Thyssenkrupp posts $2.3bn impairment on steel business

Frankfurt/Essen — Germany’s Thyssenkrupp on Wednesday announced a €2.1bn impairment on its steel unit due to a “gloomy” sector outlook, highlighting the challenge in efforts to win Czech energy group EPH as a co-owner for the business.

Still the industrial conglomerate posted its first positive free cash flow before mergers and acquisitions (M&A), a key gauge for investors, in seven years, sending its shares to their highest level in more than seven weeks.

Thyssenkrupp shares rose as much as 8.6% after the group said free cash flow before M&A came in at €363m and proposed a stable dividend of 15 euro cents per share.

As a result of the impairment, Thyssenkrupp, which has been trying to divest its steel division for several years, posted a €2bn net loss for the fourth quarter, while adjusted operating profit fell 45% to €88m.

“To put it bluntly, we are not earning enough money,” Thyssenkrupp CEO Miguel Angel Lopez Borrego said during the company’s annual press conference. “There are clear expectations of us to finally get a handle on the situation.”

Lopez, who took the helm in June, has therefore launched APEX, a performance programme that is expected to have a positive impact of €2bn on the group’s adjusted earnings before interest and tax (ebit), and is hoping to finally divest the group’s Steel Europe division.

Positive outcome

Thyssenkrupp, which apart from steel, builds submarines, car parts and operates a large materials trading business, said it was in constructive and open-ended talks with EPH about a potential 50-50 steel joint venture.

Lopez did not want to be drawn on when a potential joint venture could come to fruition, only saying that even if talks with EPH failed the company had a plan B for the unit, without specifying.

“But we’re still positive that ... we will get to a positive outcome,” Lopez said with regard to talks with EPH.

EPH, controlled by Czech billionaire Daniel Kretinsky, would support Thyssenkrupp Steel Europe with its energy expertise in any tie-up, Thyssenkrupp said, adding all co-determination and collective bargaining agreements would remain in place.

Thyssenkrupp last month flagged a marked deterioration in the steel market, adding optimistic assumptions had been dampened by a mix of economic weakness in Germany and other markets as well as higher raw materials and energy costs.

Cheap Chinese steel imports into Europe have been an additional headache, along with the fact that Asian rivals do not have to bear the costs of CO₂ emissions, which puts local players at a disadvantage.

Following the impairment, Thyssenkrupp still values Steel Europe at €3.6bn while pension liabilities tied to the business came down further to €2.6bn, CFO Klaus Keysberg said.

Reuters