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German steel and capital goods group ThyssenKrupp warned of a “significant net loss for the year” owing to the sale of its Brazilian steel business and warned that free cash flow for the year before M&A would be negative.
The group on Friday posted a net loss to shareholders of €870m for last quarter, versus a €45m profit a year before. Sales rose 12 per cent to €11bn, ahead of forecasts at €10.3bn.
Thyssenkrupp said it will remain in the red for the year, “exclusively as a result of the negative earnings impact from the sale of CSA,” its steel producing business in Brazil, which resulted in a €900m writedown. It announced the sale of the business in February as part of a transition from making steel to producing goods and services, including making elevators, submarines and car components.
The group also said it would generate negative free cash flow in the “mid-three-digit million euro range”, due to a “significant increase in net working capital at our materials businesses”. It had previously forecast “slightly positive” cash flow.
In first quarter results, a negative surprise in cash flow sent the group’s shares tumbling.
Adjusted earnings before interest and taxes climbed 31 per cent to €427m, beating analysts’ forecasts of €382m, and for the year, Thyssenkrupp upgraded its forecast from €1.7bn to €1.8bn.
Analysts had warned the results would be uncertain due to a recent spike in metallurgical coal prices and a fall in prices of iron ore – the key ingredients in making steel.
Chief executive Heinrich Hiesinger said a sharp rise in the costs of raw materials hindered profits. But it reinforced his medium-term strategy to move away from the steel-making business and focus on capital goods.
“The raw materials markets and as a result our materials businesses are subject to large swings that are beyond our control,” he said. “That’s why we’re concentrating strategically on expanding our capital goods and service businesses. This will enable us to generate more stable earnings and achieve profitable growth in the future.”
Mr Hiesinger noted that each of Thyssenkrupp’s units reported “double-digit growth rates in order intake”, with the company’s Components Technology and Elevator Technology units achieving new record highs.
Earnings were boosted by the group’s capital goods unit and a recovery in prices for its Material Services and Steel Americas units.