ThyssenKrupp’s turnaround faces headwinds

The German group’s new management is trying hard to shed its legacy of ill-fated investments, a dysfunctional culture and corporate scandals. Its turnaround is on track, but far from finished. And the bleak economy doesn’t help.

The quarterly results released by ThyssenKrupp on Tuesday would look mediocre for most companies. Measured by the low standards of the embattled German group, they don’t look that bad. More importantly, the management’s turnaround plan is beginning to produce results, even though the bleak economy isn’t helping.

Sales from continuing operations were down 8 percent and adjusted earnings before interest and tax plunged 38 percent. However, the company’s core businesses remained profitable. Orders were stable, earning targets were met, and debt is shrinking. While the restructuring at ThyssenKrupp is far from over, the odds on it succeeding are increasing.

Germany’s oldest industrial conglomerate was plagued for more than a decade by blatant mismanagement. It lost about 9 billion euros on ill-fated investments in the Americas, got involved in illegal price-fixing activities and was shaken by a string of corporate scandals.

Two external managers were hired in 2011 to sort out the mess. Chief Executive Heinrich Hiesinger and Chief Financial Officer Guido Kerkhoff have so far delivered. They sold ThyssenKrupp’s loss-making stainless steel business, and are ending the unfortunate foray into the Americas. Once the sale of the division is concluded, the highly cyclical steel production activities will only make up 30 percent of ThyssenKrupp’s business. More profitable units like elevators, plant construction and automotive components will take precedence.

Hiesinger and Kerkhoff won a power tussle within the executive board at the end of last year. Since then, ThyssenKrupp’s byzantine managerial structure has been streamlined. A cost-cutting programme involving 2,000 job losses at its German steel unit aims at boosting profit by 2 billion euros within the next three years. The company will also be strengthened by the long overdue decision to stop paying a dividend while piling up billions of euros in losses.

Big risks remain. The sale of the American steel business can still founder. Compensation claims related to a rail track cartel could be even costlier than the 103 million euros of fines already paid. It will be a while before ThyssenKrupp can announce genuinely good news.

This article was initially  published as a Reuters Breakingviews comment on 12 February 2013.

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