German Industrial Conglomerate Reports Q3 Net Loss
German Industrial Conglomerate Reports Q3 Net Loss
Thyssenkrupp's Financial Performance and Restructuring Efforts: An In-Depth Analysis.
Disclaimer: The following article is intended for informational purposes only and does not constitute financial or investment advice. The information presented is based on recent reports and data provided by Thyssenkrupp and is accurate to the best of our knowledge at the time of writing. Readers are encouraged to do their own research and consult with a professional advisor before making any financial decisions.
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Thyssenkrupp, the German industrial conglomerate, has been navigating a challenging fiscal landscape marked by a third-quarter net loss and a subsequent reduction in its profit forecast for the fiscal year 2023/2024. The company is in the midst of restructuring efforts aimed at revitalizing its operations and bolstering financial stability.
Market Challenges and Financial Performance
In the third quarter of the 2023/2024 fiscal year, Thyssenkrupp reported a net loss and experienced a downturn in business performance compared to the previous year. This decline can be attributed to persistently challenging market conditions, particularly in key customer industries such as automotive, machinery, and construction. Additionally, high energy costs have further strained the company's financial health. The period between April and June saw the group record an order intake of €8.4 billion, down from €9.4 billion in the previous year. Sales also dropped to €9.0 billion from €9.6 billion, and adjusted EBIT fell to €149 million from €243 million.
The company’s steel business, in particular, has been impacted by the weak economy and structural challenges, resulting in adjusted EBIT being nearly halved due to demand and price effects. In the Decarbon Technologies segment, Thyssenkrupp faced one-time effects in plant engineering at Polysius, primarily due to higher costs of around €80 million for individual legacy projects. Despite the adverse market conditions, Thyssenkrupp's APEX performance program has played a crucial role in countering negative market developments. The program, which focuses on efficiency improvements and cost reductions, has supported earnings across all segments. According to CFO Jens Schulte, the Executive Board member responsible for the group-wide APEX efficiency program, the company's businesses performed commendably in a challenging environment, achieving success with the efficiency program.
The APEX program has been instrumental in driving positive earnings effects in various segments. For instance, in Automotive Technology, the program helped mitigate the impact of declining volumes in the construction machinery business and parts of the automotive original equipment business. Measures such as the partial reversal of a provision for quality costs and the negotiation of new prices also contributed to improved earnings.
Segment Performance Analysis
In the third quarter, the Automotive Technology segment recorded an order intake of €1.9 billion, down from €2.1 billion in the previous year, and sales of €1.9 billion, slightly lower than the €2.0 billion recorded last year. However, the segment's adjusted EBIT improved to €78 million from €44 million in the prior year. This improvement was driven by lower material and transportation costs and positive one-time effects, such as the partial reversal of a provision for quality costs. The APEX program's efficiency measures and new price negotiations also had a positive impact.
Thyssenkrupp is exploring the realignment of its Automotive Body Solutions, which includes reducing 400 positions in Germany while increasing capacities at other sites outside the country. The company is also in discussions with potential buyers for its Springs & Stabilizers business unit, although the divestment process for Automation Engineering has been temporarily halted. The Decarbon Technologies segment saw an order intake of €0.8 billion, down from €1.1 billion in the previous year. Sales, however, increased by ten percent to €945 million due to some major projects in plant engineering and at Thyssenkrupp Nucera. Adjusted EBIT for the segment was negative at €(59) million, compared to €(16) million in the prior year. The decline was primarily due to one-time effects in plant engineering at Polysius, resulting from higher costs for individual legacy projects. Efficiency improvements and procurement optimization under the APEX program provided some support to the segment's earnings.
Materials Services
The Materials Services segment experienced a decline in order intake to €3.1 billion from €3.3 billion and sales to €3.2 billion from €3.3 billion. This reduction was mainly due to lower prices, particularly for finished steel. Despite this, the segment's adjusted EBIT increased to €58 million from €50 million in the previous year. The growth was primarily driven by the international supply chain, direct-to-customer businesses, and North American distribution units and service centers. The APEX program's efficiency measures, including new price negotiations, freight cost reductions, and site consolidation activities, contributed positively to earnings.
Steel Europe continues to operate in a highly challenging environment characterized by a weak economy, high energy costs, and increasing import pressures. The segment's order intake dropped to €2.7 billion from €3.2 billion, and sales fell to €2.8 billion from €3.3 billion. The decline was due to lower prices and decreased volumes, especially in the automotive sector. Adjusted EBIT for the segment was €100 million, nearly half of the prior year's €190 million. Earnings were supported by ongoing restructuring and performance measures under Strategy 20-30 and extensive APEX measures, such as efficiency improvements in production, energy, and logistics.
Recently, the segment board presented a structural realignment plan for the steel business to the Supervisory Board of Steel Europe. The plan involves reducing crude steel capacities in Duisburg, primarily by exiting from Hüttenwerke Krupp Mannesmann. Thyssenkrupp and Steel Europe will jointly commission a going-concern opinion to validate the financing requirements for the realignment of Steel Europe.
Updated Financial Forecast
In July, Thyssenkrupp completed a transaction that granted EP Corporate Group (EPCG) a 20-percent stake in the steel business. The two companies are also negotiating a second phase, where EPCG may acquire an additional 30 percent, aiming to establish an equal 50:50 joint venture. This decision is part of Thyssenkrupp's broader efforts to achieve a stand-alone solution for its steel business.
Given the challenging market environment and third-quarter results, Thyssenkrupp amended its full-year forecast for the fiscal year 2023/2024. The company now expects sales to decline by 6 to 8 percent compared to the previous year. The adjusted EBIT is projected to decrease to over €500 million, a revision from the earlier forecast of an increase to a high three-digit million euro range. Free cash flow before M&A is now anticipated to fall to a range of €(100) million, a more significant decline than initially expected. The forecast for net income has also been adjusted, with the company now expecting a negative figure in the mid to high three-digit million euro range.
Despite the downturn, Thyssenkrupp maintains a strong liquidity position, with cash and cash equivalents and undrawn committed credit lines totaling €5.9 billion. The company's total equity remains constant at €11.7 billion, and the equity ratio is a comfortable 39 percent. Thyssenkrupp's third-quarter performance and revised fiscal-year forecast reflect the ongoing challenges in the market and the company's strategic efforts to navigate these difficulties. The APEX performance program has been a crucial factor in mitigating some of the adverse impacts, providing much-needed support across various segments.
As the company continues its restructuring efforts, it remains focused on improving profitability and resilience in a volatile market environment. By addressing structural challenges and optimizing operations through efficiency programs, Thyssenkrupp aims to position itself for future growth and stability.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Readers should conduct their own research and consult with a professional advisor before making any financial decisions.
We are working endlessly to provide free insights on the stock market every day, and greatly appreciate those who are paid members supporting the development of the Stock Region mobile application. Stock Region offers daily stock and option signals, watchlists, earnings reports, technical and fundamental analysis reports, virtual meetings, learning opportunities, analyst upgrades and downgrades, catalyst reports, in-person events, and access to our private network of investors for paid members as an addition to being an early investor in Stock Region. We recommend all readers to urgently activate their membership before reaching full member capacity (500) to be eligible for the upcoming revenue distribution program. Memberships now available at https://stockregion.net