Name of the Company: ThyssenKrupp AG
Business Sector: Engineering and Capital Goods, Technology
Operating Geography: Europe, Germany, Global
About the Company: ThyssenKrupp, founded in 1842, is a European multinational conglomerate corporation based in Duisburg and Essen, Germany. ThyssenKrupp has a presence in over 80 countries and has more than 155,000 employees worldwide. The company has traditional strengths in materials, capital goods and service businesses.
Revenue: 29.265 billion Euros – October 1, 2015 to June 30, 2016
SWOT & PESTLE Analysis
|1. Healthy balance sheet with strong financials |
2. Innovation and technical expertise
3. Existing distribution & sales network.
4. Comprehensive product portfolio
|1. High R&D cost
2. Limited presence in Asia Pacific Region
3. High production costs
|1. Asia Pacific|
2. Positive outlook for global automobiles.
3. Need for Eco-friendly & sustainable products
|1. Sluggish global economic growth
2. Declining prices
3. Impact of Brexit
4. Labor unrest
5. German Renewable Energies Act
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1) Healthy Balance Sheet with Strong Financials: Though the financial indicators show a year on year decline, Thyssenkrupp has managed to remain stable in a tumultuous global economy. Its revenues for 9 months ending on June 30, 2016 stood at 29.265 billion € which is a 9 percent YOY decline. This decline can be attributed to rebranding costs & increased R&D investments. The EBIT has also incurred a YOY decline of 13 percent.
2) Innovation & Technical Expertise: Owing to its technical prowess, the company has emerged as one of the largest steel producers in the world. Thyssenkrupp has been the major innovator in the Elevator Industry. The company is currently working on integrating Microsoft’s HoloLens technology in its elevator services operations worldwide.
3) Existing distribution & Sales network: ThyssenKrupp has sales & distribution network in more than 80 countries. It has a diversified global presence with the majority of its 2,200 production sites & offices located outside Germany.
4) Comprehensive Business Portfolio: ThyssenKrupp has a highly diversified business portfolio and offers carbon steel products like tubes, pipes, heavy plate, tinplate, hot strip, the automotive and construction machinery industries, wind turbines, the automotive and construction machinery industries, domestic and freight elevators, operators of submarines and surface naval vessels, potential operators of chemical plants, refineries, and other industrial plants
1) High R&D Cost: Last year ThyssenKrupp incurred R&D investments close to 750 million € which has been the case for the past 4 years. High R&D costs have exerted significant pressure on EBIT.
2) High Production Costs: ThyssenKrupp has an EBIT margin of only 2.9% in the 9 months ending on June 30, 2016. Significant costs coupled with Global economic slowdown has resulted in declining trend in the key financial indicators over the past few years. Even though ThyssenKrupp has initiated an efficiency program “impact” to rectify the situation, the results have been very rewarding
3) Limited Presence in Asia Pacific Region: Though ThyssenKrupp is known as a multinational and diversified conglomerate, it is still highly dependent on European markets for revenues. ThyssenKrupp still acquires 50 percent of revenue from Europe with only 15 percent of its revenues coming from Asia Pacific.
1) Asia Pacific: Thyssenkrupp is still highly dependent on the European market. It has a limited presence in Asian Pacific countries which can be a major source of future revenue growth due to a higher growth rate in the emerging markets.
2) Positive Outlook for Global Automobiles: Forecast for global car and light truck production raised slightly for 2016. Europe is exceeding expectations, China is positive, but with lower growth rates than in the past. Chinese car sales is a continuing positive in 2016, with average 5% sales and production growth expected in the future. Forecast for global production of trucks is positive with a slight YOY improvement in China.
3) Need for Eco-friendly & Sustainable Products: Due to increased awareness and government regulations, industries worldwide are adopting more sustainable and eco-friendly practices. ThyssenKrupp can be a major beneficiary of this change by leveraging its innovation capabilities and technical expertise. ThyssenKrupp has already taken significant steps towards that goal by undertaking initiatives such as developing technologies that can reduce emissions by up to 40 percent during cement production process.
1) Sluggish Global Economic Growth: Global Economy just recorded a growth of just under 3 percent in 2016. Growth in emerging markets has been lower than expected. The GDP forecast for USA is also lower overall with Chinese growth falling even further.
2) Declining Prices: Order intake, sales and earnings in the first 9 months are down altogether mainly due to price-related declines in the materials businesses. Order intake in the capital goods businesses was lower year-on-year overall in the first 9 months. Industrial Solutions has also shown a weaker trend in that period.
3) Impact of Brexit: GDP growth for European markets in 2017 is expected to be much weaker due to Brexit referendum – there is high uncertainty surrounding any future course of exit negotiations which is expected to act as a barrier to investment in Britain as well as other countries of the EU.
4) Labour Unrest: Recently ThyssenKrupp has been facing Labour unrest due to the potential merger of ThyssenKrupp’s Steel businesses with Tata Steel which might result in ThyessenKrupp closing a few plants. This is a major threat to their already ailing steel businesses with is already marred by lacklustre demand and cheap imports from China.
5) German Renewable Energies Act: Threats are posed by the amendment of the German Renewable Energies Act and the CO2 trading system. If the current plans of the EU for reforming the emissions trading system are implemented as they stand, steel from Europe will no longer be able to compete in the international markets. Under these conditions, the European Steel industry won’t be able to survive long-term.ThyssenKrupp SWOT analysis has been conducted by Ayush Agarwal and reviewed by senior analysts from Barakaat Consulting.
1) ThyssenKrupp annual report: http://www.grupothyssenkrupp.com/Publicaciones/Annual_Report_2014_2015.pdf
2) Thyssenkrupp Annual General Meeting 2016: https://www.thyssenkrupp.com/en/investors/annual-general-meeting/
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