Record Loss for Embattled ThyssenKrupp

FRANKFURT — The German steelmaker ThyssenKrupp, battered by slow economic growth and a series of corruption scandals, reported the biggest loss in its history and confirmed that three top executives would leave the company.

The loss of €5 billion, or $6.5 billion, for the fiscal year that ended in September, was announced late Monday, capping a tumultuous year for a company that once symbolized German industrial might. The period was marked by the revelation of huge losses at the unit that operates steel plants in Brazil and Alabama, fines related to a price-fixing scandal, and other setbacks.

Last year the company lost €1.8 billion.

“I’m not going to talk anything up here, because it is obvious that a great deal has gone wrong in the past,” Heinrich Hiesinger, the chief executive of ThyssenKrupp, said at a news conference at company headquarters in Essen, Germany, on Tuesday.

ThyssenKrupp blamed €3.6 billion of the loss on its Steel Americas unit, which Mr. Hiesinger referred to as a “disaster.” He conceded that managers had valued plants in Rio de Janeiro and Calvert, Alabama, at far above their market value. Accounting rules required the company to record a loss after recognizing the factories’ actual worth.

The Brazil factory suffered from cost overruns during construction, and both mills were hit by slack demand, ThyssenKrupp said.

The fiscal-year loss means that ThyssenKrupp will not pay a shareholder dividend for the first time since it was created by a historic merger in 1999. Still, ThyssenKrupp shares rose about 1 percent in Frankfurt trading as investors concluded that Mr. Hiesinger, who became chief executive in January 2011, was grappling with the company’s problems.

“The track record of new management has been very solid,” analysts at Credit Suisse said in a note to clients Tuesday. “They are dealing with perhaps some of the most difficult issues of ThyssenKrupp’s existence.”

Blame for the problems fell on three members of the company’s six-member executive board. ThyssenKrupp said the three had agreed to terminate their contracts at the request of the company’s supervisory board.

The managers are Olaf Berlien, whose responsibilities included plant technology; Jürgen Claassen, the company’s longtime head of communications; and Edwin Eichler, who was in charge of Steel Americas. About 50 managers have already left the company after they were found to have violated compliance codes, Mr. Hiesinger said.

Mr. Claassen, who was also responsible for compliance with the company’s ethics rules, has been the subject of articles in the Handelsblatt newspaper and other news outlets accusing him of taking journalists on junkets that were considered lavish even by the flexible standards of the European press.

The Essen prosecutor’s office, which investigated the accusations, said last week that it had found no evidence that the trips broke any laws.

Questions have also been raised about whether top managers concealed the true extent of the company’s problems, but Mr. Heinrich said there was no evidence of wrongdoing.

“To date there are no facts indicating compliance infringements or illegal conduct by any of them,” he said.

But the huge loss, at a time when most big German companies continue to do well, was a further blow to ThyssenKrupp’s reputation.

In July, the company paid a €103 million fine to the German Cartel Office following accusations it was part of a conspiracy to fix the price of railway tracks sold to Deutsche Bahn, the national railroad, and other customers. The company warned Tuesday it may face additional investigations or lawsuits stemming from its involvement in the cartel.

Krupp, which merged with Thyssen in 1999 following one of the first hostile takeover battles in German history, was once the very symbol of the country’s industrial might — for better or worse.

Founded in 1811, Krupp was responsible for many advances in steel technology but also developed and built the cannons and other weapons that provided the foundation for German militarism in the 19th and 20th Centuries. During World War II, Krupp used slave labor at its factories. Its top managers were later convicted of war crimes, though they served only brief prison terms.

In recent years, ThyssenKrupp has been overshadowed by companies like Daimler and Siemens, reflecting a shift in Germany’s economic center of gravity from the Ruhr Valley to the south. Daimler is based in Stuttgart, Siemens in Munich.

With sales of about €40 billion in the fiscal year ended Sept. 30, ThyssenKrupp has about half the revenue of Siemens and a little more than a third the sales of Daimler. Still, it remains an enormous company with 152,000 workers, including 58,000 in Germany.

Besides making steel, primarily for automakers, ThyssenKrupp also makes elevators, builds and equips factories, and manufactures submarines and other naval vessels.

Mr. Hiesinger, a former Siemens executive, acknowledged Tuesday that “our leadership culture has failed in many areas of the company.”

“In the past there has been an understanding of leadership in which ‘old boys’ networks’ and blind loyalty were more important than business success,” he said. “And there were obviously some who thought that rules, regulations and laws do not apply to everyone.”

“I am aware that through this attitude we have lost a great deal of trust and credibility,” Mr. Hiesinger said. “We must now earn back both.”

Article source: http://www.nytimes.com/2012/12/12/business/global/record-loss-for-embattled-thyssenkrupp.html?partner=rss&emc=rss