much.

Heinrich Hiesinger

Yes, let me start maybe on CSA, the volume is helpful as well that what is much more important is that overall the ramp up works nicely we can bring up the fuel rate, we can reduce other costs, we reduced the losses in the coke batteries, this is not just capacity driven so please don’t link just to the capacity utilization, we are not there yet that we just optimizing this. The biggest parts is that we could really bring out the few rates that stabilize production to produce our electricity that not have to buy so much electricity and gas like in the past and at a more stable production, stability was overall driving the performance a lot more than the last 5% on utilization, so please keep that in mind we are touching up there and want to bring it to stable levels, that was helpful and that’s the spread between U.S. processing and the raw materials and the iron ore in Brazil was helpful as well as before an exchange it was not the utilization we are not there yet.

Guido Kerkhoff

Now let me come to the industrial solutions I think your assessment is definitely right that if you look on the mining business that as we said before customers are extremely tied on the new CapEx spending especially as far as coal and iron ore is concerned. We have the advantage that this vision of our business in mining is a little bit more favorable and we are let expose to coal and to iron ore then others we are more in copper and we have this need of oils and that was a reason why we said clearly we see these tight CapEx in new installations but we believe that we can compensate it, not grow but compensate it with the additional equipment orders which we do get in oils and our growing component and service business.

Seth Rosenfeld – Jefferies & Company

Great. Thank you very much.

Operator

The next question comes from the line of Christian Obst from Baader Bank. Please ask your question.

Christian Obst – Baader Bank

Yes, my first question is on inventories. I wanted to know little bit that you are reporting inventories of 7.9 billion almost and it’s some kind of a record when it comes to a percentage of total balance sheet so it’s more than 22% of total balance sheet, so you have increased you said you have increased your inventories especially in material services. Normally, I would think when cash is really such an important point that you are able to reduce inventories little bit more, so what could be some kind of a normal level of inventories going forward. I’m cannot really believe that you are going for some kind of 8 billion inventories and next one is on component technology, this also had some kind of a negative speaker flows through the entire year. When do you expect on quarterly basis to come to some kind of an at least breakeven cash flow in components technology and if more one at last pensions you still reporting at 3.5% discount rate for the pensions and some people and some companies are coming in now it’s 3% because as declining rates, do you expect some further decline as your interest rate in the first quarter? Thank you.

Heinrich Hiesinger

Let me start with the pensions it’s 2.8 in Germany, it’s not 3.5 so we are clearly down there and the entire row that below it is so I think we are well in line with what others do, we are not the most being up.

Inventories, I mean if you take a look at what our inventory levels and we do benchmarks to other companies there. There are rooms to improve always, but if we take a look at material services and our steel that our inventory have it, I mean, we have to buy iron ore and cooking coal already for import in Brazil or in Australia. So, you have certain volumes compared to the benchmarks we do, we’re not worst in cost, it’s hard to find additional capacities because very often we’re benchmark and we had widening of the volume and therefore seasonally we always lower them because of lower volumes and we have an additional PDMNA is back in our business which we got at very low inventory, we got them so in the normal cycle. They had to increase that was effecting our figures. But you can be sure that we’re very stringent on what we can do, I just want to recall that last year on steel Europe we again, although we were compared to our benchmarks in front of all this, we reduced by 200 million structurally so that we had some support in the free cash flow and can continuously be on lower levels.

So, we definitely don’t want to invest in inventory, but on the other hand we have to be able to deliver and need the certainty of our production for the customers. So, we try to optimize, but this time it was indeed volume driven that we had an increase here especially at material services.

In components, yes they’re not breakeven yet on free cash flow as we’ve invested in steering and new facilities which we’re ramping up that are currently still as I said EBIT negative, but improving which we’re ramping now. We expect the free cash flow breakeven in the future, I don’t want to give an exact date, but so far you see improvement if you see the continuous improvement over the last years we’re improving here. The free cash flow has clearly a positive trend towards breakeven and we’re on a good track there.

Christian Obst – Baader Bank

Thank you. Just a small add on that, if you’re going down then next capital, do you see some changes, overall changes on the work as it comes to payment terms in some regions or some areas?

Heinrich Hiesinger

Not really, we’re working on over dues in some cases a lot, even in countries where they are normal, no I don’t see that.

Christian Obst – Baader Bank

Okay, thank you very much, very good.

Operator

The next question comes from the line of Kim Huff from RBC, please ask your question.

Kim Huff – RBC

Thank you. My questions on working cap and CapEx have been answered.

Heinrich Hiesinger

Great, I think with that we’ve also reached the end of our Q&A session for today. We would like to thank you very much for your participation and we look very much forward to seeing you on the road for the next couple of weeks and continue our conversations. Bye, bye then.

Operator

That does conclude our conference for today, thank you for participating, you may all disconnect.

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