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Thyssenkrupp Speeds Up Realignment

Steel News - Published on Wed, 20 May 2020

Image Source: ThyssenKrupp
thyssenkrupp is continuing to press ahead with the strategic realignment it has initiated. In their meeting, the Executive Board presented its respective plans to the Supervisory Board. At the core of the new strategy is the transformation of the company into a high-performant “Group of Companies” with a lean management model and a clearly structured portfolio. In the future, the company’s businesses will be divided into two categories: those whose potential thyssenkrupp will develop on its own or together with partners, and those for which thyssenkrupp will primarily pursue development paths outside the Group.

thyssenkrupp AG Chief Executive Officer Ms Martina Merz “In recent months, we have left no stone unturned in very carefully examining the individual development potential of each business for thyssenkrupp. The most important aspect of this work was to decide which constellation would offer each unit the best prospects for the future, a place under the thyssenkrupp umbrella, in a partnership or outside the company. With this reassessment of the portfolio, we have taken some difficult decisions that were long overdue and will now implement them systematically. thyssenkrupp will emerge smaller but stronger from the transformation.”

Based on the potential of each individual business, the following portfolio decisions were taken. The former Business Areas will be known as “Segments” going forward:

On the basis of its own market position and competitive strength, thyssenkrupp sees persistently good development potential in Materials Services and Industrial Components (Forged Technologies and Bearings). The company will continue to develop these businesses on its own in the future. thyssenkrupp will keep the Automotive Technology business within the Group. In line with the industry trend for collaboration, alliances and development partnerships are also conceivable on a selective basis. Given the specific market and industry situation for Steel, thyssenkrupp is pursuing performance improvement measures under a stand-alone development within the company while, at the same time, exploring possible partnerships and consolidation options. The same two-way approach applies to Marine Systems.

Those businesses for which thyssenkrupp sees no sustainable future prospects within the Group for various and very specific reasons will be managed separately. These units will be combined in the “Multi-Tracks” segment under the leadership of Dr. Volkmar Dinstuhl, Head of Mergers and Acquisitions at thyssenkrupp AG. For Plant Technology, the stainless steel plant in Terni, Italy, including the associated sales organization, Powertrain Solutions and Springs and Stabilizers, thyssenkrupp is seeking partnerships or a sale. Restructuring will continue at the Springs and Stabilizers business. For Infrastructure, Heavy Plate and Battery Solutions, thyssenkrupp is examining the option of a sale or the closure of sites. Employing a total of some 20,000 people, the Multi-Tracks businesses account for annual sales of around EUR 6 billion. In the previous fiscal year, the businesses recorded a negative business cash flow of around EUR 400 million. From the next fiscal year, separate financial reporting is planned for this segment.

The overarching goal of the revised strategy is to boost the performance of all businesses. Each unit has been set an individual profitability target, based on benchmark analysis. All targets are to be systematically backed with specific measures. The businesses’ management teams bear full responsibility for the results. Within the Group, capital is allocated based on the anticipated value contribution.

In order to finance the realignment, thyssenkrupp decided in February this year to sell the Elevator business to a consortium of financial investors for EUR 17.2 billion. The cash proceeds are expected by the end of the current fiscal year at the latest. Given the current uncertainty in the macroeconomic environment, the company initially intends to retain the greatest possible flexibility in using the funds. In a first step, thyssenkrupp will use the proceeds to repay financial debt along the maturity profile. The Elevator transaction will substantially improve the company’s equity ratio. This also makes fundamental structural changes possible.

In addition, part of the proceeds will be selectively used to develop businesses where respective target margins can be achieved. The exact allocation and priorities for using the funds will depend on how the corona crisis develops; today, this cannot yet be forecast with any adequate degree of accuracy.

In order to safeguard the competitiveness of its steel business, thyssenkrupp recently adopted the “Steel Strategy 20-30” and negotiated the corresponding collective agreement with employee representatives. This strategy remains the correct course of action. The plan encompasses the reduction of 3,000 jobs, optimization of the production network and additional investment totaling €800 million over the next six years. With this, thyssenkrupp is paving the way to make the steel business sustainably viable in what is an extremely challenging competitive environment. The goal is to keep steel production with its integrated value chains and associated jobs in Germany over the long term.

In the past, thyssenkrupp has repeatedly emphasized the benefits of consolidation in the steel industry. The necessity is only heightened as a result of the corona crisis as there will be a structural increase in existing overcapacities in Europe. In addition, thyssenkrupp sees favorable opportunities in speeding up the requisite transformation toward climate-neutral steel production, provided the industry pools its resources and legislators create the framework needed.

This is why thyssenkrupp is also examining possible consolidation solutions for Steel Europe and is keeping all its options open. With the knowledge of the Supervisory Board, discussions are already ongoing. Implementation of the “Steel Strategy 20-30” remains a component of each potential scenario.

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Posted By : Yogender Pancholi on Wed, 20 May 2020
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