To this end, the Essen-based company is negotiating the acquisition of the Kretinsky Holding EPH. The new CEO Miguel López hopes this will provide a solution to the expected higher energy costs in connection with the conversion to less climate-damaging production. In the last financial year, the industrial group thyssenkrupp relied on the Czech billionaire Daniel Kretinsky for the future of its steel business. Write off billions on the steel business, which is currently suffering from weak demand and lower prices coupled with higher costs. This caused the traditional Essen company to slip deep into the red.
When presenting its annual balance sheet on Wednesday morning, thyssenkrupp confirmed “constructive and open-ended discussions with the energy company EPH”, Kretinsky’s holding company. There is discussion about a potential joint venture with the subsidiary Steel Europe, where thyssenkrupp is planning to become independent. How a possible joint venture could be designed is the subject of negotiations. As López said in Essen, a model is currently being negotiated in which thyssenkrupp and EPH each hold 50 percent. The CEO did not want to give a time frame.
EPH includes, among others, the lignite companies Mibrag and Leag in eastern Germany, which want to generate more climate-neutral electricity from renewable energies in the future.
Thyssenkrupp’s steel division is to become climate neutral. The first step is the construction of a so-called direct reduction plant for steel production in Duisburg, which is intended to replace a blast furnace. It will initially be operated with natural gas and later with increasingly climate-neutral hydrogen. The success of CO2-neutral steel production is essentially dependent on the secure supply of large amounts of green energy at competitive prices, explained López. Steel Europe will foreseeably be one of the largest consumers of green electricity and green hydrogen.
“It is unimaginable to be dependent on volatility such as we see today in the offer prices for green energies. In the future, the energy costs of steel production will account for up to half of the total costs.” thyssenkrupp cannot manage this alone. For this reason, thyssenkrupp is in contact with possible strategic partners from the energy sector. And that’s why the discussions with EPH are so “immanently important”. According to López, there is a “Plan B” if the talks fail. But he didn’t want to say what it looked like.
“We want a good solution for steel, for steel workers, for steel customers – and with it the future and success of Germany as an industrial location,” said the manager. CEO Oliver Burkhard sees “manageable” effects for the division’s employees. “In addition to thyssenkrupp, Steel Europe would get another shareholder. All existing collective agreements, all agreements to secure employment and locations as well as all other agreements in the area of company co-determination would remain unaffected,” he said. The approach would also be supported by EPH.
Overall, thyssenkrupp wants to advance the issue of decarbonization. In October, the company restructured its business areas and combined the technologies under the new Decarbon Technologies division. This also includes the listed majority stake in the electrolyser thyssenkrupp nucera, which is listed in the SDAX small cap segment. However, the company does not want the complex of topics to be limited to the new division alone. “We are aligning the entire group on green transformation and future topics – for example automotive technology and materials services,” explained López. The automotive sector, for example, should further expand its business in the area of e-mobility.
However, the aim is also to make the marine business TKMS independent. This is essential as a “starting point for national and European consolidation,” said board member Burkhard. Various options are being examined, but there is no result yet. The federal government is also exploring a possible entry by the state.
The figures for the last financial year took a bit of a back seat due to the mixed situation. The bottom line was an annual loss of around two billion euros in 2022/23 (at the end of September). Value adjustments of around 2.1 billion euros had a negative impact, particularly on the fixed assets of the subsidiary Steel Europe. It was said that the depreciation was necessary due to the deteriorating economic environment and higher capital costs. thyssenkrupp had originally promised an “at least” balanced annual profit, after a profit of 1.2 billion euros a year earlier. Thanks to a significantly improved cash inflow, shareholders should still receive an unchanged dividend of 15 cents per share. Falling steel prices and simultaneously rising raw material and energy costs impacted earnings before interest and taxes (EBIT) adjusted for special effects. This fell from just under 2.1 billion to 703 million euros, roughly meeting analysts’ average expectations. Sales fell by nine percent to 37.5 billion euros. Steel Europe and the trading business recorded further weaker development in the final quarter.
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“We have made progress in cash generation. Operationally, it was a step in the right direction. But it is still far from enough,” said López, who has been in office for six months. “The performance of the businesses is not where it should be – and has been for years. In a nutshell: We don’t make enough money.” That’s why the CEO wants to push forward and intensify the transformation. To this end, thyssenkrupp has installed the “Apex” program, which is expected to have a positive effect on adjusted EBIT of up to two billion euros by 2024/25.
In the new financial year, thyssenkrupp wants to return to profitability. Management is assuming that the economic environment will remain difficult. The company expects an annual profit in the low to mid three-digit million euro range. Adjusted EBIT is expected to rise to a high three-digit million euro amount, and thyssenkrupp sees sales growing slightly. Decarbon Technologies and Marine Systems in particular should contribute to this.
JPMorgan analyst Moses Ola praised the industrial group’s strong cash position in an initial assessment. However, this is offset by figures from Steel Europe that are below expectations and high value adjustments for the steel segment. He saw the outlook as being in line with expectations.
Nucera had provided information on business development the evening before, but had not yet presented any figures. The newcomer to the stock market wants to publish this on December 18th. According to the information, the electrolyzer grew again at the end of its financial year. Sales from July to September increased “strongly” as a result of processing the large order backlog, it said. Earnings before interest and taxes (EBIT) are slightly positive.
Barclays remains pessimistic
The British investment bank Barclays has left the rating for thyssenkrupp at “Underweight” with a price target of 7 euros. The steel business was weak, analyst Tom Zhang wrote on Wednesday morning after the quarterly report. The Essen-based company’s outlook for the 2024 financial year is within the expected range.
This is how the thyssenkrupp papers react
Pre-market concerns about the news from thyssenkrupp gave way to a happy reaction in regular XETRA trading on Wednesday. The price rose above the 7 euro mark for the first time since the beginning of October and could thus break away from this hurdle after weeks of sideways movement. Most recently, the surcharge was 7.34 percent to 7.11 euros. This puts Thyssenkrupp at the top of the MDAX.
Analyst Moses Ola from JPMorgan praised the industrial group’s strong free cash flow in an initial assessment. These would be a good half above his and the market expectations. The company liquidated far more working capital than expected. Market estimates for cash are now likely to rise accordingly.
However, this is offset by figures from Steel Europe that are below expectations and high value adjustments for the steel segment, Ola added. The outlook for the coming year is in line with expectations. The operating result (EBIT) in the steel business is eleven percent below the consensus estimate, burdened by lower volumes and lower prices.
A rather reserved attitude prevailed in pre-market trading on Tradegate. The papers had given way slightly. With a view to the end of the year approaching, 2023 is shaping up to be a good stock market year for shareholders, with a current price gain of a good 22 percent. This means that the share clearly leaves both the MDAX of medium-sized stocks and the European sector of industrial groups behind.
DUISBURG/ESSEN (dpa-AFX) /
LONDON (dpa-AFX Broker)
Image source: Quinta / Shutterstock.com, thyssenkrupp AG