THYSSENKRUPP, Germany’s largest steelmaker, swung to a net loss in the fiscal first quarter as the industry tries to weather a drop in prices wrought by record Chinese exports.
The net loss was €23m in the three months to the end of December, compared with net income of €50m a year earlier, the Essen-based company said on Friday. Adjusted earnings before interest and taxes declined 26% to €234m, missing the €239.6m average of 11 estimates compiled by Bloomberg. The company reiterated a full-year profit target of €1.6bn-€1.9bn.
CEO Heinrich Hiesinger, who took the role in 2011 after the company had been roiled by a bribery scandal and a failed expansion in the Americas, is trying to turn the steelmaker into a more diversified industrial group. He wants adjusted annual earnings before interest and tax to increase to at least €2bn to help cut debt, pay dividends and regain an investment-grade credit rating. The group, which traces its roots to 1811, got almost half its annual profit from its elevator unit.
"Even the technology units are slightly below expectations, while it’s mainly margin pressure on the steel business that’s weighing on the company’s earnings," Bankhaus Lampe analyst Marc Gabriel said in Dusseldorf. The profit forecast "is very ambitious, it’s hard to believe" it will be met, he said.
Thyssenkrupp shares rose 1.1% to €13.04 as of 9.13am on Friday in Frankfurt trading, paring this year’s decline to 29%.
At last month’s annual general meeting, an investor called on the company to sell one of its technology units.
"The solid performance of the capital-goods businesses confirms that the path we are taking to become a diversified industrial group is right," Mr Hiesinger said.
Thyssenkrupp said it had cut costs by €250m. It may exceed its annual savings target of €850m, chief financial officer Guido Kerkhoff said.
"The materials business continues to cause us concern," CEO Mr Hiesinger said in Friday’s statement. The company said it needs "a significant recovery of the materials markets in the second fiscal half" to achieve its profit and free-cash-flow targets.
European Union steel antidumping measures "could be helpful" while price increases "make up one-third of what we need" to meet the profit target, Mr Kerkhoff said.
First-quarter sales fell 4.9% to €9.55bn. Negative free cash flow before mergers and acquisitions widened 38% to €847m, mainly because of a temporary increase in net working capital.
Adjusted earnings before interest and tax at the company’s European steel business fell 35% to €51m in the quarter. Steel America, the only unit to post an adjusted loss before interest and taxes for the last fiscal year, reported a quarterly loss of €74m compared with break-even a year earlier.
The world’s largest steel companies are suffering as a result of China’s slowdown, which is sapping demand and fuelling a global glut. The flood of cheap exports from the nation has drawn unfair-trade complaints from Europe, and the US’s top producer, ArcelorMittal, whose full-year net loss swelled to $7.95bn after taking $4.8bn in write-downs, said last week it planned to raise $3bn from investors.
Global exports from China rose by a fifth to a record 112-million tonnes in 2015. European hot-rolled coil, a benchmark for steel prices, this month sank to the lowest since at least 2007.