Thyssenkrupp won’t be rushed into Tata Steel merger: CFO
QUARTERLY OPERATING PROFIT AT STEEL EUROPE — THE BUSINESS THAT WOULD MERGE WITH TATA — MORE THAN DOUBLED TO €232 MN, WELL ABOVE THE POLL AVERAGE OF 187 MN
Thyssenkrupp AG will not be rushed into any deal with Tata Steel Ltd to merge their European steel businesses, its chief financial officer said, pouring cold water on investor hopes for a quick agreement.
The German steel-to-elevators group is facing pressure from investors to deliver on the tie-up, after talks have been going on for over a year.
They have been held up mainly by the question of who will assume responsibility for Tata Steel’s legacy £15 billion ($19 billion) pension scheme in Britain.
Britain’s Sky News reported on Wednesday that Tata Steel was on the brink of detaching its British Steel pension fund from its UK operations, a precondition for any merger deal with Thyssenkrupp.
“Just because you might read at some point that Tata has a deal it doesn’t mean we can stand up a week later and say: ‘Now we have a joint venture.’ It cannot work that way,” Thyssenkrupp CFO Guido Kerkhoff told journalists on Thursday.
“We also prefer a fast solution but quality comes before time,” he said, declining to say whether the group aimed for a deal before its fiscal year ends next month.
Shares in the group were up 0.2%, one of only five gainers in Germany’s blue-chip index, after it posted better-than-expected third-quarter results, boosted by a recent recovery of steel prices.
Third-quarter order intake rose 14% to €10.7 billion ($12.6 billion) and adjusted earnings before interest and tax (EBIT) jumped 41% to €620 million. Analysts had, on average, expected order intake of €10.3 billion and adjusted EBIT of €493 million.
Quarterly operating profit at Steel Europe—the business that would merge with Tata—more than doubled to €232 million, well above the poll average of 187 million. At Industrial Solutions, it fell sharply to €6 million, below the 18 million average poll.
Kerkhoff said earnings at Industrial Solutions, which engineers industrial plants and builds ships, would remain under pressure due to low-margin legacy orders and underutilized chemical plants.
“Industrial Solutions remains the problem child,” Jefferies analyst Seth Rosenfeld said in a note.
Thyssenkrupp kept its fullyear outlook for sales and profits but toned down its forecast for free cash flow before M&A, citing the sale of its Brazilian steel mill CSA, which will close earlier than expected.
The group now expects free cash flow before M&A to be negative in the mid to higher tripledigit million euro range, against a previous forecast for negative in mid triple-digit million euros.