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ThyssenKrupp Profit Rises Less than Expected

Reuters
Tuesday, 4 Dec 2007 | 8:00 AM ET

German industrial conglomerate ThyssenKrupp forecast lower underlying pretax profit for its current fiscal year after 2006/07 profit before tax rose 27 percent but missed analyst expectations.

Thyssenkrupp CEO on Earnings
Shares of Thyssenkrupp were under pressure Tuesday, despite full-year profit being in line with expectations. CNBC's Ross Westgate speaks to Dr. Ekkehard Schulz, CEO of ThyssenKrupp, about the outlook.

The weak results as well as the company's traditionally conservative December forecast combined to send its shares tumbling as much as 5.5 percent on Tuesday.

"For the 2007/2008 fiscal year, ThyssenKrupp expects to achieve sales of around 53 billion euros and earnings before taxes and major non-recurring items of over 3 billion," Chief Executive Ekkehard Schulz said, citing start-up costs for planned steel mills in Brazil and the United States.

Group profit before tax in the fiscal year to end-September rose to 3.33 billion euros ($4.88 billion) including one-off items, short of the 3.46 billion that the market was expecting according to a Reuters poll of 13 analysts.

ThyssenKrupp also expected earnings to remain solid in the coming 2008/09 fiscal year at some 3 billion euros before tax, but Schulz cited risks stemming from the euro-dollar exchange rate as well as energy and raw material costs.

At 33 billion euros, the company spent 11 percent more on raw materials, other products and services compared to the previous year, ThyssenKrupp said in its 2006/07 annual report.

It expects the euro to stabilize versus the dollar in the mid-term and forecast raw material and oil prices to remain high.

The group also forecast pretax profit starting in 2009/10 to exceed 4 billion euros annually until 2011/2012, when this will increase to 4.5-5 billion as part of its long-term growth plan.

"An investment program of up to 20 billion euros has been earmarked for this over the next few years, of which over 5 billion has already been used," Schulz said.

Net Cash

Shares in ThyssenKrupp traded 4.3 percent lower at 38.28 euros, easily the biggest decliner in the German blue-chip DAX index.

ThyssenKrupp will propose hiking its dividend to 1.30 euros after paying investors 1.00 euro for the previous year.

"In view of the group's new earning strength and new level of income of over 3 billion, we aim to achieve a payout ratio of at least 30 percent in the future," Schulz said.

Pretax profit in the 2006/07 year was 3.80 billion euros excluding one-off items including a 480 million euro European Union fine for price-fixing at its elevators business.

Revenue increased 10 percent to 51.7 billion euros in the year, faster than the 8 percent gain in new orders to 54.6 billion.

Free cash flow swung to a negative 104 million euros in its 2006/07 fiscal year from a positive 1.77 billion the year before due to the EU fine as well as a buildup of working capital.

Pretax profit at its steel division rose 18.2 percent to 1.66 billion, while pretax profit at its stainless business advanced 83.7 percent to 777 million euros.

The company, which is rated "BBB"/stable by Standard and Poor's and "Baa2"/positive by Moody's, reported net cash at the end of the fiscal year narrowed to 223 million euros from 747 million a year earlier, mainly as a result of a nearly 1 billion euro increase in cash outflow for investments.

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