Dusseldorf If Thyssen-Krupp boss Martina Merz steps in front of the general meeting in Bochum on Friday, the shareholders should give her a rather cool reception. The CEO did not take up her post until the end of the past 2018/19 financial year (September 30). However, as a former chief controller, she shares responsibility for the disastrous annual balance sheet. At least that’s how some investors see it.
The bottom line is a net loss of 260 million euros. The stock price has dropped by more than a quarter since the last general meeting. In view of the tense situation, the Management Board recommends that the dividend be waived. This also threatens for the current financial year, for which the group expects even higher losses.
Merz is not a person who blows slogans into the world. She is a realist with a penchant for rehabilitating difficult cases. She demonstrated her ability to do this at her former employer Bosch, where she was seen as a manager for the problem areas for her superiors.
Merz will not be able to present a solution to the problems to Thyssen-Krupp investors on Friday. The situation at the Ruhr group was far too complex to be cleared up with a liberation, said a manager. Merz wants to proceed step by step. Thyssen-Krupp is to be renovated in stages.
What the conglomerate should look like depends heavily on the planned split off of the elevator division. The offer period for interested competitors, including the Finnish Kone, ended on Monday. With proceeds of 15 or more billion euros, Thyssen-Krupp could restructure its finances and still have money to invest in steel and other areas.
Even if Merz remains guilty of a long-term perspective, the conversion will continue: 6000 jobs are to be cut across the group, perhaps even more. Ultimately, almost all businesses are put to the test. Large parts of plant engineering and component manufacturing, like the elevator division, are about to be sold.
The CEO has the backing of her two largest shareholders, the Krupp Foundation and the financial investor Cevian. Now she has to convince the other partners of the Ruhr group of the plans. However, well-known shareholders position themselves against the Management Board and the Supervisory Board in the run-up to the Annual General Meeting.
For example, corporate governance expert Christian Strenger proposed that Merz himself, Ursula Gather, head of the Krupp Foundation, and Jens Tischendorf, Cevian representative, should not be exonerated for their work on the Supervisory Board. Merz changed to the chairmanship of the executive board in September after the board had terminated the contract with predecessor Guido Kerkhoff for a high million payment.
“The fact that the supervisory board proposes its own discharge in view of the catastrophic balance sheet shows a lack of self-reflection,” Strenger told the Handelsblatt. This is reflected in the remuneration: “The fact that Kerkhoff will be paid with severance pay of six million euros after less than a year of work is out of proportion to the situation of the company.”
It is a hard testimony that the former head of the supervisory board of the fund company DWS issued to the management of the Ruhr group. He demands that the executive board remuneration at Thyssen-Krupp be reduced.
Thyssen-Krupp burns money
However, given the challenges Thyssen-Krupp faces, even a complete waiver of wages would only be symbolic in nature. For years, the industrial group has been struggling with a mountain of debt worth billions that previous bad investments had taken into the balance sheet. At the same time, businesses are suffering from the industrial downturn. Thyssen-Krupp is currently burning scarce money in many places.
The group lost 194 million euros in plant construction, another 123 million euros in the steel business. The cost at the headquarters is 369 million euros. This contrasts with income from component production (105 million euros) and materials trading (66 million euros) – but above all from the elevator business, which achieved a profit of 791 million euros.
However, the company intends to separate precisely from this business area in the next few months. With the sale, CEO Merz could solve Thyssen-Krupp’s financial problems in one fell swoop. It is also conceivable that the group will bring the business to the stock exchange – and as a majority shareholder will have long-term access to a large part of the profits. However, there is unanimity within the board of directors to sell the division. “Get some money in and solve the problems in the rest of the group,” said a senior executive.
The bidding process for the sale, in which a handful of financial investors, the rival Kone, is participating, is still ongoing. The Finnish elevator manufacturer is said to be of the greatest interest – also because a merger with Thyssen-Krupp Elevator could potentially generate a three-digit million amount of synergies.
Carsten Riek, an analyst at Credit Suisse, still sees an IPO as the most likely option. “On the one hand, important players have already campaigned for such a solution with the Krupp Foundation and the unions,” he told the Handelsblatt. “Together they make up the majority on the supervisory board, which ultimately decides.”
On the other hand, the goal of restructuring the Ruhr Group on the balance sheet can also be achieved without a complete sale. “According to our calculations, Thyssen-Krupp will face short-term charges of EUR 4.3 billion if the loss-making businesses in the plant engineering and automotive sectors cannot be sold and have to be closed,” he said.
This includes a forecast capital outflow of 1.2 billion euros in the coming year as well as the necessary depreciation and personnel costs in the event of a closure – provided the management tackles the problems quickly and the unions pull along. If the company finds a buyer, the amount is even lower.