ThyssenKrupp’s obit on its steel operations

ThyssenKrupp’s “Strategic Way Forward” intiative to remake the company into an technology/industrial company sans steel is well along. In at letter to shareholders today, Dr. Heinrich Hiesinger, the company’s CEO, addressed its exit from the steel industry.

“Alongside these investments in the future there were two business decisions in the past fiscal year I would like to look at again in more detail. In February we reached agreement with Ternium on the sale of the Brazilian steel mill CSA. With the closing in September 2017 we not only brought the loss-making chapter of “Steel Americas” to an end but also offered the business and its employees the key to a sustainable future. At the same time we reduced future risks for Thyssenkrupp as a whole and opened important options for our European steel business. Conditions for our materials businesses continue to be challenging. Demand for steel in Europe is lacking momentum, while supply is characterized by structural overcapacities that lead to underutilization in parts of the value chain. Upcoming regulatory decisions carry additional risks. To date there has been no change to this situation.

Only with substantial consolidation in the European steel industry will we succeed in addressing these structural problems. That is why in September 2017 we signed a memorandum of understanding with Tata Steel to combine our European steel activities in a 50/50 joint venture. A joint venture with Tata is the best strategic option for Thyssenkrupp. For you as shareholders, because it will create substantial added value through synergies and offer further value growth potential. For employees, because we are creating a strong new number two in Europe, which will finally provide clarity and safeguard tens of thousands of jobs over the long term. For the steel business, because it will address the structural problems and, despite necessary cutbacks, offer the business a sustainable future. And for Thyssenkrupp as a whole, because it will further reduce our dependency on the volatile steel business.

We still have some way to go before the start of the joint venture: In parallel with an intensive due diligence process, we have to agree the details of our future collaboration. For this we entered into talks with the employee representatives immediately after signing the memorandum of understanding. It is part of our tradition and our understanding of our role as a responsible employer to work towards good solutions with the employees.

We aim to sign an agreement with Tata in early 2018. With the approval of the regulatory authorities, the transaction is to be closed at the end of 2018. From this time the steel business would no longer be included on our balance sheet. This would result in a significant improvement to key balance sheet ratios for Thyssenkrupp, particularly our equity ratio and gearing, the ratio of net financial debt to equity. So with the planned joint venture we are not only shaping the future of steel but also improving the outlook for our capital goods businesses. “

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