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4-Traders Homepage  >  Equities  >  Xetra  >  ThyssenKrupp AG    TKA   DE0007500001

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ThyssenKrupp Puts Steel Americas Plants On The Block

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05/15/2012 | 07:15pm CEST

-- ThyssenKrupp says examining all strategic options for Steel Americas

-- Options include sale or partnerships

-- Original Steel Americas concept not viable after global economic downturn

-- Brazil production costs up more than is proportionate, make US plant uncompetitive

(Rewrites throughout, adding detail and background.)

   By Jan Hromadko 

German steelmaker ThyssenKrupp AG (>> ThyssenKrupp AG) said Tuesday it is considering selling its new steel mills in the U.S. and Brazil or bringing in partners, citing fundamental changes to the global economy that have turned its original concept for the plants upside down.

"We have announced our intention to improve our performances sustainably and review the strategic value of our business on a regular basis," said Chief Executive Heinrich Hiesinger. "This is also the case for our biggest challenge, Steel Americas."

The comments come after ThyssenKrupp earlier Tuesday reported a wider-than-expected net loss for its fiscal 2012, ending Sept. 30, blaming immense pressure on profit margins at its European steel business as well as continued losses at the Steel Americas business.

Hiesinger said that ThyssenKrupp had to act on the continued loss makers in Brazil and the U.S. after accumulating losses at these operations of around EUR500 million in the first six months of its business year. In fiscal 2011, the losses had amounted to around EUR1 billion.

He added that ThyssenKrupp needs to act on lossmaking businesses to ensure the company regains its ability to invest, after the overseas steel business resulted in heavy losses and spiraling debt.

"Our goal is to earn enough cash to properly invest it in our other business areas going forward," Hiesinger said.

The decision to possibly sell the U.S. an Brazilian steel mills is a drastic shift for Germany's largest steelmaker by output, which had entered the U.S. and Brazilian markets to take advantage of low production costs and strong growth rates.

The construction of a steel slab plant in Brazil and a processing plant in Alabama, however, resulted in huge cost overruns and massive losses during a prolonged ramp-up period, which is still going on.

Overall, ThyssenKrupp has recorded around EUR12 billion in construction costs and start-up losses at the new plants, Hiesinger said.

He also said that the company's Steel Americas business presently has a book value of around EUR7 billion.

Hiesinger said that the global financial crisis and subsequently the differing growth rates in Brazil and the U.S. have destroyed ThyssenKrupp's approach of an integrated steel plant concept.

Originally, ThyssenKrupp had planned to produce steel slabs at relatively low costs in Brazil to supply the Alabama-based steel mill, with the aim of suppling customers in the North America Free Trade Area with high grade steel products. ThyssenKrupp had repeatedly said that it expects to sell its Alabama steel production at a premium due to the superior quality of its steel.

However, the global economic crisis has turned that concept upside down, Hiesinger said.

"While the U.S. economy develops mostly without significant dynamism, there is considerable growth in Brazil," he said, adding that this has been impacting the cost and demand situation in both countries.

"In Brazil production costs are rising over proportionally," said Hiesinger, who attributed the increases to rising wages, inflation and a stronger Brazilian real that is the result of the country's improving competitiveness.

"This has resulted in deteriorated competitiveness of our slabs in the U.S.," Hiesinger said. He added that the situation has been further exacerbated by strong increases in prices for iron ore and coking coal--two key ingredients for steelmaking.

Hiesinger added, however, that ThyssenKrupp remains convinced that the new plants in Brazil and Alabama will gradually become top of the class in terms of technological know-how and operating costs.

"The technical ramp-up of the plants is continuing and we're making good progress," he said.

Hiesinger declined to provide a likely time frame for selling the Steel Americas business, citing the complexity of a potential transaction.

"This will not happen overnight," he said.

Hiesinger also said that he has previously informed Brazilian miner Vale SA (VALE), which owns 27% in ThyssenKrupp's steel plant near Rio de Janeiro.

Talks with other potential partners or buyers haven't yet taken place, Hiesinger said, but added the company will approach a broad range of potential investors.

A sale of the steel plants in the Americas would come on top of a nearly completed disposal program, which included the divestiture of its stainless steel business that will be sold to Finland's Outokumpu Oyi (OUT1V.HE).

Hiesinger also reiterated that ThyssenKrupp is committed to its European steel business.

"We don't have a steel problem, we have a Steel Americas problem," Hiesinger said.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

Stocks mentioned in the article : ThyssenKrupp AG
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Sales 2016 40 053 M
EBIT 2016 1 441 M
Net income 2016 391 M
Debt 2016 4 643 M
Yield 2016 0,88%
P/E ratio 2016 28,29
P/E ratio 2017 14,63
EV / Sales 2016 0,43x
EV / Sales 2017 0,40x
Capitalization 12 400 M
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Average target price 23,5 €
Spread / Average Target 7,3%
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Heinrich Hiesinger Chief Executive Officer
Ulrich Lehner Chairman-Supervisory Board
Guido Kerkhoff Chief Financial Officer
Martin Holz Chief Information Officer
Bernhard Pellens Independent Member-Supervisory Board
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