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ThyssenKrupp Profit Rises on Steel Demand as Unit Sales Loom

ThyssenKrupp First-Half Earnings Increase 35% on Demand
An employee inspects steel rolls at a ThyssenKrupp AG steel plant in Duisburg, Germany. Photographer: Wolfgang von Brauchitsch/Bloomberg

ThyssenKrupp AG, Germany’s largest steelmaker, posted a 70 percent jump in fiscal second-quarter profit as demand increased, and said planned asset sales will fund growth in emerging markets.

Adjusted earnings before interest and tax rose to 497 million euros ($708 million) in the three months through March from 293 million euros a year earlier, the Essen-based company said today in a statement. That beat the 467.8 million-euro average estimate of 17 analysts surveyed by Bloomberg.

ThyssenKrupp is gaining from a recovery in domestic demand, while grappling with the cost of building plants in Brazil and the U.S. as it seeks to boost American sales. Chief Executive Officer Heinrich Hiesinger said last week the company would sell assets accounting for about a quarter of revenue in a bid to cut debt and fund growth. The units affected employ 35,000 people.

“What matters most in coming years is to find the right balance between reducing our financial debt on the one hand and expanding our businesses on the other,” Hiesinger told reporters today in Essen. The company will invest “several billion euros over the next few years,” focusing on emerging markets and the technology division, he said.

Asset-Sale Approval

Hiesinger, four months into his role, is selling or spinning off units with 10 billion euros in revenue, the company said May 5. The proposal to separate the stainless-steel division and sell businesses including car-part producers was approved by the supervisory board today.

“The big bang was last week when they announced the restructuring, today’s about the approval and explanations of where the company will be growing,” said Hermann Reith, a Frankfurt-based BHF Bank AG analyst who has an “overweight” rating on the stock.

ThyssenKrupp may complete the asset sales program by September 2012, Hiesinger said, adding that it will keep a “notable” minority stake in the stainless unit should it sell shares. The company agreed with labor representatives to avoid compulsory redundancies as a result of the overhaul, he said.

The company confirmed its forecast for sales to rise 10 percent to 15 percent and adjusted Ebit to advance about 67 percent in the 12 months through September. The stock advanced 2.8 percent to 33.65 euros at the 5:30 p.m. close in Frankfurt, extending its gain this year to 8.6 percent, more than the 7.1 percent increase in Germany’s benchmark DAX Index.

Brazil, U.S.

“The results are better than expected and in the run-rate of the full-year guidance,” Reith said. “The startup costs of their new plants will decrease throughout the year.”

The steelmaker’s net financial debt rose to 6.49 billion euros on March 31 from 2.65 billion euros a year earlier, as the company expands raw-steel capacity with a 5.2 billion-euro plant in Brazil to supply rolling mills in the U.S.

“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 Christian Obst, a UniCredit SpA analyst who recommends investors sell the stock.

Net income jumped 32 percent to 272 million euros in the second quarter, beating the 223 million-euro average estimate of six analysts surveyed by Bloomberg. Sales rose 21 percent to 12.3 billion euros. German rolled-steel orders gained 4 percent in the period, the German Steel Federation said May 9.

ThyssenKrupp’s plan to separate its stainless-steel unit “provides further options” for the consolidation of the market in Europe amid overcapacity, Hiesinger said. The independence of the division will allow for “greater flexibility, also with regard to potential strategic partnerships,” he said.

Aperam Spinoff

European stainless-steel producers have struggled to cope with higher raw-material costs as prices of the metal decline. Luxembourg-based ArcelorMittal, the world’s largest steelmaker, spun off its stainless unit, Aperam, in January. ArcelorMittal CEO Lakshmi Mittal said last July that “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 Munich-based Obst. “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. He inherited the corporate structuring employed by Schulz to help reverse ThyssenKrupp’s 1.86 billion-euro net loss in 2009.

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

The Steel Americas unit posted an adjusted loss before interest and tax of 319 million euros in the second quarter, wider than the 79 million-euro loss a year earlier. The Steel Europe division’s adjusted Ebit gained 55 percent to 300 million euros in the first three months of 2011.

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