CEO Merz has to answer these shareholder questions

Düsseldorf On Friday, the Executive Board of Thyssen-Krupps and chairwoman Martina Merz took stock of the past year at the digital general meeting. It was a time of profound change for the industrial group: With the separation from the profitable elevator business, a turning point began in Essen.

The industrial conglomerate with its numerous divisions is to become a lean group of companies, under whose roof the subsidiaries enjoy the greatest possible independence.

From now on, the usual cross-financing, in which the profitable businesses compensate for the losses in other areas, should come to an end. This raises a number of questions for investors – starting with the future of the highly cyclical steel division, which slipped heavily into the red during the corona crisis.

Talks are currently being held with British competitor Liberty Steel, which has expressed interest in a complete takeover. There are still disagreements, for example about the purchase price.

But in addition to steel, the plant construction division and marine shipbuilding are also up for grabs – while the turnaround has already been achieved in other areas. So what’s next for the Ruhr concern? The most important topics at a glance:

Steel mill in Duisburg

The CEO wants to decide in March how the steel division will continue.

(Foto: Bloomberg)

1. Will be Thyssen-Krupp withdraw from steel production?

It is the topic that gives investors the greatest headache: What will happen to the steel business after the highly profitable elevator division has been sold for around 17.2 billion euros? In the past, the stable yields were often used to compensate for the cyclical lulls in steel production. Now it is over.

Ingo Speich, Head of Sustainability and Corporate Investment at the Deka fund company, doubts that steel should be continued in the group. “The management has not been able to convince here so far,” said the fund manager. In a European comparison with other manufacturers, Thyssen-Krupp Steel is worst positioned operationally. The question arises: “Can Thyssen-Krupp even use steel?”

One who definitely trusts himself in the business is the Indo-British steel entrepreneur Sanjeev Gupta, who has already submitted an offer to buy the division with his company Liberty Steel. Thyssen-Krupp boss Martina Merz is still exploring the options available, including remaining in the group. The decision should not be made until next month. There is still a need for clarification with the Liberty offer “on a number of complex issues,” Merz informed the shareholders in their previously published speech.

Federal Minister of Economics Altmaier visits steelworks

In Duisburg, Thyssen-Krupp wants to convert its steel production to hydrogen. The project is publicly funded.

(Photo: dpa)

2. What strategy is Thyssen-Krupp pursuing when it comes to hydrogen?

For hardly any other German industrial group, the subject of hydrogen holds such high hopes as it does for Thyssen-Krupp. This applies to steel production, where the climate-neutral energy source is to replace coal in the future. But it also applies to the plant construction division, where Thyssen-Krupp is represented with the production of plants for hydrogen generation.

In the past few months, the latter in particular has become the growth hope for Essen: The plant engineering department was still completely up for sale at the start of the group restructuring, but Thyssen-Krupp now wants to develop at least the chemical plant engineering division, either alone or with partners. “We are currently investigating growth options and possible business models,” said Merz in her speech.

Henrik Pontzen, Head of Sustainability and ESG at the fund company Union Investment, also sees the hydrogen economy as “a historic opportunity to reinvent itself”. The business requires high investments, but these would pay off, according to the fund manager. But he asks himself to what extent Thyssen-Krupp will invest in the area over the next few years: “And where should the funds come from?”

CEO Merz and Chairman of the Supervisory Board Russwurm

In view of the progress made in restructuring, the Supervisory Board granted the Management Board a special bonus – despite poor economic performance.

(Photo: dpa)

3. Was the special payment to the board justified?

For Thyssen-Krupp, the 2019/20 financial year ended with a historically good result in September: the bottom line was that the Ruhr group achieved a net profit of 9.6 billion euros. Admittedly, this record result includes the proceeds from the sale of the elevator division in the amount of 17.2 billion euros. However, the Ruhr group can now be considered to have been reorganized on the balance sheet. CEO Merz has thus achieved the first and perhaps most important of her interim goals on the way to restructuring.

For the Supervisory Board, this achievement was worth an unscheduled special payment of 500,000 euros for Merz and 200,000 euros each for their fellow board members. This is causing criticism from shareholders – also against the background that the savings program for the workforce is being tightened further. “Don’t you see any contradiction between what the workforce is expected to do and the special payments to the board of directors?” Asks Deka fund manager Speich.

For Marc Tüngler, managing director of the German Association for the Protection of Securities (DSW), the special payment is so heavy that he wants to refuse to discharge the supervisory board at the general meeting. “That paints a picture of the thinking in the supervisory board that we are of the opinion: We have to show the red card,” said the shareholder advocate recently in the podcast of the “Westdeutsche Allgemeine Zeitung” (“WAZ”).

4. What happens to the marine division?

Not only the steel industry, but also the marine business is in a phase of consolidation. Thyssen-Krupp is active in both underwater and surface areas. The Marine Systems division is the last remaining pillar with which the Krupp Group, once world-famous as a cannon maker, is still represented in the armaments business.

The two major competitors in the surface area, Lürssen and German Naval Yards, only announced their planned merger last year. Thyssen-Krupp was left out. “What hurdles have to be overcome so that you can put the arms sector in other hands?” Asks Deka fund manager Speich. He demands an immediate sale of the division. “The reputational and compliance risk is disproportionate to the benefit.”

However, it is probably not a question of will. Because also CEO Merz wants to sell the area. In the manuscript of the speech, she explained that the group had the national and European landscape of the marine industry in view with regard to possible consolidation. “If a partnership opens up economic prospects for us and is politically promoted, Thyssen-Krupp will support it.”

Villa Huegel in Essen

The non-profit Krupp Foundation is financed solely from dividends from the Ruhr group.

(Photo: dpa)

5. When will Thyssen-Krupp pay a dividend again?

It is the crucial question for the largest shareholder in the group: the Krupp Foundation, which has a share of around 21 percent. The head of the board of trustees Ursula Gather had already stated in an interview in the summer that the foundation would only hold out the current funding volume for two years without dividends – after the distributions were homeopathic in previous years.

This year, the payment is even completely canceled – despite the record result. Investors are not grumbling too much about this, however – in contrast to the concern that the money could soon be used up again due to the high losses during ongoing operations.

“The billions are still melting like butter in the sun,” complains Union fund manager Pontzen. “Thyssen-Krupp must finally manage to stop this downward trend.” That would decide the fate of the once proud company. “If the turnaround does not succeed, it would be a heavy blow for the Ruhr area and for the shareholders.”

More: Thyssen-Krupp is arguing with interested party Liberty about the purchase price of the steel division.


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