Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Thyssenkrupp AG's strategy to focus on building elevators and auto components rather than making steel is right. But for all the heat and noise, an escape from its low-margin past looks elusive.

Treading Water
Hopes of a steel tie-up with Tata lifted ThyssenKrupp's shares this year but there's still no deal

It's been eight months since reports first surfaced that the German conglomerate was in talks to combine its European steel business with India's Tata Steel Ltd. The tie-up would cut Thyssenkrupp's exposure to the volatile steel market. But there's no guarantee it will happen and shareholders risk disappointment.

Complicating the talks are the departure last month of Tata Sons Ltd. chairman Cyrus Mistry, the question of how to manage the 15 billion-pound ($18.7 billion) British Steel pension plan, the U.K.'s decision to quit the European Union and political pressure to keep British steel plants open.

Thyssenkrupp CEO Heinrich Hiesinger made clear on Thursday he's determined to find a solution for the European steel business. But he couldn’t say when or how consolidation would occur.

That's disappointing because there's precious little else for Thyssenkrupp shareholders to get excited about. The company plans to offer to investors a 15 cent dividend for the year through September, which equates to a pretty dismal yield of less than 1 percent.

Despite what seems like permanent cost-cutting, the European steel unit's earnings still aren't sufficient to cover its capital costs, as the chart below shows. Hiesinger blamed that on a surfeit of steel plant capacity in Europe  -- something consolidation would help address, of course.

Steel Woes
ThyssenKrupp's technology businesses mostly create value, unlike steel.
Source: ThyssenKrupp and Gadfly calculations
We took the capital employed in each business unit and multiplied it by the weighted average cost of that capital. Comparing Ebit and those implied capital costs gives an idea of whether a business is creating value. Capital employed comprises fixed assets, inventories and receivables. For Industrial Solutions this was a negative number, in part due to advance payments.

Although global steel prices have rallied in recent months and tariffs on Chinese steel imports have provided some relief for western producers, it's still hard to believe in a sustainable steel market recovery. Thyssenkrupp said China has only made "slow progress" on reducing its surfeit of steel plants. It expects global steel demand to grow "hardly at all" in 2016 and "only slightly" next year. 

By comparison, the company's elevator business looks relatively attractive, generating more earnings than any other division. But Finnish elevator rival Kone Oyj's operating margin is far superior to Thyssenkrupp's, so investors have an alternative if they're looking for exposure to mega-city skyscraper construction.

Aiming High
ThyssenKrupp's elevator margins are pretty decent but rivals are doing even better
Source: Bloomberg and Gadfly calculations
Nb. ThyssenKrupp reported an adjusted ebit margin of 11.5 percent but we've used an unadjusted number.

Full-year net income was broadly flat and Thyssenkrupp's almost 200 million euros of free cashflow is still too thin to make much of a dent in its 3.5 billion-euro net debt pile. The balance sheet also remains burdened with 8.5 billion euros of pension liabilities, which have been exacerbated by Europe's very low interest rates.

Hiesinger deserves credit for delivering a decent performance despite all those difficulties. But as long as a European steel deal remains a distant prospect, Thyssenkrupp will have to sprint just to stand still.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Chris Bryant in Frankfurt at

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Edward Evans at