ThyssenKrupp AG, Germany’s biggest steel maker, warned that the coming months would remain bleak after weak steel and car markets caused a drop in profit, and said it did not expect a return to growth until the next financial year.
Steel companies have been struggling to make a profit in the rapidly shrinking European market, where austerity has cut sales of cars and new buildings, and demand is seen declining further this year.
“Against the background of the weak global economic recovery, the prospects for the steel market remain subdued,” ThyssenKrupp said on Tuesday after reporting a 38-per-cent slide in first-quarter core profit. Its fiscal year ends in September.
ThyssenKrupp’s rival ArcelorMittal SA, the world’s No.1 steel maker, last week reported a $3.7-billion (U.S.) loss for 2012 after writing down the value of its European steel business by several billion dollars.
ThyssenKrupp expects its full-year adjusted EBIT from continuing businesses to decline by more than half to about €1-billion ($1.35-billion) in its fiscal year ending in September, from €2.29-billion last year.
Sales will remain about flat at €40-billion this year before returning to growth in 2013/14, ThyssenKrupp said. “Rising sales and structural improvements should have a correspondingly positive impact on earnings,” it said.
Chief executive Heinrich Hiesinger, who took the helm two years ago, is trying to reduce exposure to the volatile steel sector and shift investments into higher-margin products and services, such as elevators, submarines and parts for manufacturing plants.
He is nearing the end of a push to sell assets which have a total of €10-billion in annual revenue, and is also cutting costs and changing management structures in an attempt to return the company to growth and pay down debt.
But he faces an uphill battle as the global economy remains weak and after a series of setbacks and scandals caused him to axe half his management board late last year.
ThyssenKrupp reported the 38-per-cent slide in its adjusted earnings before interest and tax (EBIT) to €229-million ($306.4-million) for its fiscal first quarter through the end of March, just above consensus expectations of €220-million in a Reuters poll, weighed down by a 71-per-cent drop in profit at its European steel business.
Net profit was down 29 per cent at €29-million, falling short of consensus of €40.8-million.
ThyssenKrupp said earnings would remain depressed at about €200-million in its fiscal second quarter, but would pick up after that as customers started refilling their inventories.
Nonetheless, it said it saw no general economic recovery this year as the euro zone debt crisis weighed on national economies while emerging markets grew more slowly.
Revenue and new orders at ThyssenKrupp’s Steel Europe business were down about 11 per cent in the first quarter, as prices for flat steel fell and customers in the automotive and construction industries drew down their inventories.
By the end of December, ThyssenKrupp’s net debt eased to €5.2-billion from €5.8-billion three months earlier thanks to the sale of stainless steel unit Inoxum to Finland’s Outokumpu Oy, and the company has said that figure would decline further once it has agreed the sale of its Steel Americas division.
ThyssenKrupp aims to agree a cash deal for Steel Americas, which comprises two mills in Brazil and Alabama, around May and complete the sale by the end of its fiscal year in September, throwing in the towel after sinking billions of euros into the project over recent years.
A massive writedown on the value of the project led to a €4.7-billion annual loss last year, forcing ThyssenKrupp to pay no dividend for the first time since the 1999 merger of Thyssen and Krupp.
If it fails to divest Steel Americas by the end of September, it will have to shoulder another loss in the hundreds of millions of euros for the year, it said.