Thyssenkrupp has announced a significant write-down of €1 billion ($1.06 billion) on its steel division, attributing this decision to a bleak outlook for the sector marked by weak demand and increasing competition from Asia. This impairment, the second consecutive one in as many years, has resulted in an annual net loss of €1.5 billion for the German conglomerate.
Despite the loss, Thyssenkrupp’s shares surged by up to 10% as analysts suggested that the writedown could facilitate the sale of a stake in the struggling steel business while noting an unexpected positive cash flow at the group level. Thyssenkrupp Steel Europe (TKSE) is now valued at €2.4 billion, less than half its worth from two years ago, as the outlook for Europe’s largest economy continues to worsen.
The latest impairment comes as Thyssenkrupp seeks to engage Czech billionaire Daniel Kretinsky, who currently owns 20% of TKSE, with hopes he will increase his stake to 50%. Like many of its German industrial counterparts, Thyssenkrupp faces challenges from a slowing global economy, rising competition from China, and high operational costs, prompting the company to explore new ownership options for both its steel and warship divisions.
Steelmaking, an energy-intensive industry, has long struggled with soaring power costs and competition from cheaper Asian producers, necessitating substantial investments to reduce emissions and transition to renewable steel production methods. CEO Miguel Lopez indicated that the current fiscal year would be pivotal for strategic decisions regarding Steel Europe and Marine Systems.
Analysts at Citi believe the impairment is a step towards constructive negotiations with Kretinsky. Previous attempts to divest the steel business have floundered due to TKSE’s valuation and associated pension liabilities. Kretinsky, through his energy holding EPCG, may withdraw from negotiations if a 50:50 agreement is not reached, with discussions contingent on a new business plan for the steel unit currently in development.
Despite the substantial write-down, Thyssenkrupp reported an unexpected positive free cash flow of €110 million before mergers and acquisitions, largely due to pre-payments from customers in its Marine Systems division. Thyssenkrupp shares, down 41% year-to-date, saw a notable increase of 10.4%, marking the largest gain among German midcap stocks. Additionally, shares in Thyssenkrupp Nucera rose by 3.5% following a positive trading statement.