Turning around Germany’s largest steel producer is a bit like steering a giant tanker: take your time, and keep a steady course.
ThyssenKrupp’s chief executive, Heinrich Hiesinger, has been doing exactly that since taking the helm at the firm almost four years ago.
After three years of losses totaling more than €8 billion ($9.97 billion), and a number of management changes, Mr. Hiesinger wants to make the firm’s strategist, Premal Desai, finance chief at ThyssenKrupp’s steel operations, people familiar with the matter told Handelsblatt.
Mr. Hiesinger will ask the supervisory board of ThyssenKrupp’s steel operations to accept Mr. Desai as finance chief of the steel subsidiary as of January, Handelsblatt learned from sources and a letter to supervisory board.
ThyssenKrupp has become less dependent on steel production, selling more technical products such as elevators, automotive systems and wind turbine parts. The firm currently earns about a quarter of sales from its steel operations.
ThyssenKrupp’s steel results have improved: the company booked a small annual profit of €195 million in the year to September, but analysts said further changes are needed at the steel operations, which have suffered from losses, notably from expensive investments in the United States and Brazil.
“It is not over yet. The steel operations’ target is to earn at least the costs of capital. To achieve this, as Mr. Hiesinger has said, earnings before interest and taxes have to reach €500 million,” said Christian Obst, analyst at Baader Bank, which is based in Munich.
“It will be hard to reach the €500 million target when the market environment remains difficult. There is still a tendency to overcapacity. Improvements will have to come from internal measures.”
Mr. Obst said the company had delivered all the easy-to-achieve improvements, and the next wave of change would be more complex.
Mr. Desai, a 45-year-old manager who was born in Tanzania and has been living in Germany for 35 years, might be the right man for the job.
As the firm’s strategist, Mr. Desai has been the main driver of change at the company. He oversaw, for example, ThyssenKrupp’s divestment of stainless steel operations and marginal holdings in fringe operations.
A confidante of Mr. Hiesinger, Mr. Desai is credited for having built up an extensive network during his eight years’ career at the firm and changing its culture.
European steel prices have fallen since the financial crisis of 2008 and the sector is still plagued by overcapacity. Mr. Desai will have to help make ThyssenKrupp’s steel operations more focused on customers.
One option would be for ThyssenKrupp to copy Austrial rival Voestalpine and only produce steel when it receives an order.
Faced with overcapacitiy, some other steel producers, for instance Luxembourg-listed ArcelorMittal and India’s Tata Steel, have shut down part of their operations.
Martin Murphy specializes in Germany’s automotive, defense and steel industries. Gilbert Kreijger is an editor for Handelsblatt Global Edition and has covered companies and markets across Europe. To contact the authors: Murphy@handelsblatt.com and Kreijger@handelsblatt.com