ThyssenKrupp AG Earnings Call Insights: Selling, Talking to Investors
On Tuesday, ThyssenKrupp AG (OTC:TKAGY.PK) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Michael Shillaker – Credit Suisse: I guess no surprise my questions are primarily focused on the announcement really Americas. I’ve got a number if I may. The first question, the reasons for selling, so I guess, we’re all reasonably aware of – I guess when you see it in print though from you guys. It hardly makes the acquisition attractive for a buyer, the structural problems that you have ultimately become their structural problem. So, how are you going to make these plants attractive for a potential buyer other than offering an absolutely substantial discount, is my first question? The second question is, how long do you effectively need to wait with regard to that technical ramp-up in Brazil and also accreditations in the U.S. to be comfortable that you can show possible by the profitability potential of the facilities to get what you would view as a fair price, because I guess, if you sell them now people are going to give you nothing for them and therefore how long is it actually going to take you to be in a position that you are actually ready for sale? Also do you need an all-in-one solution for both plants, or is this something you could do piecemeal, you could keep one sell one, keep the other, and if it’s separate, how does that actually affect the value of the operations given that they were built to be combined operations in the first place and the follow-up to that sorry, final part of this is if you actually do go ahead with this, how does it affect the accreditations with autos given the OEMs are actually not going to know who is going to own plant at the end of the day and therefore we’ll have little confidence in terms of who is going to operate?
Dr.-Ing. Heinrich Hiesinger – Chairman: Mike, quite a number of questions. First of all you’re absolutely right. The question we have whether the integrated model of producing slabs in Brazil and transferring them to U.S. and selling them there is the weakness where also buyer cannot overcome. So, this is not our intention to tell the existing business base, but as I said we have very strong confidence that if you look on the assets from a Brazilian and from and U.S. perspective, we will have really from a conversion cost leading plant. So, we do believe that for somebody who either would add downstream in Brazil or plan to invest on slab production capacity in Brazil, this is the very, very valuable asset, and you do know that those price checks are in plant and everybody knows that even if they would start such an operation, it will take them at least three years. They also will have a learning curve. There it implies risk, so I do believe for future investors which plan to add some capacity in Brazil, this is kind of a secure way adding capacity because we have gone through it, it’s running, they can check the cost, assets that we can prove that we have leading cost position. We have the provisional operational eyes and though we believe we cannot sell it an integrated business case, but we do believe that we have attractive options to sell an attractive large in Brazil and an attractive plant in U.S. So you asked a question whether we have to sell it in full or in pieces, all options are possible. Today this is such an important change for our company, we did not go in contact with any possible investor before we had the full support of our supervisory board meeting, which was today, we announced it immediately and from now on we will start a similar process as we did in Outokumpu. Also we have to tell very often this is a more complex situation therefore we are reluctant and will not commit to any timeframe today.
Michael Shillaker – Credit Suisse: Do you have to go through the full ramp up process which I guess is still taking a year before you are comfortable that you can show to a potential buyer what this plant is actually worth it?
Dr.-Ing. Heinrich Hiesinger – Chairman: Our strong belief is that we will have these frame of half a year or a year in any case because now starting in such asset, it is little bit more complicated evaluation of strategic options. It will take it’s time, but what we wanted to avoid is that some where mid next year we come back to you and say, we have found out that the potential of our own business case is two week and now we start to evaluating strategic alternatives. We want to have those options developing in parallel so that next year we have a solid information package for both options so that they have even a chance to decide, this is what we want to generate.
Michael Shillaker – Credit Suisse: The question on the OEMs, how are they going to take this given that they may not know now who owns the plant in terms of the accreditation?
Dr.-Ing. Heinrich Hiesinger – Chairman: There is definitely an issue which we have to announce very carefully, but this was also the reason why we want to make it public. In order to keep them with us we need to have an open and honest discussion, but I can tell you, they are very much interested in the quality and also in the dimension which we can produce. So, we could prove that with all the other portfolio of measures we did in the last 12 months, that we really could keep our customer relationship due to the let’s say open and transparent way we handled the process. So, we have a strong belief that we will have the same capability to maintain our customer relationship even in this uncertain situation on the U.S. side.
Talking to Investors
Sylvain Brunet – Exane BNP Paribas: Just maybe following first on Mike’s question on the potential strategic review and the disposal. Would you agree that you need to first make you best effort to deliver the full potential of CSA before you would consider talking to potential interested parties, otherwise, I mean you were saying, it would resemble a fire sale? I understand that timing is difficult, but at least, when would you give us a fair assessment of when you numbers would start to be close to normalize, so that a potential buyer could apply your normalized valuation? That’s my first question. Second question is on your steel outlook. You mentioned intense competition, I would be curious to know, where you see the most pressure coming from, in terms of imports or internal domestic competition. A related question is your views on the outlook for the yearly and a half-yearly contracting negotiation. Lastly, if you could say a few words on your pension item, if you anticipate any impact from the new IAS 19 regulation taking place on 1 January, 2013, if this could have an implication on your accounting for the pension items?
Dr.-Ing. Heinrich Hiesinger – Chairman: First of all, we have to correct you in one aspect. We will start to talk to interesting investors from now on immediately, because I think so, we have so far the transparency available that we can explain in, let’s say, enough details what make us believe that we will achieve the operational improvements. While doing so, I think we will see that the situation is really following our plans months-and-months. So, it’s not necessary to wait until we have it completely. So, as I said before this is exactly what we wanted to avoid it, now working for another year, only on operational side and then having your results but no options, we from now on will evaluate those cases the own operational improvements, but also evaluate strategically options and then compare the value creation potential of both. I have no doubt that the (indiscernible), the KPIs, which we can provide to interested partners, are reliable enough for them to give them some confidence about our operational ramp-up.
Guido Kerkhoff – CFO: Coming to the question on the steel outlook overall, what we see here is mainly European competitions here in Europe and that the price discipline overall in the industry seems to be very weak. So, if you take a look at the Q1 back and the figures we have seen so far from this quarter as the whole industry seems to be really down. Pension IAS 19 will have an effect which is smaller ones in our case, so that will be smaller double digit figures that might change from ’13, ’14 onwards, so it’s time to go.