Capital market-relevant press releases, 2013-05-15, 07:32 AM
ThyssenKrupp meets operating targets in 1st half 2012/2013
In the 1st half of the 2012/2013 fiscal year (October 01, 2012 – March 31, 2013) ThyssenKrupp achieved order intake from continuing operations of €19.3 billion, down 7% year-on-year. There were significant increases at Elevator Technology, which achieved new record order levels in each of the first two quarters, and at Industrial Solutions. At Components Technology, Materials Services and Steel Europe new orders were down year-on-year in the 1st half due to lower demand and disposals, but higher in the 2nd quarter than the 1st following the typical seasonal pattern. Sales from continuing operations in the 1st half 2012/2013 decreased year-on-year by 9% to €17.9 billion.
Adjusted EBIT from continuing operations in the 1st half of the current fiscal year decreased year-on-year from €733 million to €470 million. Of this, the 2nd quarter contributed €241 million, which was at the top end of the guidance of around €200 million and up slightly from the prior quarter. All business areas ended the 1st half with a positive contribution. Although the European steel industry is at the bottom of its cycle, Steel Europe delivered positive adjusted EBIT in both quarters. Industrial Solutions made the biggest earnings contribution. The capital goods operations delivered €740 million of adjusted EBIT, much higher than the €137 million contributed by the materials operations. Loss from continuing operations (net of tax) amounted to €(44) million, of which €(60) million attributable to the shareholders of ThyssenKrupp AG.
Free cash flow from continuing operations, i.e. the sum of operating cash flows and cash flows from investing activities, amounted to €705 million, a significant improvement of around €2.1 billion against the year-earlier period reflecting the Group’s efforts to optimize the structure of its cash flow profile. Free cash flow for the full Group improved by around €2.8 billion to €286 million. As a result ThyssenKrupp also made progress with reducing net financial debt. While this increased slightly against December 31, 2012, it decreased year-on-year by around €1.2 billion to €5,298 million (March 31, 2012: €6,480 million) and was therefore also significantly lower than at September 30, 2012 (€5,800 million). With cash, cash equivalents and committed undrawn credit lines totaling €8.0 billion at March 31, 2013, and a balanced maturity structure, ThyssenKrupp is solidly financed.
Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: "We have reached important milestones under our strategic development program. Our measures to improve earnings and cash flow are taking effect. Despite a persistently difficult economic environment we are on track to meet our operating targets for the full year. The disposal process for the two plants of Steel Americas is also running to plan. We remain focused on signing a deal promptly."
Taking into account the current negotiations in connection with the disposal process for Steel Americas the assessment of fair value less costs to sell was revised at March 31, 2013. This resulted in a further impairment loss of €683 million on property, plant and equipment. This book loss was the main reason for the net loss of €(822) million for the full Group in the 1st half (net loss attributable to shareholders of ThyssenKrupp AG: €(621) million), for the decline in the equity ratio to 9.5% and the temporary increase in the gearing ratio (net debt to equity) to 148.2%. The cash inflow from the sale of Steel Americas will significantly reduce our temporarily increased gearing again; in addition the sale will substantially improve the earnings, cash flow, value-added and competitive profile of the Group.
ACT creating optimum Group leadership structure with competitive costs
In the 1st half 2012/2013 ThyssenKrupp made important progress with the strategic development program. Under the Group initiative ACT ("Achieve Change @ ThyssenKrupp") the leadership and business structure and associated processes are being optimized. The aim is to change the understanding of leadership and the corporate culture in terms of greater openness, transparency and integration, and to improve performance and efficiency throughout the Group. The functions and structure of the Executive Board have been streamlined, and the corporate functions and corporate service units reduced significantly in number from 26 to 17 and reorganized. The processes between corporate functions, business areas and new regional units are being standardized. Under the initiative ACT, savings and optimization opportunities totaling around €250 million have been identified. Overall the number of employees in administrative functions in the Group worldwide is to be reduced by around 3,000 from its current level of around 15,000. The process is being carried out in close cooperation with the Group Works Council. Both parties assume that there will be no compulsory redundancies. In the coming months the Group will be adapted step by step to the new structure. It is planned to operate in the new structure from October 2013. Most of the effects should be realized within the next three years. In addition, the Group's structure will be routinely reviewed in the future as part of the annual strategy process in order to ensure it is continuously enhanced and adapted in line with changing conditions.
Reorganization of Supervisory Board supports improvement in corporate governance
With the changes on the Executive Board in December 2012, the Supervisory Board gave a clear signal for a fresh start and culture change in the Group. The decision by Dr. Gerhard Cromme to step down as Supervisory Board Chairman of ThyssenKrupp AG and from his seat on the Supervisory Board facilitates a fresh start for the Supervisory Board as well and supports the necessary changes to the Group's leadership system and culture. Prof. Dr. Lehner, who was elected as new Chairman of the Supervisory Board effective April 1, 2013, will make corporate governance and compliance key topics of the Supervisory Board's work in the future.
Effective April 19, 2013 Dr. Kersten v. Schenck also left the Supervisory Board. The shareholder representatives on the Supervisory Board of ThyssenKrupp AG accepted a proposal by the nomination committee and recommended Carsten Spohr and Dr. Lothar Steinebach as new Supervisory Board members. Both were delegated to the Supervisory Board of ThyssenKrupp AG by the Alfried Krupp von Bohlen und Halbach Foundation effective April 19, 2013; they are not members of the board of trustees of the Alfried Krupp von Bohlen und Halbach Foundation. The Group has also looked into questions concerning the relationship between the Alfried Krupp von Bohlen und Halbach Foundation and the company and where necessary introduced new rules. In this connection for example ThyssenKrupp is terminating all existing hunting leases. Furthermore the Executive Board has drawn up clear rules for use of the company jet and issued its own policy for organizing press trips and trips by Executive Board members with third parties.
Intensification of compliance efforts
In the reporting period work on applying the compliance program with its three pillars "inform", "identify" and "report and act" continued, focusing mainly on prevention. Measures in the "identify" pillar were dominated by the ongoing official investigation into the so-called rail cartel as well as the ongoing antitrust investigation into ThyssenKrupp Steel Europe AG. In response to these renewed antitrust allegations, in March 2013 the Executive Board of ThyssenKrupp AG decided to further intensify the Group's compliance efforts. Among other things the Group introduced a temporary amnesty program to aid the investigation of compliance issues. Furthermore, effective April 15, 2013, the compliance program was extended to include the function of an ombudsman. Employees wishing to report possible compliance violations can now also contact the ombudsman on behalf of ThyssenKrupp during and also after expiry of the amnesty period.
Performance of the business areas
The performance of the business areas in the 1st half 2012/2013 was as follows:
･ At Components Technology the disposals of the previous fiscal year under the strategic development program resulted in a structurally lower volume of business in the 1st half 2012/2013. Order intake and sales each decreased year-on-year by 26% to €2.7 billion. Excluding the disposals, order intake and sales fell by around 9%. Adjusted EBIT was down year-on-year from €231 million to €105 million. Key factors were the absence of the operating profits of Waupaca, the slowdown in the western European market for car and heavy truck components, and continuing weak demand in the wind energy and infrastructure sectors. In addition there were startup costs for new plants in China and India. In Berco's undercarriage components business or the construction machine sector a restructuring program was introduced to support disposal to a best owner.
･ Elevator Technology reported significant growth in the 1st half 2012/2013 with order intake of €3.2 billion (up 8%) and sales of €2.9 billion (up 9%). Adjusted EBIT came to €315 million (prior year: €274 million). This improvement was the result of the growth in sales and positive effects from the restructuring measures initiated in the last fiscal year.
･ Industrial Solutions, into which the former Plant Technology and Marine Systems business areas were combined effective January 1, 2013, held up well particularly in chemical plant construction at Process Technologies. In the 1st half new orders worth €3.6 billion were won. The exceptionally high order backlog of €16.4 billion at March 31, 2013 continues to secure a good workload. Sales were 9% higher than a year earlier at €2.7 billion. At €320 million adjusted EBIT was down from the high prior-year figure (€357 million).
･ Business at Materials Services was dominated by the continued economic slowdown in all regions and sectors with the exception of North America. Sales were 12% lower at €5.7 billion. However, the materials and logistics activities for the aerospace industry continued to perform positively. Despite the sharp fall in sales, adjusted EBIT came in at €98 million (prior year: €130 million) thanks to the intensification and early initiation of performance programs. After special items of €219 million, mainly additional provisions for recognizable risks from anticipated fines and claims in connection with the so called rail cartel, and for restructurings, EBIT in the 1st half came to €(121) million. In view of limited growth prospects on the German market and increased cost pressure, at the beginning of May 2013 a sale process was initiated for the Railway/Construction operations.
･ At Steel Europe orders (€5.0 billion) and sales (€4.8 billion) in the 1st half 2012/2013 were 12% lower year-on-year due to disposals and lower selling prices, but showed typical 2nd quarter growth quarter-on-quarter. Adjusted EBIT fell to €39 million (prior year: €132 million) on account of a persistently difficult market environment with prices lower year-on-year. Against the background of the inadequate earnings situation, work is continuing apace on the detailed planning and implementation of the "Best in Class – reloaded" optimization program. Overall it is planned to reduce the workforce from currently around 27,600 employees by over 2,000 employees in a socially responsible way. There will be no compulsory redundancies. Also the grain-oriented electrical steel operation with plants in Gelsenkirchen/Germany and Isbergues/France, and the electrical steel operations in Nashik/India with altogether 1,800 employees are to be sold under a best-owner solution. EBIT amounted to €19 million, which includes initial negative special items of €20 million from provisions under the optimization program. A deal for ThyssenKrupp Tailored Blanks is expected to be closed in the 3rd quarter 2012/2013.
Outlook fiscal 2012/2013
For 2012/13 ThyssenKrupp expects the Group's sales in the 2nd half to come in higher than in the 1st half, but full-year sales will be down year-on-year (sales 2011/2012: €40.1 billion). The Group also expects there to be no major dislocations on the raw materials markets. Sales lost due to portfolio measures, in particular at Steel Europe and Components Technology, will not be fully offset by organic growth in the capital goods businesses.
Assuming that the slower activity on the materials markets in the 1st half compared with the prior year continues but does not progressively worsen, adjusted EBIT from the Group's continuing operations should be around €1 billion.
The full interim report is available in German and English for downloading and as an interactive online version at http://www.thyssenkrupp.com.