thyssenkrupp : Continued good operating performance / Double-digit growth rates in order intake / Adj. EBIT up 35 percent / Full-year forecast revised

Continued good operating performance / Double-digit growth rates in order intake / Adj. EBIT up 35 percent / Full-year forecast revised

The industrial and technology group thyssenkrupp remains on growth track: Order intake, sales and adjusted EBIT were higher year-on-year both in the 1st half and the 2nd quarter of the 2016/2017 fiscal year. “In operating terms we’re doing well. All businesses reported double-digit growth rates in order intake. In the 2nd quarter our capital goods businesses Components Technology and Elevator Technology achieved new record highs,” says thyssenkrupp CEO Dr. Heinrich Hiesinger. Following an already strong 1st quarter, Industrial Solutions achieved its highest order intake in three years in the 2nd quarter, confirming the turnaround with a strong project pipeline.

The Group’s adjusted EBIT was up by 35 percent in the 1st half at €756 million (prior year €560 million), and by 31 percent in the 2nd quarter at €427 million (prior year €326 million). As expected strong year-on-year growth was achieved in the 1st half by Components Technology (up 12 percent to €176 million) and Elevator Technology (up 8 percent to €422 million). There were also clearly positive earnings effects from the recovery in prices at Materials Services (up €160 million to €173 million) and Steel Americas[1] (up €190 million to €51 million). The trend was the same at Steel Europe, but due to its longer-term contracts the effects of the price increase were not felt until the 2nd quarter. These positive price effects were partly eroded by the sharp rise in raw materials costs, mainly for coking coal (adjusted EBIT up €4 million to €119 million in the 1st half; up €27 million to €92 million in the 2nd quarter). “The raw materials markets and as a result our materials businesses are subject to large swings that are beyond our control. That’s why we’re concentrating strategically on expanding our capital goods and service businesses. This will enable us to generate more stable earnings and achieve profitable growth in the future,” says Hiesinger, summarizing the strategy behind the Group’s transformation.

Order intake and sales were higher year-on-year both in the 1st half (up 17 percent/9 percent) and the 2nd quarter (up 33 percent/12 percent). In the capital goods businesses, Components Technology reported a positive trend among other things for car components and heavy truck components in Western Europe and China. At Elevator Technology sales increased above all in the USA, China and South Korea.

The materials businesses profited mainly from the recovery in prices. At Steel Europe, too, this trend is already reflected in higher average selling prices year-on-year in the 1st half.

As announced, the strategically important sale of CSA had a negative effect of €0.9 billion on net income in the 2nd quarter. On account solely of this one-time effect, the Group reported a net loss of €855 million in the 1st half (2nd quarter net loss of €870 million). After deduction of non-controlling interest, the net loss was €871 million; earnings per share came to a loss of €1.54. Based on the continuing operations, i.e. excluding Steel Americas, thyssenkrupp generated net income of €58 million in the 1st half (2nd quarter €64 million).

Free cash flow before M&A in the 1st half was as expected lower year-on-year at €(1,949) million (prior year €(1,212) million). Above all the rise in material prices led to a temporary increase in net working capital. At €(212) million, free cash flow in the 2nd quarter was already better than the prior year (€(365) million and significantly better than the previous quarter (€(1,736) million).

Accordingly the Group’s net financial debt increased to €5.8 billion. thyssenkrupp expects a sharp decrease in net financial debt in the second half, with free cash flow before M&A then positive. In addition the payment of the purchase price for CSA on closing of the transaction will have a positive impact. Taking into account the Group’s available liquidity of €6.6 billion and balanced maturity structure, thyssenkrupp remains solidly financed.

Equity decreased to €2.3 billion from €3.3 billion at December 31, 2016. The cause of this was the negative income effect of €0.9 billion in connection with the sale of CSA.

For the current fiscal year 2016/2017 thyssenkrupp is revising its forecast. The reasons for this are the effects of the good operating performance, the sale of CSA, and the latest dislocations on the raw material markets (especially for coking coal):

Adjusted EBIT is expected to increase to €1.8 billion (previously €1.7 billion; prior year €1,469 million). The adjusted EBIT of the continuing operations is expected to be €1.7 billion.?

With positive operating earnings, the company expects a significant net loss for the year exclusively as a result of the negative earnings impact from the sale of CSA (previously clear year-on-year improvement expected; prior year net income €261 million).

The significant increase in net working capital at our materials businesses as a result of dislocations on the raw materials markets and due to higher volumes and prices is expected to result in overall negative FCF before M&A in the mid-three-digit million euro range (previous forecast slightly positive; prior year €198 million).

[1] In the context of the Strategic Way Forward, thyssenkrupp reached agreement with Ternium in February 2017 on the sale of the Brazilian steel mill CSA. The sale is subject to the approval of the competition authorities and is planned to be completed by September 30, 2017. The transaction meets the criteria of IFRS 5 for reporting the Steel Americas business area as a discontinued operation.