Morningstar | ThyssenKrupp Company Report June 2019
ThyssenKrupp is a diversified industrial company that generates approximately 55% of its sales in Europe. The company had been unprofitable because of the significant drag on earnings associated with its Steel Americas business unit. As we have been advocating for more consideration given to splitting the company into a steel business and a capital goods business, we are happy with sale of the CSA steel plant in Brazil, the full closure of Steel Americas, and the intended merger of Steel Europe with Tata Steel. While the current structure provides some earnings diversification and smooths volatility, we don't think it adds value from a shareholder perspective.ThyssenKrupp has partially mitigated the loss of its Steel Americas businesses by expanding its nonsteel operations. CEO Heinrich Hiesinger has a strong industrial background, and he supports a new emphasis on the technology and engineering businesses. The elevator segment is the most attractive business in the portfolio, with a solid competitive position as the second-largest global player. This segment has remained stable through the prevailing cyclical downturn of the global steel industry. The industrial solutions segment serves the cement, chemical, and mining sectors and represents an opportunity for the company to take advantage of trends toward environmental protection and sustainable development. The components operations provide a broad range of components for the automotive sector.The firm's balance sheet supports a rather sizable debt burden. In our view, this is too high, and debt reduction should remain a top priority for management. Capital expenditures have moderated, however, and we expect the company to reduce its leverage via additional divestitures as management aims to optimize its asset portfolio. The pension plan was unfunded by EUR 5.3 billion at the end of December 2017, and the firm's current market capitalization is just over EUR 12 billion, so the share price is sensitive to nonoperational drivers like interest rates and equity market returns.ThyssenKrupp is the parent company of the ThyssenKrupp Group. Co. has six business areas: Components Technology, which provides components for the automotive and machinery sectors; Elevator Technology, which supplies passenger and freight elevators, escalators and moving walks, passenger boarding bridges, stair and platform lifts; Industrial Solutions, which comprises the System Engineering and Marine Systems units; Materials Services, which focuses on materials distribution and technical services; Steel Europe, which develops, produces and markets flat carbon steel in the European market; and Steel Americas, which produces, processes and markets steel products in North and South America.
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