Friday, August 10, 2012

ThyssenKrupp in the first nine months 2011/2012: Capital goods business robust

Orders and sales of materials businesses down due to weak market environment; capital goods businesses continue robust performance / Adjusted EBIT reaches €339 million, impacted by low shipment volumes and margin pressure in materials business and ramp-up at Steel Americas / All business areas except Steel Americas with positive earnings contributions / Net financial debt significantly reduced; positive free cash flow of €1,013 million / Outlook: Full-year adjusted EBIT still expected in mid three-digit million euro range

In the first nine months of the 2011/2012 fiscal year (October 01, 2011 - June 30, 2012) ThyssenKrupp's orders from continuing operations amounted to €31.9 billion, around seven percent below the prior-year level. Sales too were three percent lower than a year earlier at €31.2 billion. The declines mainly reflect low volumes and prices in the materials business, but another factor was the portfolio optimization in connection with the Group's strategic way forward. The capital goods businesses delivered a very robust performance; orders for elevators and escalators at Elevator Technology reached an all-time high. 

Adjusted EBIT from continuing operations in the first nine months of the current year came to €339 million, compared with €1,266 million a year earlier. With the exception of Steel Americas all business areas reported positive adjusted EBIT, with by far the biggest contribution coming from the capital goods businesses. Earnings in the materials business were impacted by low shipment volumes and margin pressure as well as the ramp-up at Steel Americas. Earnings after taxes attributable to ThyssenKrupp shareholders amounted to €(220) million in the first nine months. However, in the third quarter, thanks partly to the sale of the US iron foundry Waupaca, earnings after taxes improved significantly, reaching €238 million.

Clear progress was made with the reduction of net financial debt. Including Inoxum (formerly Stainless Global) net financial debt was €5,800 million at June 30, 2012, significantly lower both year-on-year (June 30, 2011: €6,249 million) and quarter-on-quarter (March 31, 2012: €6,480 million). Contributory factors were a reduction in inventories and the sale of Waupaca. Free cash flow, i.e. the sum of operating cash flows and cash flows from investing activities, improved significantly, reaching €1,013 million in the third quarter.

Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: "The weak economic situation and in particular the general uncertainty resulting from the unresolved sovereign debt crisis are increasingly impacting our markets. In this environment our capital goods businesses all delivered a pleasingly robust performance. Steel Europe and Materials Services also held up well and returned positive earnings contributions. Nevertheless, we are noticing the high level of caution among our customers and have responded firmly and appropriately with steps such as short-time working. However, the situation remains challenging particularly at Steel Americas on account of the operational ramp-up and the general economic climate. In parallel with the ramp-up we are pressing ahead with the examination of our strategic options. We are seeing keen market interest and are holding talks with potential investors."

Performance of the business areas

The performance of the business areas in the first nine months 2011/12 was as follows:
  • Business at Steel Europe was impacted by a drop in shipments due to lower demand. In addition, the disposal of the Metal Forming business had a negative effect on sales. In the first nine months sales came to €8.3 billion. Adjusted EBIT reached €184 million; earnings in the third quarter showed a marked improvement on the 2nd quarter.
  • In a difficult business environment Steel Americas won more new customers and increased sales significantly year-on-year to €1.6 billion. Over 2.0 million tons of flat steel were sold altogether on the North American market. The main reasons for the negative adjusted EBIT of €(778) million were the difficult business environment on the North American market with an unsatisfactory price level above all in service center business, which is particularly important for the startup, and considerable costs due to the not yet efficient utilization of the blast furnaces.
  • The weakness of the market also caused a sharp drop in demand at Materials Services. Sales fell by ten percent to €9.9 billion. However, the materials and logistics operations for the aerospace sector performed very positively. Adjusted EBIT at €222 million was lower than a year earlier (€397 million). EBIT was additionally impacted by the €103 million fine imposed by the Cartel Office in the third quarter and provisions of €30 million in connection with the rail cartel proceedings.
  • Elevator Technology achieved record orders of €4.6 billion (up 15 percent) in the first nine months. Sales also increased significantly, by six percent to €4.1 billion. However, earnings and margin performance were impacted by continued difficult market conditions in Southern Europe. Adjusted EBIT came to €421 million (prior year: €469 million). To further expand Elevator Technology's strong competitive position, an 81 million euro growth and investment program was adopted for the Neuhausen location in the third quarter.
  • Plant Technology held up well in an increasingly competitive market. In the first nine months new orders worth €2.6 billion were won. Sales reached €3.0 billion, five percent higher than a year earlier. Adjusted EBIT came to €380 million, slightly exceeding the high prior-year level. In July 2012 Plant Technology acquired the UK consultancy Energy & Power Global, further strengthening its engineering capabilities in the global oil and gas business.
  • Despite the sale of the chassis component manufacturer ThyssenKrupp Automotive Systems Industrial do Brasil, Components Technology achieved €5.5 billion in both orders and sales, a significant year-on-year improvement. Although vehicle sales in Europe were down overall, the business area profited from the strong performance of major customers and brisk demand in the mid-size and premium segments. At €365 million, adjusted EBIT was down slightly year-on-year. This was mainly due to weaker demand in the wind energy and infrastructure sectors mainly in China and startup costs for new products and plants.
  • Marine Systems continues to profit from the growth in demand for frigates and submarines. In the reporting period Marine Systems' order intake amounted to €1.4 billion. At €140 million adjusted EBIT reached a very pleasing level.
Strategic development of the Group

ThyssenKrupp again achieved important progress with the implementation of its strategic development program in the third quarter. As part of the portfolio optimization, the US iron foundry Waupaca was sold to KPS Capital Partners on June 29, 2012. This means that - measured in terms of sales volume - 90 percent of the planned disposals have already been signed or completed. ThyssenKrupp continues to expect the combination of Outokumpu and Inoxum to be completed before the end of 2012.

In addition, ThyssenKrupp announced on May 15, 2012 that it was examining strategic options in all directions for the two plants of Steel Americas in Brazil and the USA. The banks Goldman Sachs and Morgan were mandated to provide support. The strategic review is being conducted with an open mind and in parallel with the continued operational ramp-up. 

Furthermore, ThyssenKrupp is in advanced negotiations to sell the Construction group of ThyssenKrupp Steel Europe. Sale options are also being considered for the Italian company Berco, a supplier of undercarriages for construction equipment.

Outlook 2011/12 fiscal year

Based on the stability of the less cyclical capital goods operations as well as the positive earnings contributions of Steel Europe and Materials Services, ThyssenKrupp continues to expect to achieve adjusted EBIT in the mid three-digit million euro range at Group level for fiscal year 2011/2012. In the materials operations ThyssenKrupp expects earnings at Steel Europe and Materials Services to remain steady in the further course of the year, with volumes and prices influenced by continuing intense competition. At Steel Americas, the further operational ramp-up should bring improvements; however, the price pressure due to the market entry and the general market situation will have a significant offsetting effect. In the capital goods operations, earnings contributions at Plant Technology should remain largely steady at a high level.

At Elevator Technology, further earnings effects due to the weakening of the markets in Southern Europe cannot be ruled out. In the Components Technology business, the absence of Waupaca's earnings contributions and lower capacity utilization rates mainly for slewing bearings for wind turbines will result in lower earnings. Earnings contributions at Marine Systems will remain steady.

At ThyssenKrupp 170,000 employees in around 80 countries work with passion and expertise to develop solutions for sustainable progress. Their skills and commitment are the basis of our success. In fiscal year 2010/2011 ThyssenKrupp generated sales of €49 billion.

For us, innovations and technical progress are key factors in managing global growth and using finite resources in a sustainable way. With our engineering expertise in the areas of "Material", "Mechanical" and "Plant", we enable our customers to gain an edge in the global market and manufacture innovative products in a cost- and resource-efficient way. 

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