MAN, the German engineering group, is to bring its steel trading business to an end, lopping €1bn ($1.2bn) off revenues from the company in an attempt to simplify a division known internally as “the conglomerate within a conglomerate”.
Hakan Samuelsson, MAN’s Swedish chief executive, said the change in its Ferrostaal division would boost margins, meaning it could reach a targeted return on sales of 6 per cent in 2008 or 2009 at the unit. “Steel trading is no core business of MAN,” he said.
The extremely low-margin operations would gradually cease and be transformed into a services operation for customers who will now have to pay for the steel themselves, removing at least €1bn in revenues but little profit from the division, he added. The end of steel trading forms part of Mr Samuelsson’s plans to simplify Ferrostaal – a sprawling division covering everything from the distribution of submarines to the planning of chemical plants which had a return on sales of 2.3 per cent last year – in an attempt to make it easier for investors to understand.
The Ferrostaal shake-up is part of his wider aim to boost margins at the conglomerate, which has other interests including trucks, printing machines and diesel engines, and has attracted the attention of hedge funds and private equity firms.
Investors have reacted warmly to his approach, sending the shares up by 50 per cent in his first year in charge.
Mr Samuelsson said Ferrostaal would in the future consist of two parts – contracting for large projects; and industrial logistics – as well as acting as the sales platform for the whole group in an effort to develop synergies. “[Ferrostaal] can’t be another conglomerate inside a conglomerate. It has to be more streamlined.”