July 31, 2018 / 5:57 PM / 3 months ago

Thyssenkrupp cuts profit guidance on cost overruns at industrial unit

FRANKFURT (Reuters) - Thyssenkrupp (TKAG.DE), the German engineering group shaken by activist investors, cut its earnings forecast late on Tuesday, citing cost overruns and sluggish orders at its plant engineering and ship building division.

FILE PHOTO: A sunflower is seen in front of the ThyssenKrupp AG headquarters in Essen, Germany, September 20, 2017. REUTERS/Wolfgang Rattay/File Photo

The guidance for adjusted operating profit in the 2017/2018 fiscal year was now for around 1.8 billion euros (1.60 billion pounds), at the lower end of the previously forecast range of 1.8 to 2 billion euros.

“The main negative factors were higher expected total costs, particularly for a marine project in Turkey, a cement plant in Saudi Arabia and a biofuel power plant in Australia,” it said in a statement.

The German industrial icon, whose products include steel, elevators and warships, is under interim leadership after a public feud with activist investors prompted the resignation of the chief executive officer and the non-executive chairman.

Acting CEO Guido Kerkhoff earlier this month identified the Industrial Solutions unit, with its ship yard and plant engineering activities, as the group’s “problem child”.

An ongoing review of the unit to prepare an overhaul has resulted in the lowered expectations, the group said on Tuesday.

The unit’s revenue prospects have also dimmed. The number of major plant projects by customers in the chemical and cement industries has recently decreased considerably and it now takes customers twice as long to start an investment project after having announced it, the group said.

“It is important to me to call it what it is. The results of our analysis at Industrial Solutions are anything but satisfying,” Kerkhoff said in the statement.

Group free cash flow before mergers and acquisitions for the full year would be negative, where it had previously seen a positive figure.

Still, the outlook for group net income was for a significant improvement from the previous year’s 271 million euros, it added.

Thyssen, which in previous years lost billions of euros in an ill-fated steel project in the Americas, this year struck a landmark steel joint venture deal with India’s Tata Steel (TISC.NS), but that came too late to placate investors hungry for change.

Activist shareholder Elliott has a stake of below 3 percent in the German company, according to its latest filings. Swedish activist investor Cevian also holds an 18 percent stake.

($1 = 0.8548 euros)

Reporting by Ludwig Burger; editing by Emelia Sithole-Matarise

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