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Steel becomes new problem child as Thyssenkrupp posts profit drop

FRANKFURT/DUESSELDORF, Germany (Reuters) - Thyssenkrupp’s steel division swung to a loss in the first quarter, raising doubts over Europe’s second-biggest steelmaker, the conglomerate’s core following its planned sale of its elevator business.

FILE PHOTO: The logo of Thyssenkrupp is seen near elevators in its headquarters in Essen, Germany, November 21, 2019. REUTERS/Leon Kuegeler/File Photo

Imports from China and weak demand from the car industry have pummelled steelmakers across the continent, including German rival Salzgitter and the local division of India’s Tata Steel.

Thyssenkrupp’s loss highlights the challenges it will face in revamping the business, which, along with materials trading, will be the backbone of Thyssenkrupp once the sale of its elevator business is decided at the end of the month.

“The latest figures are not great. But we are convinced that we are on the right track,” CEO Martina Merz said in a statement.

Restructuring efforts at the steel division, including 2,000 job cuts, are currently under way.

The division posted an adjusted operating loss of 164 million euros in the first quarter versus a profit of 38 million a year earlier, blaming a “significant drop in demand from the auto industry”.

Shares in the group were indicated 1.7% lower in pre-market trade.

Pressured by a sector-wide shift towards electric cars, the auto industry has been hit by a raft of profit warnings, with suppliers, including Thyssenkrupp, hit as a result. The auto industry is Thyssenkrupp single biggest client group.

Cash from a sale of the elevator business, which is valued at 16-17 billion euros, will therefore be much needed.

The company’s net debt stood at 7.14 billion euros, nearly doubling quarter on quarter reflecting adjusted accounting of lease liabilities under the IFRS accounting standard.

Merz said a decision on the elevator deal was imminent.

The group’s equity ratio fell to 5.4% from 6.1% for the 2018/19 financial year, indicating that virtually all of the group’s assets are backed by debt.

($1 = 0.9200 euros)

Editing by Thomas Escritt and Jason Neely