TKAMY Thyssenkrupp AG (PK)

By Christopher Alessi 

ESSEN, Germany-- Thyssenkrupp said Thursday its full-year net profit fell as the German industrial conglomerate battled a continuing malaise in the steel industry.

Net profit for the fiscal year ended Sept. 30 fell 4% to EUR296 million ($312.2 million), compared with EUR309 million a year earlier, falling short of analysts' forecasts of EUR364 million in a poll by The Wall Street Journal.

Thyssenkrupp's lackluster results come as the industry has been squeezed by a protracted steel-capacity glut and inexpensive steel imports from countries like China. European steelmakers, including Thyssenkrupp, have been actively exploring merger and acquisition opportunities with other industry players to cope with the weak market conditions.

Chief Executive Heinrich Hiesinger said Thursday that volatility in the materials markets meant the company needed to forge ahead with efforts to reshape its portfolio around its more consistently profitable capital goods businesses.

"The difficult environment verifies the path taken," said Mr. Hiesinger, who has presided over a comprehensive restructuring of the company since taking over in 2011.

The company's shares opened 2.9% lower following the results.

Annual sales fell 8%, to EUR39.29 billion, while orders dropped 9% to EUR37.42 billion, mainly because of high import and price pressure on its materials businesses. Those businesses include the company's steel operations and its materials services business, which sells products such as stainless steel and alloys.

The company's closely watched adjusted earnings before interest and taxes for the full year fell 12% to EUR1.5 billion, weighed down by lower profitability at its European steel, materials services and industrial solutions businesses.

Steel Europe reported a 36% fall in annual adjusted EBIT to EUR315 million, reflecting declining European spot market prices through the first half of the fiscal year and increased competition.

Thyssenkrupp in July confirmed it was in talks with Tata Steel Ltd. of India and other steel groups over a potential tie-up. The announcement came amid expected continued consolidation in the European steel industry.

Mr. Hiesinger on Thursday said Tata would need to find a solution to its growing pension fund deficit in the U.K. before any deal could be agreed, but that conversations between the companies were ongoing. Tata is also in the midst of a leadership shake-up that has divided the sprawling enterprise in recent weeks.

"For us it makes absolute sense for steel consolidation in Europe to take place, but we don't know when, whether and with whom this will happen," Mr. Hiesinger said.

Luxembourg-based steel titan ArcelorMittal SA said earlier this year it was teaming up with Italy's privately owned Marcegaglia SpA to take over the ailing Ilva steel plant in Taranto, Italy, Europe's largest single steel plant and a producer of flat-steel products.

Thyssenkrupp's steel operations in the Americas again posted a loss, despite an improved operational performance due to efficiency measures. The Wall Street Journal reported late last month that Thyssenkrupp was in talks with Ternium SA to sell its steel plant in Brazil, the last asset of the company's unsuccessful venture in the Americas.

Mr. Hiesinger on Thursday declined to comment on any M&A plans for the Brazilian plant.

The industrial solutions unit, which builds a range of products from chemical plants to military submarines and ships, reported an adjusted EBIT loss of 16%, to EUR355 million, as a result of weaker markets for chemicals plants and mining equipment and a dearth of ship building contracts.

The company's capital goods businesses--including the high margin elevator division and a unit that produces high-tech components for the auto industry--were the only areas to post substantive earnings growth.

For fiscal year 2017, Thyssenkrupp said it expects adjusted EBIT to increase to around EUR1.7 billion, compared with EUR1.5 billion in fiscal 2016, reflecting improved market conditions and ongoing efficiency measures. The company also expects a "clear improvement" in net profit and a "slightly positive" free cash flow before mergers and acquisitions for fiscal 2017.

Free cash flow before M&A for fiscal 2016 was EUR198 million, compared with EUR115 million the year before.

Thyssenkrupp said it would propose an unchanged dividend of EUR0.15 a share for fiscal 2016.

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

November 24, 2016 06:43 ET (11:43 GMT)

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