P&L Check ThyssenKrupp Takes a Beating

Overcapacity in the European steel market and low prices for energy and raw materials slammed the German industrial giant in 2016. Net income, however, remained stable.
A rigorous efficiency program and subtly improved steel prices at least made if possible for ThyssenKrupp to reach is lowered targets. Photo: DPA

It was a tough year for the industrial giant ThyssenKrupp, which faced major headwinds in the  steel, energy and raw materials markets.

The conglomerate’s earnings before tax and interest dropped 12 percent to €1.47 billion ($1.57 billion), well below the €2 billion needed to cover investments, pension liabilities and dividend payments.

Thyssen’s work orders dropped 12 percent to €37.4 billion and total corporate revenue declined 8 percent to €39.3 billion, due in large part to overcapacity in the European steel market.


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Revenue from steel production and trading, however, nosedived by double digits and the operating profit of Thyssen’s European steel unit plummeted by a third.

Heinrich Hiesinger, the company’s chief executive, has tried to wade through overcapacity on the European steel market through consolidation, but Britain’s decision to leave the European Union has complicated Thyssen’s plans to merge with Tata Steel.

“We are doing everything at ThyssenKrupp to increase the ability of the steel industry to compete,” Mr. Hiesinger told Handelsblatt. “If the capacity problem isn’t solved, the steel industry will be forced to undergo a restructuring program every three to four years.”

Speculation about the Tata merger did, however, drive up Thyssen’s stock price by 23 percent in 2016, putting the company in fourth place among DAX companies.

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The conglomerate’s equity declined by €700 million to €2.4 billion as pension liabilities increased due to low interest rates. With an equity ratio of 7.4 percent, Thyssen fell to the bottom of the pack among the companies listed on Germany’s blue-chip DAX index.

“These are not results that meet our standards,” said Guido Kerkhoff, Thyssen’s chief financial officer.

Despite the torrent of bad news, Thyssen did manage to hold its net income more or less steady at €261 million compared to €268 million the year prior.

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The conglomerate unfortunately has another problem child besides steel. A drop in energy and raw materials prices hit the company’s industrial plant construction business hard. Work orders declined 29 percent, revenues dropped 8 percent, and operating profit slid 16 percent to €355 million.

But there is a silver lining in Thyssen’s elevator and auto parts units. The elevator business generated €860 million in operating profits, more than any other unit at the conglomerate. It also had the largest profit margin in the company at 11.5 percent.

Thyssen invested €488 million in its auto parts division to build new plants and ramp up the production of electric steering systems through 2018. The company has received orders worth €8 billion for the steering systems.

Overall, Thyssen boosted R&D spending by 6 percent to 778 million and made nearly €1.4 billion in other investments, a 12 percent increase over the previous year.

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While 2016 was a tough overall, 2017 could prove even worse. Thyssen faces challenges in North America as U.S. President Donald Trump threatens to renegotiate the NAFTA trade agreement and impose tariffs on goods imported across the Mexican border.

“The United States was previously a trailblazer of free trade,” Mr. Hiesinger said. “The current tone creates uncertainty.”

Thyssen generates some €9 billion ($9.6 billion), nearly one-fourth of its total revenue, in the NAFTA trade region, which includes the United States, Canada and Mexico. The company’s American steel unit is already struggling after a 14 percent drop in orders last year.

Thyssen is currently building three additional plants for car parts in Mexico, where it already has five plants in operation. Tariffs could bite hard.

“Maintaining NAFTA is very important,” Mr. Hiesinger said.


Martin Wocher is an editor with Handelsblatt, focusing on the mechanical engineering and steel industries. To contact the author: [email protected]