ThyssenKrupp First-Half Earnings Increase 35% on Steel Demand

ThyssenKrupp AG (TKA), Germany’s largest steelmaker, said fiscal first-half earnings rose 35 percent as the company benefited from higher demand for the metal.

Adjusted earnings before interest and tax climbed to 770 million euros ($1.09 billion) in the six months through March from 570 million euros a year earlier, the Essen-based company said today in a statement. Sales advanced 21 percent to 23.6 billion euros.

ThyssenKrupp is gaining from a recovery in domestic demand, while grappling with the cost of plants it’s building to boost North American sales. Chief Executive Officer Heinrich Hiesinger said last week the company would sell assets making up about a quarter of revenue as he seeks to cut debt and finance growth. German rolled-steel orders rose 4 percent in the first three months of 2011, the German Steel Federation said on May 9.

“The numbers should show a good operating performance across the company, including at their European steel unit,” Lars Hettche, a Frankfurt-based analyst with Bankhaus Metzler, said yesterday. “But there are also costs at their Americas division to contend with as they start plants there.”

ThyssenKrupp has risen 5.6 percent in Frankfurt trading this year, less than the 7.7 percent gain in Germany’s benchmark DAX Index. (DAX) The stock fell 1.1 percent to close at 32.73 euros yesterday.

Company Overhaul

Hiesinger is overhauling ThyssenKrupp, less than four months after taking on the job, to cut dependence on raw materials as costs expand. The plan to split off the company’s stainless-steel unit and sell automotive-component producers will be put to the supervisory board today.

“The question is how ThyssenKrupp’s going to deal with the assets they’ve said aren’t core to their business and whether they can maintain the euphoria the disposal plan generated,” said Christian Obst, a UniCredit SpA analyst who recommends investors sell the stock.

The CEO is scheduled to hold a press conference at 2 p.m. local time at the company’s headquarters in the western German city of Essen and brief analysts and investors at 4 p.m.

Analysts and investors may focus “on how parts of the company are hived off and what the time line is for that -- will it be in 6 months, 12, 18, 24?” said Hettche. “There’s also the question of how the Steel Americas unit will develop.”

Rising Costs

European stainless-steel producers have struggled to cope with higher raw-material costs as prices of the metal decline. Luxembourg-based ArcelorMittal (MT), the world’s largest steelmaker, spun off its stainless unit, Aperam, in January. ArcelorMittal CEO Lakshmi Mittal said in July “many, many years” of talks between producers had failed to lead to consolidation.

“The circumstances for separating the stainless unit haven’t necessarily changed for the better, there are still problems with demand and pricing,” said Obst at UniCredit. “Spinning it off might be easier than listing it on the stock exchange but that won’t bring in any cash any time soon.”

Hiesinger, the former head of Siemens AG’s industrial unit, joined ThyssenKrupp in October as previous CEO Ekkehard Schulz’s deputy before succeeding him in January. ThyssenKrupp said last week it wants to “provide additional flexibility for the expansion into strategically promising business activities.”

The CEO took over as the company expands raw-steel capacity with a 5.2 billion-euro plant in Brazil to supply rolling mills in the U.S. He also inherits the corporate structuring employed by Schulz to help reverse ThyssenKrupp’s 1.86 billion-euro net loss in 2009.

“ThyssenKrupp has said that it is building up net working capital for its new plants in the U.S. and Brazil, which will mean greater cash outflows,” said Munich-based Obst.

ThyssenKrupp widened its forecast for an anticipated loss at its Americas unit for the fiscal year through September in February. The costs of depreciation and input materials will diminish as the plants raise output, it said at the time.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net

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