OREANDA-NEWS. December 05, 2013. Despite once again reporting a loss of EUR 1.5 billion, ThyssenKrupp AG made important progress on its way to becoming a diversified industrial group in fiscal 2012/13.

 The operating targets for the continuing operations with regard to efficiency enhancement, earnings and cash flow were achieved or exceeded. Net financial debt at the reporting date (September 30) was significantly reduced. At the same time ThyssenKrupp achieved a sustainable solution for the Steel Americas business area.

Sustainable solution for Steel Americas

The ThyssenKrupp Steel USA rolling and coating plant in Calvert/Alabama is being sold to a consortium of ArcelorMittal and Nippon Steel & Sumitomo Metal Corporation (the consortium). At the same a long-term slab supply contract has been agreed that will secure the value of ThyssenKrupp CSA in Brazil. Upon closing, ThyssenKrupp will receive a purchase price of 1.55 billion US dollars from the consortium.

In addition, the consortium will purchase two million tons of slabs per year from ThyssenKrupp CSA up to 2019. The plant in Brazil has an annual production capacity of around five million tons of slabs. The agreement now reached will reliably secure at least 40 percent capacity utilization of the plant for several years. In addition, stronger penetration of the slab markets in South and North America will further increase the plant's capacity utilization. The transaction is subject to the approval of regulatory authorities in the USA and a number of other countries.

Dr. Heinrich Hiesinger, Chief Executive of ThyssenKrupp AG, said: “We have found a sustainable solution for Steel Americas. The slab supply contract is a first important step in the decoupling of the two steel plants.” He continued: “The supply contract reduces our risks and creates the conditions to move CSA into profit in the medium term. This is the best available solution for Steel Americas at present. All other options were not financially viable.”

ThyssenKrupp will now concentrate on operating improvements at the Brazilian plant. Over the past fiscal year technical performance has been further optimized and plant efficiency improved. The combination of the sale of ThyssenKrupp Steel USA and the slab supply contract for ThyssenKrupp CSA in Brazil will help ThyssenKrupp improve its cash flow profile and key financials in the future.

Against this background the Steel Americas business area has been re-included in the Group as a continuing operation at the end of fiscal year 2012/13. Until the closing of the transaction, the North American portion will be reported separately as a disposal group. At the reporting date (September 30) the carrying value of Steel Americas was €3.1 billion, reflecting depreciation and amortization over the year, a revaluation in connection with the sale of the plant in the USA, and the re-inclusion of ThyssenKrupp CSA.

Settlement of financial receivable from Outokumpu - transfer of VDM and AST planned

From the sale of Inoxum ThyssenKrupp holds a 29.9 percent share in Outokumpu and a financial receivable which was written down to around €1 billion at September 30, 2013. In the context of the restructuring of Outokumpu's financing, ThyssenKrupp signed an agreement with Outokumpu on November 29, 2013 transferring 100 percent of the shares of VDM and AST as well as other smaller stainless steel service center activities to ThyssenKrupp. In return, the financial receivable created in connection with the Inoxum transaction will be transferred to Outokumpu.

In addition, ThyssenKrupp will fully divest its 29.9 percent shareholding in Outokumpu and terminate all other financial links with Outokumpu. In expectation of a capital increase at Outokumpu, the sale of the shares will probably result in a significant loss on our investment book value of 305 million euros. This will be offset by the elimination of balance sheet risks. Guido Kerkhoff will step down from the supervisory board of Outokumpu. The transfer will enable Outokumpu to fulfill the EU Commission's conditions for the Inoxum transaction in a way that preserves value. At the same time ThyssenKrupp is taking its responsibility to the employees seriously by creating the conditions for a sustainable refinancing of Outokumpu. The transaction is subject to the approval of the competent regulatory authorities and the cooperation and approval of shareholders, banks and creditors for the overall plan for a sustainable refinancing of Outokumpu. ThyssenKrupp will initially further develop the companies VDM and AST and take the necessary time to find a good solution.

Capital increase planned

The Executive Board has always stressed that a decision on capital measures can only be made when a solution has been found for Steel Americas and a better assessment can be made of the compliance risks. The Group had already reported in the past fiscal year that the German Federal Cartel Office had imposed a final fine on ThyssenKrupp in the rail cartel case and that the amnesty program at ThyssenKrupp had been completed. In this connection talks have been held with Deutsche Bahn for some time about compensation and a settlement. The negotiations are complete. ThyssenKrupp and Deutsche Bahn reached agreement in principle in mid-November. For both parties the settlement is subject to approval by the responsible bodies/funding providers.

The investigations by the Federal Cartel Office into possible price fixing in the delivery of certain steel products to the German automotive industry and its suppliers are still ongoing. The internal investigations launched in response to the investigations by the Federal Cartel Office are at an advanced stage but not yet completed. Based on the facts currently known to us, significant adverse consequences with regard to the Group's asset, financial and earnings situation cannot be ruled out.

As clarity has now been achieved for Steel Americas and the Group can better assess the compliance risks, ThyssenKrupp is planning a capital increase, the timing of which will be decided depending on capital market conditions. The Executive Board is convinced that a capital increase excluding subscription rights of up to 10 percent will achieve an appropriate balance between shareholder interests and the requirements of other strategically important stakeholders.

Special audit completed

The report on the voluntary special audit provides confirmation that ThyssenKrupp is moving in the right direction in the area of compliance. Taking into account the dynamic change process at ThyssenKrupp, the special auditors conclude that the systems and processes examined have been intensively enhanced, and the concepts and planned measures are constructive. Overall the auditors find the compliance function at ThyssenKrupp to be professionally organized and appropriately staffed. The auditors submitted proposals for further improvement which have already been taken into account or will be included in the further development of the compliance organization. As agreed, we will publish the full report with the convening of the Annual General Meeting.