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December 11, 2012 4:22 pm
Adieu, adieu, to you and you and you. Three heads rolled this week at ThyssenKrupp, taking the heat for disastrous steel investments in the Americas, and compliance problems including involvement in a German rail cartel. Heinrich Hiesinger, who picked up this toxic legacy when he took over as chief executive at Europe’s largest steelmaker in 2011, seems determined to push the group away from its most basic business, towards capital goods.
ThyssenKrupp has been here before. At the turn of the century it tried to float its steel operations to invest in less cyclical industries. That failed when the steel market soured, and it returned to heavy investment in the industry in the following decade. That also proved a disaster: on Monday, ThyssenKrupp took a further €3.6bn writedown on its steel plants in Brazil and the US, and this year it sold its Inoxum steel plant, the proceeds of which have yet to come through. All this has left ThyssenKrupp’s balance sheet in tatters: its €5.8bn of net debt is more than four times earnings before interest and tax from continuing operations.
The worst of ThyssenKrupp’s pain could be over, but not all of it. Ebit from continuing operations for its fiscal year ending in September was €1.4bn, helped by particularly strong sales in its lift and escalator business. Yet the group expects that to fall to €1bn this year, albeit with break-even cash flow, following seven years of negative FCF. The majority of its capital expenditure will also go on technology segments outside of steel.
Shares in ThyssenKrupp jumped 7 per cent on Tuesday after the flurry of developments. That suggests there is some faith in its turnround potential. Yet investors also know that margins within some of its technology segments, including elevators, remain below peers such as Schindler and Kone. There is still a lot of heavy lifting to be done.
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