Will Germany’s largest steelmaker ThyssenKrupp one day end up as a capital goods manufacturer rather than a steel maker?
You could be excused for suggesting such a situation when you look at the group’s performance this year.
According to the FT, although group net income of €87 million ended a three-quarter run of losses, the net loss so far this year is €980 million – due to the steel division.
Having sold its stainless division and its super yachts business, Reuters reports, Thyssen is still only managing any form of profit due to its capital goods unit, which includes Elevators, Plant Technology, Components Technology and Marine Systems.
Capital goods now represents 40 percent of group sales, and if Thyssen is successful in selling off its troubled Americas steel operations, steel will represent less than half its revenue.
The group has been making encouraging noises about selling off its Brazilian operations to Vale and its North American plant to possible Asian buyers, but so far no one has put down a firm bid.
Whatever happens, a sharp drop on the €7.9 billion ($9.5 billion) book value seems almost certain.
Thyssen is not alone, as the FT observes. Other European producers’ profits have also been squeezed. Voestalpine of Austria last week reported a 31 percent year-on-year decrease in first-quarter profit; ArcelorMittal posted a near two-thirds fall in net income versus 2011 at its June half-year. Years of debt-funded investment in a capital-intensive sector have left a legacy of chronic overcapacity, high levels of net debt and lousy returns on equity.
Thyssen’s European steel divisions, meanwhile, posted an 18 percent drop in quarterly revenues to €2.9 billion ($3.6 billion) and new orders fell 16 percent to €2.5 billion. Unlike rivals Salzgitter and ArcelorMittal, which are heavily exposed to the construction industry, ThyssenKrupp has found some protection from a huge base of clients in the automotive industry, which generate nearly half of group sales.
The company also benefits from loyal and long-term shareholders, willing to support shares at 16.6 times forecast 2013 earnings – almost twice ArcelorMittal’s multiple — for now, at least.