Germany’s Thyssenkrupp (TKAG.DE) unveiled a 2.1-billion-euro ($2.3 billion) impairment on its steel unit due to a “gloomy” outlook, highlighting the challenge in efforts to win Czech energy group EPH as a co-owner for the business. The industrial conglomerate said it would write off the fixed assets at its Steel Europe division, a crucial part of its turnaround strategy.
The company cited cost overruns at two plants in Brazil and Alabama, where it has been unable to find buyers, as the reason for the impairment. The company said that managers had previously valued the plants at far more than their actual worth. The reversal of those losses marks a setback for chief executive Markus Hiesinger, who took the helm of the group in April and has vowed to boost profitability by making its businesses more efficient and cutting costs.
The steel unit’s performance is affected by lower selling prices, partly due to portfolio measures to optimize the steelmaker’s product mix and the impact of the ongoing COVID-19 pandemic on global supply chains. However, the company said sales revenue is still expected to be higher in the second quarter than in the first, mainly due to higher demand and improved pricing.
Adjusted EBIT remained positive, with higher margins in Materials Services and Steel Europe partially offsetting the impact of lower sales and a hostile economic environment in project business. Free cash flow before mergers and acquisitions, a key gauge for investors, also improved significantly compared with the previous year due to lower funds tied up in net working capital and lower factor costs.
On the other hand, uncertainty and limited reliable planning continue to plague projects in the Marine Systems, Transportation, and Industrial Solutions sectors. This is primarily due to ongoing armed conflicts, the pandemic, and the continuing volatility of raw material and energy prices.
Thyssenkrupp will continue to focus on the structural improvements in its businesses, and the group is aiming for free cash flow before M&A in the low three-digit million euro range this year. The group will also continue to invest in its core technologies. Moreover, it will seek to reduce its carbon footprint by making its steel production carbon-neutral by 2045. It will do so by increasing the share of renewable energy sources and introducing CO2-free production methods. It will also increase the efficiency of its plants, reduce emissions from production and processes, and cut energy consumption in all business areas by more than 30 percent. The company is also continuing to expand its international presence. This year, it will open a new plant in Shanghai, China, and build its first overseas plant in India by 2020. It will also invest in digitalization, automation, and robotics in the coming years. In addition, it will further strengthen its position in Germany’s growing mobility market with a range of new electric drive trains and components for the automotive industry.