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      2018/2019 forecast

      The following forecast relates to the continuing operations, i.e. the full Group without the discontinued steel activities; the latter include the Steel Europe business area, thyssenkrupp MillServices & Systems GmbH from the Materials Services business area and individual Corporate companies.
      In addition we report on the discontinued steel activities that are fully consolidated until the closing of the transaction. After the closing our 50% share in the joint venture will be accounted for by the equity method.

      Overall assessment by the Executive Board

      Overall we expect that further operating progress in our segments will be reflected in our key performance indicators in fiscal 2018 / 2019. However, it must be kept in mind that sales and earnings in many parts of our materials and components businesses may be subject to short-term fluctuations. Uncertainties surrounding the economic conditions have increased recently. These uncertainties arise among other things from geopolitical flashpoints and the global economic situation and concern in particular

      • the future economic policy of the USA, above all a further escalation of the existing trade conflicts with corresponding protectionist countermeasures by China and the EU that may appreciably impact global economic growth
      • the slowing growth of the Chinese economy as a key factor for global growth and as an important sales market
      • the outcome of the Brexit negotiations on economic growth in Europe, on exports and on future investment – above all in the UK itself but also in the other countries of Europe; also the conflict in the euro zone regarding Italy’s proposed budget and increasing concerns about the country’s financial stability
      • the targeted normalization of monetary policy
      • dislocations in the automotive sector, in part due to the introduction of new emissions standards and measuring procedures (WLTP)
      • the volatility and level of raw material prices as an important cost factor in our materials businesses and as a key factor for our plant engineering customers in the award of major projects
      • the continuing structural overcapacities in the steel industry, the corresponding competitive and import pressure on the European market and increasing dislocations in international steel trade flows, among other things as a result of the US tariffs on steel imports.

      The forecasts for our key performance indicators are predicated on the assumption that impacts from possible changes to the economic conditions described will remain manageable and there will be no significant effects from exchange rate changes. However, if these uncertainties exert a clearly negative influence on economic growth and risks build up in particular for our main customer sector, the automotive industry, our key performance indicators may come in significantly below the following forecast.
      Nevertheless on the whole we take a cautiously optimistic view of developments in the 2018 / 2019 fiscal year and expect a significant improvement in adjusted EBIT and free cash flow before M & A and positive tkVA for the Group’s continuing operations.

      2018 / 2019 forecast: Significant improvement in earnings and FCF beforeM & A at the continuing operations; tkVA in the Group positive

      Sales of the continuing operations – adjusted for effects from the adoption of IFRS 15 – are expected to increase year-on-year in the low single-digit percentage range (prior year, continuing activities, adjusted for effects of IFRS 15: €33.6 billion). The potential decline at Materials Services due to the effects of restructuring and trade restrictions is expected to be more than offset by growth in theother segments.

      Adjusted EBIT of the continuing operations is expected to be >€1 billion (prior year, continuing operations: €706 million); supported by initiatives from the corporate program “impact”.

      • At Components Technology – assuming a largely stable automotive market – we expect a significant recovery of adjusted EBIT (prior year €197 million) from a sales increase in the mid-single-digit percentage range (prior year, adjusted for effects of IFRS 15: €6.6 billion) and a significant improvement in margin (prior year, adjusted for effects of IFRS 15: 3.0%). This will reflect in particular the absence of additional expense for quality-related risk provisions and the further ramp-up of the new plants, supported by efficiency and restructuring programs.
      • At Elevator Technology we expect an improvement in adjusted EBIT (prior year: €866 million) from sales growth in the low single-digit percentage range and an increase in adjusted EBIT margin (prior year: 11.5%) from restructuring and efficiency measures, also depending on effects of materials prices – particularly in China – and tariffs on imports of materials to the USA.
      • At Industrial Solutions depending on order intake we expect a significant recovery in sales in the almost double-digit percentage range. Supported by extensive transformation and restructuring measures and without the additional expenses incurred in the prior year for an extensive project analysis and reassessment of individual projects we expect a significant improvement in adjusted EBIT with gradual progress over the course of the year towards break-even earnings (prior year:€(127) million).
      • At Materials Services with signs of a slowing economy we expect adjusted EBIT to be slightly lower year-on-year (prior year: €317 million; prior year continuing activities of Materials Services €308 million).
      • At Marine Systems we expect a significant recovery in order intake. Supported by an extensive performance program and without the additional costs of the project analysis and reassessment in the prior year we anticipate a clear improvement towards break-even adjusted EBIT (prior year: €(128) million).
      • At Corporate with continued cost reductions adjusted EBIT, which benefited in the prior year from positive nonrecurring items, is expected to be roughly level with the prior year (prior year: €(377) million; prior year continuing operations of Corporate €(370) million).

      With continuing restructuring expenses we expect income net of tax of the continuing operations to improve significantly and return to positive (prior-year income net of tax, continuing operations: €(198) million).

      Capital spending before M & A of the continuing operations is expected to total around €1 billion in the current fiscal year (prior year, continuing operations: €935 million).

      As a result of the improved earnings and depending on order intake and payment profiles for individual major orders, in particular at Marine Systems, FCF before M & A of the continuing operations (prior year, continuing operations: €(678) million) is expected to improve significantly year-on-year but remain negative overall.

      For the FCF of the full Group (prior year, Group FCF: €(115) million) we expect additional negative effects in particular from portfolio changes.

      Until the closing of the steel joint venture we expect from Steel Europe (discontinued operation):
      – a clearly positive contribution to the Group’s adjusted EBIT
      – a negative impact on FCF in the mid to high 3-digit million euro range also due to the typical seasonal increase in net working capital.

      FCF could be further impacted depending on the outcome of the Federal Cartel Office’s investigations into alleged cartel agreements at tk Steel Europe AG relating to the product groups heavy plate and flat carbon steel.

      Following the closing and initial recognition of our share in the joint venture we expect a significant positive effect on the net income of the full Group and a correspondingly positive effect on total equity.

      The creation of the transaction structures for the separation of the Group will significantly impact net income and FCF. Based on current preliminary calculations we expect an impact in the high three-digit million euro range.

      We expect the Group’s net financial debt to increase sharply year-on-year (prior year: €2,364 million) due in particular to the aforementioned effects.

      At the same time our pension liabilities will be reduced almost by half upon closing of the joint venture deal.

      Net income of the Group is expected to improve significantly year-on-year (prior year: €60 million); expense from the preparation of the separation of the Group will be comfortably offset by the earnings increases of the continuing operations and the positive effects of the closing of the steel joint venture.

      Due to the operational improvements at our continuing operations, the positive contribution of the discontinued operation Steel Europe and positive effects upon closing of the steel joint venture, we expect tkVA for the Group to be positive and significantly higher than a year earlier (prior year: €(217) million).

      We will take into account the development of our key performance indicators – also keeping in mind economic justifiability – in preparing our dividend proposal to the Annual General Meeting.

      Source: Annual report 2017/2018, p. 100-104

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