Thyssenkrupp publishes half-year report 2018/2019
by David Fleschen
Following the planned steel joint venture not going ahead and the announcement of a fundamental strategic realignment of the Group, thyssenkrupp AG today published its interim report for the 1st half of 2018/2019.
The following information regarding the half-year report relates to the Group as a whole, i.e. including the steel activities reported as "discontinued" in the report. The report as "continuing operations" will only be made with the 9-month financial statements. Only then the previously suspended scheduled depreciation on the steel business at Group level will be reflected, which will have a negative impact on both the previous year's result and the result in the first half of 2018/2019.
The resulting effects on the annual targets for the current fiscal year have already been taken into account in the forecast adjusted on May 10, 2019. In addition to the economic slowdown, especially in the automotive sector, this forecast takes into account all effects resulting from the reintegration of the Steel business and the expected expenses for the implementation of the strategic realignment in the current fiscal year.
Overview of key figures for the 1st half of 2018/2019
- Sales increased by 2 percent to € 20.4 billion.
In terms of sales, all businesses except Materials Services and Steel Europe contributed to the increase in the 1st half. The main growth driver was the elevator business in the USA and Europe.
- Order intake improved by 4 percent to €20.5 billion.
Elevator Technology again achieved record orders of €4.1 billion resulting from several major projects. Plant construction was able to book orders primarily in chemical plant construction and mining, while Components Technology recorded growth primarily in industrial components. The Marine business was slightly below the prior-year level, Materials Services at the prior-year level and Steel Europe above the prior-year level.
- Adjusted EBIT fell from €943 million to €685 million.
The economic downturn had a particularly negative impact on the operating results of Components Technology. Earnings at Elevator Technology were lower than previous year due to higher material costs. Industrial Solutions recorded lower margins on projects that are currently being implemented. Marine Systems remained stable at break-even, while Materials Services was unable to maintain its prior-year earnings level, mainly due to declining prices. In the steel sector, the historic low tide of the river Rhine, lower demand from the automotive industry and the new collective agreement had a negative impact on earnings.
- Net income for the period amounted to € 59 million (previous year € 343 million).
In addition to the operating performance, an increase in the provision formed at the end of the last financial year for risks from cartel proceedings to the amount of the expected fine of slightly more than € 100 million had an impact there. After deduction of minority interests, net income amounted to € 36 million (previous year € 320 million); earnings per share amounted to € 0.06 (previous year € 0.51).
- Free cash flow before M&A was clearly negative at € -2.5 billion (previous year € -1.4 billion).
The main reason for the cash outflow was a seasonal increase in net working capital in the 1st quarter, particularly at Materials Services and Steel Europe. In the 2nd quarter, thyssenkrupp generated a positive cash inflow of €23 million, significantly higher than the previous quarter (€-2.5 billion).
Forecast financial year 2018/2019
- The Group anticipates an adjusted EBIT of € 1.1 to 1.2 billion. The comparable prior-year figure was €1.4 billion.
- Free cash flow before M&A is expected to remain overall at a negative high level 3-digit million euro range (previous year: -134 million €). This will reflect the effects of the economic slowdown, the impact on net working capital of the materials businesses and the increased net working capital in the components businesses due to the ramp-up of the new plants. The development will also depend on the order intake and payment profiles of individual major projects at Marine Systems. An additional burden could result from the payment of the expected cartel fine.
- thyssenkrupp expects the net income to be negative. This includes restructuring expenses for future performance improvements, the provision for the near-term, final and mutually agreed conclusion of the cartel proceedings for heavy plate with the Federal Cartel Office (Bundeskartellamt) as well as expenses for the preparation of the IPO of the elevator business.
Source and Photo: Thyssenkrupp