ThyssenKrupp Cuts Outlook After Another Writedown on Steel Unit

Wilfried Eckl-Dorna, Bloomberg News

Steel slabs in a storage yard at the Thyssenkrupp AG metals plant in Duisburg, Germany, on Monday, June 21, 2021. Weaning a low-margin industry off cheap coal and onto more costly green steel technologies will require massive government support and concerted action by steelmakers from Tangshan to Indiana. Photographer: Krisztian Bocsi/Bloomberg , Bloomberg

(Bloomberg) -- Thyssenkrupp AG fell after cutting its sales outlook following a decline in orders, as well as booking another writedown on its struggling steel business.

The shares slumped as much as 11% in Frankfurt trading, the most since April to shave some €363 million ($388 million) off its market valuation. The stock has declined 17% over the past year.

The German industrial conglomerate expects to break even this fiscal year following the steel unit impairment related to higher interest rates and sees stagnating sales after new orders dropped 13% during the fiscal first quarter, it said Wednesday. Thyssenkrupp previously guided for net income in the “low to mid three-digit million-euro range” and for sales to increase slightly.

The company kept unchanged the outlook for operating profit and free cash flow.

Shareholders have ratcheted up pressure on Thyssenkrupp’s management team to speed up the restructuring of the sprawling business that was once a figurehead of Germany’s industrial strength. Attempts to offload the loss-making steel business have dragged on, despite repeated writedowns on its value. The company’s portfolio also includes metal trading and submarine construction.

Rising interest rates are a “double-negative” for Thyssenkrupp, Barclays analysts led by Tom Zhang said in a note, triggering more impairments at the steel unit and their significant pension liabilities Barclays now estimates at above €6 billion. “We see that as the main hurdle for a steel deal,” the analysts wrote.

Chief Executive Officer Miguel Ángel López Borrego has initiated a performance improvement program to bolster Thyssenkrupp’s competitiveness as it shifts to cleaner technologies. The manufacturer will continue to implement the measures, which already had an impact during the first quarter, the CEO said in a statement.

The steel business has weighed on the company’s overall earnings for years, burdened by high investment requirements and low steel prices. Talks to sell half of the unit to Czech billionaire Daniel Kretinsky are “constructive and serious,” Chief Financial Officer Klaus Keysberg said on a media call Wednesday. The company in November said negotiations were constructive with a potential joint venture in focus.

Read More: Thyssenkrupp in Talks With Investor Kretinsky Over Steel

For the fiscal quarter ended in December, Thyssenkrupp reported a net loss attributable to shareholders of €314 million, driven by an impairment of about €200 million that was related to a higher cost of capital, mainly at the steel business. Adjusted earnings before interest and tax are still expected to rise to a level in the “high three-digit million euro range,” the company said.

Thyssenkrupp is also weighing a sale of its naval unit, Thyssenkrupp Marine Systems, which makes surface vessels, submarines and related electronics systems. For the Marine Systems business, Thyssenkrupp is studying a majority stake sale to a private equity investor, a spinoff or an initial public offering. The German government is evaluating taking a share in the unit, Keysberg said, confirming a report by Handelsblatt.

Thyssenkrupp has struggled for years to transform its business model. In June, Miguel Ángel López Borrego took over as chief executive officer after his predecessor, Martina Merz, left amid criticism of slow progress in restructuring the company.

(Updates with analyst comment in eighth paragraph)