Thyssenkrupp: steeled for more challenges on the way to standalone unit

The latest rash of profit warnings, like those issued in the first year of the pandemic, is more about signalling than actual numbers. Take Thyssenkrupp. It is suspending guidance on free cash flow as a result of the Ukraine war and putting its planned steel spin-off into abeyance.

Both are setbacks to the industrial conglomerate’s rebirth. Once a champion of Germany’s postwar Wirtschaftswunder, or economic miracle, Thyssenkrupp has spent the past few years spinning off units and bolstering its balance sheet. Shares had halved in the two years before the pandemic, which brought a further halving. The suspended guidance ate into the subsequent rally, lopping a tenth off the share price on Thursday morning.

This year, free cash flow, pre-M&A, was expected to break even: a key data point for a company that has bled billions of euros in outflows over the past five years. Russia’s invasion of Ukraine changes that due to secondary effects; the two countries comprise “significantly” under 1 per cent of turnover. Input prices, including energy, are going through the roof and automakers, facing supply chain squeezes, are deferring purchases of steel.

The steel unit was shining up nicely. In the year to end September it produced ebitda of €214mn — it lost more than twice that the previous year — and had been expected to contribute more than half of this year’s targeted €1.8bn operating profit. But plans to jettison Steel Europe have been dogged from the get-go. Brussels blocked a proposed merger with India’s Tata Steel on antitrust grounds in 2019 and an attempted sale fell apart when UK industrial tycoon Sanjeev Gupta’s Liberty Steel failed to secure financing. The spin-off has already been delayed.

Higher steel prices — the spot price of North European cold rolled steel is up by a quarter in the past month — should burnish the proposed unit. But 60 per cent of Thyssenkrupp’s sales are on half-annual, annual or multiannual contracts, reducing flexibility. Challenges to the group’s transformation are “certainly not getting any smaller”, said boss Martina Merz. That was an understatement.