Strategy update: thyssenkrupp speeds up realignment
Despite the current challenges resulting from the coronavirus crisis, thyssenkrupp is continuing to press ahead with the strategic realignment it has initiated. At the core of the strategy is the transformation of the company into a high-performant “Group of Companies” with a lean management model and a clearly structured portfolio. In the future, the company’s businesses will be divided into two categories: those whose potential thyssenkrupp will develop on its own or together with partners, and those for which thyssenkrupp will primarily pursue development paths outside the Group.
Martina Merz, Chief Executive Officer of thyssenkrupp AG: “In recent months, we have left no stone unturned in very carefully examining the individual development potential of each business for thyssenkrupp. The most important aspect of this work was to decide which constellation would offer each unit the best prospects for the future – a place under the thyssenkrupp umbrella, in a partnership or outside the company. With this reassessment of the portfolio, we have taken some difficult decisions that were long overdue and will now implement them systematically. thyssenkrupp will emerge smaller but stronger from the transformation.”
Clearly structured portfolio of materials and capital goods businesses
Based on the potential of each individual business, the following portfolio decisions were taken:
On the basis of its own market position and competitive strength, thyssenkrupp sees persistently good development potential in Materials Services and Industrial Components (Forged Technologies and Bearings). The company will continue to develop these businesses on its own in the future. thyssenkrupp will keep the Automotive Technology business within the Group. In line with the industry trend for collaboration, alliances and development partnerships are also conceivable on a selective basis. Given the specific market and industry situation for Steel, thyssenkrupp is pursuing performance improvement measures under a stand-alone development within the company while, at the same time, exploring possible partnerships and consolidation options. The same two-way approach applies to Marine Systems.
Those businesses for which thyssenkrupp sees no sustainable future prospects within the Group for various and very specific reasons will be managed separately. These units will be combined in the “Multi-Tracks” segment under the leadership of Dr. Volkmar Dinstuhl, Head of Mergers and Acquisitions at thyssenkrupp AG. For Plant Technology, the stainless steel plant (AST) in Terni, Italy, including the associated sales organization, Powertrain Solutions and Springs and Stabilizers, thyssenkrupp is seeking partnerships or a sale. Restructuring will continue at the Springs and Stabilizers business. For Infrastructure (formerly GfT Bautechnik), Heavy Plate and Battery Solutions, thyssenkrupp is examining the option of a sale or the closure of sites. Employing a total of some 20,000 people, the Multi-Tracks businesses account for annual sales of around €6 billion. In the previous fiscal year, the businesses recorded a negative business cash flow of around €400 million. From the next fiscal year, separate financial reporting is planned for this segment.
Systematic performance management in the businesses
The overarching goal of the revised strategy is to boost the performance of all businesses. Each unit has been set an individual profitability target, based on benchmark analysis. All targets are to be systematically backed with specific measures. The businesses’ management teams bear full responsibility for the results. Within the Group, capital is allocated based on the anticipated value contribution.
Elevator transaction creates capacity to act
To finance its transformation, in February 2020 thyssenkrupp signed an agreement with a bidding consortium led by Advent International and Cinven on the purchase of the elevator business. The transaction was closed on July 31, 2020 after all the responsible authorities had approved the sale. With the closing, the company has received the contractually agreed purchase price. The transaction will result directly in a substantial reduction in debt to a net cash position and a significant increase in equity. The group’s balance sheet ratios will thus improve significantly. At the same time, thyssenkrupp will be able to considerably reduce past balance sheet burdens. Part of the proceeds will be used selectively to develop the businesses where attractive target returns can be achieved. In addition, funds can be used for necessary restructuring measures.
However, in view of the uncertain economic situation caused by the coronavirus, the company will retain the greatest possible flexibility in the precise allocation of funds.
Martina Merz: “Divesting the elevator business with its more than 50,000 employees was a tough decision that was not easy for anyone but it was indispensable in the interests of the whole group of companies. The proceeds in the billions will give us tailwind for the transformation of thyssenkrupp. The closing of the transaction is a further milestone in this process of change. We are continuing to focus all our energies on substantially improving the performance of the remaining businesses. We wish our Elevator colleagues continued success and all the best for the future.
Aligning all areas of the organization with portfolio development
The portfolio transformation and the stronger focus on performance will take the organization another step forward. It means thyssenkrupp will evolve into a Group of Companies with efficient, independent businesses, a strong umbrella brand and the leanest possible holding. In the future, headquarters will be responsible first and foremost for governance, portfolio and investment (capital allocation) decisions. In keeping with this new role, headquarters is to be aligned with the structure and size of the Group of Companies.
“We have a clear roadmap for the future. We are transforming thyssenkrupp into an international group of largely independent, efficient industrial and technology businesses. The focus lies on industrial development and competitive financial results. With our products and services, we make an important contribution to a better and sustainable future. We combine a performance culture with entrepreneurial and social responsibility. These are the values that will guide the new thyssenkrupp,” Merz concluded.