"thyssenkrupp will emerge smaller but stronger from the transformation"
Martina Merz, Oliver Burkhard and Dr. Klaus Keysberg talk about the thyssenkrupp strategy update
Ms. Merz, you and your two Executive Board colleagues have presented the adjusted strategy for thyssenkrupp. What is the central idea behind it?
Martina Merz: Very simple we have to earn money again. To do this, we will focus the portfolio on those businesses where we see the greatest development potential within thyssenkrupp. For those businesses we focus on a sustainable competitive position. We are convinced that, in the medium term, we can raise profitability at least to the level of our leading competitors. Therefore, thyssenkrupp will emerge smaller but stronger from the transformation.
Which criteria did you apply in deciding which businesses
thyssenkrupp will be involved in in the future and with which businesses we will look for other development opportunities?
Martina Merz: In recent months, we have left no stone unturned in very carefully examining the situation of the individual businesses. We have concentrated on the future prospects from the businesses' perspective. On the one hand, market attractiveness was a decisive factor, i.e. market size, market growth and market profitability. On the other hand, we looked at the future value creation potential for thyssenkrupp. Key factors in this are growth potential, market position, our capabilities and competencies as well as profitability compared with competitors. Based on this analysis we made our decisions, which we are now consistently implementing.
What businesses do you see under the thyssenkrupp umbrella in the future?
Martina Merz: At Materials Services, Bearings and Forged Technology, we continue to see good development opportunities based on our own market position and competitive strength. In any case we can develop these businesses on our own within the company. We will also keep Automotive Technology within the group – but here we can also imagine strengthening our position on a selective basis through alliances and development partnerships. Given the specific market situation of Steel Europe and Marine Systems, we will pursue not only performance improvement measures which we will implement in any case. We will also sound out potential partnerships and consolidation options in parallel.
That's not all. For which businesses do you see better development opportunities outside thyssenkrupp?
Martina Merz: Our portfolio analysis has shown that there are businesses in the group which we at thyssenkrupp cannot develop sustainably on our own for various and specific reasons. This may be based on the business models, the relative market position, expected market developments, missing value levers or value levers too capitalintensive for us. We believe that many of these businesses can develop better in a new ownership constellation. We further distinguish between two groups. For Plant Technology, our stainless steel plant in Terni, Italy, Powertrain Solutions, and Springs and Stabilizers, we will intensify our efforts to secure the future viability of the businesses either through partnerships or by selling them to a best and fair owner. For the other group, the options from today's perspective are more likely to be a sale or even the closure of sites. This applies to the Heavy Plate, Infrastructure Battery Solutions businesses.
What will happen to the businesses that thyssenkrupp intends to divest? How big are they in total? And what is the timetable?
Martina Merz: Employing a total of some 20,000 people, these businesses account for annual sales of around €6 billion. In the previous fiscal year, which was still good in terms of the general conditions, we recorded a negative business cash flow of around €400 million. We will combine these units in a new segment called "MultiTracks". The name is intended to show that we see different development routes there. We are examining the options carefully and thoroughly. We can't commit ourselves to a specific time frame – of course, that also depends on the market environment, which is currently very strongly influenced by Corona. In any case, there will be no "fire sales". In the meantime, we are continuing to push performance measures.
Performance improvements are a central point of the strategy. The topic is not new. What is different this time?
Klaus Keysberg: Take a look at the steps we have taken in recent weeks. In addition to selling Elevator and kicking off the new Steel strategy, we have already significantly downsized the headquarters and initiated major restructuring measures, for example at System Engineering and Springs and Stabilizers. This shows that we are serious. We will continue on this path. We are reorganizing our planning processes. For us, this is all about enabling the businesses on their way forward and tackling the implementation together. We have set individual ambition levels for each business, based on the best competitors in the industry. And we have agreed detailed action plans with the management of the businesses on how to achieve this level of ambition. The management teams bear full profit responsibility. There will be no more excuses in the future. Our common goal is to return to a positive cash flow. All businesses must earn at least their cost of capital.
For several months you have been talking about thyssenkrupp as a group of companies. What does that mean in concrete terms?
Oliver Burkhard: thyssenkrupp will become a group of companies with performant, independent businesses and a strong umbrella brand. With the restructuring of the portfolio and the increased focus on performance, the organization will also be developed gradually. Our goal is to give the businesses all the freedom they need to focus on their customers and their markets in the best possible way. To this end, we are also adapting our leadership model. This means: In the future, the headquarters will be responsible first and foremost for portfolio and investment decisions. However, governance will also play an important role – just think about compliance for example. And we will continue to leverage synergies where they have already been established and where they make sense for the businesses. Last but not least, we must work together to ensure that thyssenkrupp remains an attractive employer brand.
thyssenkrupp will become significantly smaller overall. Does that mean that the headquarters will also be further reduced in size?
Oliver Burkhard: The structure we are currently establishing at the headquarters was based on the assumption that Elevator Technology would remain in the company at least partly after an IPO. We will complete the implementation of this "Org 1.0" for the time being. In the future, headquarters is to reflect the structure and size of the Group of Companies. We will soon start an "Org 2.0" project which will reflect this. The size of the company and the size of the headquarters as well as the service units are communicating vessels in this regard.
What are we going to do with the proceeds from the Elevator sale?
Klaus Keysberg: In view of the current uncertain overall economic situation, we will first retain the maximum possible flexibility. In a first step, we will use the proceeds to repay financial debt. The Elevator transaction will substantially improve our equity ratio. As a result, fundamental structural changes will also be possible. In addition, we intend to use part of the proceeds selectively for the development of businesses where corresponding target margins can be achieved. The exact allocation of the use of funds depends on the further course of the Corona crisis, which cannot be estimated with sufficient certainty at the moment.
When will the reorganization of thyssenkrupp be completed?
Martina Merz: Independent of Corona, we had planned to complete the reorganization in the next 23 years. Restructuring generally takes this long before it takes effect. With Corona and the impact it has on our economic situation it is crucial for us to speed up. We have to push the pace.
Overall, these are drastic changes. We are aware of this. Last week, we published the halfyear figures, which more than clearly showed how difficult and serious the company's situation is. For this reason, we cannot avoid taking steps that will significantly change thyssenkrupp. Such changes are always challenging and admitting that you are not the best owner for some businesses does certainly not make you happy. But from my experience I know that corporate responsibility for the whole sometimes makes such steps necessary. We will do everything we can to implement the forthcoming changes in a socially responsible manner. When selling businesses, we will make sure that there is a perspective. But it is also important to remember: We cannot afford not to do these things. For the future of thyssenkrupp it is now essential that we implement the changes presented.