Treading water

ThyssenKrupp’s weak results, future plans fail to ignite investor enthusiasm

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Still gloomy. Source: Reuters

ThyssenKrupp’s third-quarter results were in line with expectations as the industrial conglomerate attempts to navigate a turbulent period after challenges from activist investors have forced both the chief executive and board chairman to step down.

The interim CEO, chief financial officer Guido Kerkhoff, was auditioning to keep the top job as he presented the weak results and set targets for improvement over the next three years. But his efforts failed to excite investors. ThyssenKrupp shares lost 1.7 percent on the day to close just above €21. They were down another 3.5 percent on Friday mid-morning.

At the end of the day, there was no sugarcoating a net loss of €240 million ($277 million) from continuing operations, compared to a net profit of €124 million in the year-ago period. Adjusted EBIT — a figure closely followed by analysts — was down to just €35 million on that basis, from €260 million.

Free cash flow before M&A — another indication of financial performance — was a negative €426 million, down a further €116 million from the year-ago negative figure. Against this backdrop, Mr. Kerkhoff’s targets to improve EBIT margins and to top a billion euros in free cash flow by the 2020/21 fiscal year did little to brighten the mood.

Activist investors vindicated

In fact, virtually every forecast or target presented by Mr. Kerkhoff seemed to vindicate the claims of activist investors like Cevian and Elliott Management that ThyssenKrupp would get closer to realizing its potential if it was leaner and more decentralized. The maker of elevators, submarines, car components and industrial plants shows little evidence of synergy among these divisions while costly layers of management slow down decision-making and obscure accountability.

With this complaint in mind, Mr. Kerkhoff pledged to reduce management overhead in the successful elevator division by €100 million while growing the more profitable service component by 4 percent. Costs in the company headquarters are to be reduced from €535 million last fiscal year to less than €400 million by 2020/21.

Independent Research analyst Sven Diermeier complained that the targeted EBIT margins — components technology to 7 percent from 5 percent, industrial solutions to 6 percent from 2 percent, and elevator technology to 13 percent from 12 percent — were only marginally better than those realized in 2016/17.

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If wishes were nickels

“The bottom line is that we are not satisfied with the current results,” Mr. Kerkhoff said. “We have to improve significantly across all our businesses. And that is what we are now working hard to deliver.”

The recently-concluded deal to merge its steel business with Tata will help, especially by offloading pension liabilities, but it does not respond to investor complaints that other businesses are underperforming.

It was these complaints that prompted CEO Heinrich Hiesinger to step down last month, closely followed by supervisory board chairman Ulrich Lehner, who had defended Mr. Hiesinger and his insistence to keep ThyssenKrupp intact as a conglomerate.

Now it is up to shareholders, led by the Krupp Foundation with its 21 percent stake, to select a permanent CEO and a new chairman who will implement a strategy that will make investors happy. That will have more to say about where ThyssenKrupp is going in the next three years than the treading water presented by Mr. Kerkhoff this week.

Kevin Knitterscheidt covers steel, machinery and construction for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: knitterscheidt@handelsblatt.com.

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