ThyssenKrupp raises forecasts as cost-cutting boosts profits

ThyssenKrupp raised its full-year operating profit outlook after cost-cutting in steel and strong elevator sales helped the German conglomerate deliver its highest operating profit in more than three years.

The €405m in quarterly adjusted operating profit, represented a jump of 32 per cent on the same quarter a year ago, and compared with a consensus analyst forecast of €379m.  

The Essen-based steel and technology group plans to achieve between €1.6bn and €1.7bn in adjusted earnings before interest and taxes in the fiscal year that concludes in September, compared with its previous target of €1.5bn.

ThyssenKrupp has sold assets, cut costs and overhauled corporate culture to repair the damage caused by failed steel plant investments in the Americas, which led to billions of euros in losses between 2010 and 2013.

"Our measures to improve efficiency are working and we are moving forward with the transformation of the group," Heinrich Hiesinger, chief executive, said in a statement.

Total revenues declined slightly to €11bn in the fiscal second quarter when adjusted for currency and portfolio effects, in part because of continued high pressure on prices in European steel. 

However, cost-cutting boosted operating profit at the European steel business to the highest level in 14 quarters.

ThyssenKrupp's elevator and automotive components business both achieved double-digit increases in quarterly orders but these were flattered somewhat by positive exchange rate effects linked to the weak euro.

ThyssenKrupp's balance sheet performance was less impressive, however. Pension obligations surged from €8bn to €8.65bn quarter-on-quarter due to the low interest rate environment. 

Net debt increased to €4.6bn and therefore the company's gearing - the proportion of its net debt to equity - jumped to 161.8 per cent at the end of March from 114.9 per cent at the end of the previous fiscal year in September. 

The company predicted a "significant improvement" in gearing by the end of the fiscal year, helped by divestments and an improvement in free cash flow.

In April ThyssenKrupp agreed to sell VDM, a struggling alloys business, to private equity group Lindsay Goldberg Vogel. It did not disclose a purchase price but said that closing the sale would reduce net debt and pension obligations by a mid-three digit million euro amount.

ThyssenKrupp's €45m in second quarter net profit compared with a profit of €270m in the same quarter a year ago. The decline partly reflected a €119m writedown on the VDM disposal.

Free cash flow also improved to -€55m in the three-month period and the company continues to target a return to break-even free cash flow by year-end. 

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