The sharp downturn in the environment for the materials businesses impacted thyssenkrupp’s 1H16 results. The capital goods businesses continued to perform solidly and recorded increases in order intake, sales and earnings, but the overall performance of the Group continues to be overshadowed by the extremely difficult conditions in the materials markets. High import pressure and customer caution are reflected in the sharp drop in material prices in 1H16 in the order intake, sales and above all earnings of the materials businesses. Against this background thyssenkrupp is lowering its forecast for the full fiscal year.Material prices remained under pressure well into 2Q16 and thus longer than expected. The price falls were also sharper than anticipated. This resulted in substantial windfall losses in 2Q16 as well. “Our half-year results still reflect the very weak situation on the materials markets. While we are now seeing a recovery in material prices, it is coming later than we originally expected and from a lower level and will also be reflected in our figures with a time lag,” says thyssenkrupp CEO Dr. Heinrich Hiesinger.
In view of this situation, the Executive Board now expects the Group to achieve full-year adjusted EBIT of at least €1.4 billion. The efficiency program ‘impact’ will contribute €850 million to this. The capital goods businesses will further improve their operating earnings versus 1H16. Due to the price recovery and cost-reduction measures, the materials businesses will achieve significant improvements in the second half of the fiscal year – provided the Brazilian real remains largely stable. Full-year net income is expected to come in at the prior-year level. Depending on payment timing on major orders free cash flow before M&A will lie between a low 3-digit million euro negative and breakeven.
The Group’s order intake decreased in 1H16 by 8% to €18.8 billion and in 2Q16 by 13% to €9.0 billion (prior year €20.5 billion and €10.4 billion respectively). On a comparable basis, i.e. excluding currency and portfolio effects, order intake fell by 7% and 10% respectively. Saleswere down by 8% in 1H16 to €19.4 billion and in 2Q16 by 10% to €9.9 billion (prior year €21.0 billion and €11.0 billion respectively). On a comparable basis sales declined by 7% and 8% respectively. The decline in orders and sales is due partly to lower volumes but mainly to the sharp price falls at the materials businesses.
In the capital goods businesses Components Technology profited among other things from growth in car components in China, Europe and the USA. Elevator Technologies reported strong demand for new installations in the USA, China and South Korea among other countries. Industrial Solutions profited from a major order for a cement plant in Saudi Arabia.
Adjusted EBIT was down in 1H16 by €162 million at €560 million (prior year €722 million) and in 2Q16 by €80 million at €326 million (prior year €405 million). All capital goods businesses generated higher earnings both on a cumulative basis in 1H and also in 2Q. However, this positive performance was not enough to fully offset the weakness of the material businesses in the reporting period.
Overall the thyssenkrupp Group therefore made a small net loss of €9 million in 1H16 (prior year €88 million net income). After deduction of non-controlling interest, net income was €37 million (prior year €98 million net income). Earnings per share came to €0.07 (prior year €0.17). In 2Q16 the Group generated net income of €45 million, level with the prior-year period.
1H free cash flow before M&A at €(1212) million was as expected down from the prior year, mainly due to a temporary increase in net working capital. Here too, 2Q16 (€(365) million) was better than 1Q16 (€(847) million). Accordingly net financial debt increased to €4.8 billion in 1H. Compared with September 30, 2015 total equity was down to €2.8 billion. This was mainly due to the revaluation of pensions as a result of lower interest rates.
As a consequence the Group’s gearing has risen temporarily to around 175%. By the end of the fiscal year thyssenkrupp expects a significant improvement in gearing to below 150%. This temporary increase in 1H16 has no impact on the financing of the Group.
Adapted from press release by Rebecca Bowden
Read the article online at: https://www.worldcement.com/europe-cis/11052016/thyssenkrupp-1h16-results-80/
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