Miraculous recovery helps to build global sales worth €39bn
Published 23/06/2014 | 02:30
ONE of the most intriguing business stories of the last century was the tale of the German 'economic miracle' of the early 1950s.
As the best historians of the period have argued, the investments of the Third Reich in communications, armaments, vehicle manufacture, chemicals and a host of other industries, that were undertaken for an economy geared for war, had their pay-off 20 years later.
Germany surged back into business, capitalising on the famed German efficiency and keeping costs low as young engineers, technicians and machine-minders fled East Germany and other workers from the Balkans and Turkey piled into West Germany to supply the cheap labour that made the German goods that the rest of the world craved. It was a 'miracle' that could never have been predicted amid the shattered infrastructure of 1945.
The company under analysis, Thyssen and Krupp, is one of the recovery's better examples. Today, the merged group Thyssen Krupp (TK) is one of the world's great producers of steel, truck and car parts, elevators, escalators, shipbuilding, machine tools, bearings and plastics. It has global sales of €39bn and employs 160,000 people in 80 countries around the world and history has taken a back seat. TK, however, has had its problems in recent years and its infallibility has been well and truly tested.
The two parts of the business have only been merged since 1997 and putting them together was an organisational task of some complexity. The group has a total of 630 subsidiaries and for simplicity is organised into six major businesses; Component Technology, Elevator Technology, Industrial Solutions, Steel Europe, Materials and Steel Americas.
Its Component Technology business produces parts for cars, trucks, construction equipment, wind turbines and other applications.
Last year demand was weak in Europe and trucks in the US. As a result sales were down a fifth to €5.7bn.
The Elevator business had a record year last year thanks to a strong performance in China, Turkey and North America. Europe again was flat. Sales had a healthy increase of 8pc to €16bn and earnings were positive at €600m up from €390m.
TK's Industrial Solutions business has a product portfolio that includes chemicals, refining construction, equipment for the cement industry, mining and shipbuilding. It operates globally with 42pc of sales in America, 30pc from Europe and 25pc from Asia. The business performed positively last year particularly chemical and cement plants, mining was slow and shipbuilding disappointing. On the bright side, sales of €5.6bn continued their upward trend with earnings at €660m significantly exceeding the previous year.
The Steel Europe business disappointed due to the surplus of supply. Sales to the automotive, engineering and electrical sectors declined, and were disappointing at €10bn, one-eighth lower than the previous year, earnings were also down sharply.
The company's Materials business specialises in the distribution of materials and technical services. It also has the largest revenue of the group at €12bn, the company has 500 offices/warehouses and trades in 34 countries. Business held up last year in spite of the weak business environment but its earnings were negative not helped by an EU fine for price fixing.
Performance in the Americas has been difficult for TK. There was the disastrous steel investment in the US and Brazil, a corruption scandal, a €3.5bn impairment charge and the departure of senior executives. As a result it discontinued and sold its Americas steel operation, closed a US foundry, and offloaded its stainless steel business to the Finnish company Outokumpu (which once owned Tara Mines).
As part of this 'meat axe' approach the company is targeting €2bn productivity savings and has reduced capital expenditure.
The company is valued at €12bn and is on a price-to-earnings-ratio of 15. Following the recent achievement of a profit in the first quarter for the first time since 2012, its share price has risen 50pc to €21. However, it is a long way from its €35 per share following its launch of its 'strategic plan' in three years ago and an even longer way to match its €45 prior to the 2008 crash. TK is a heavy industry conglomerate and consequently has a lot of moving parts so it needs a lot of watching and it could be worth it.
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy or sell any of the shares mentioned.