Germany’s Biggest Steelmaker Set to Unveil a Future Beyond Steel
By Tino Andresen
2017 M06 20 00:00 GMT+2 2017 M06 20 11:33 GMT+2
Thyssenkrupp seeks to transform itself with elevator prototype
Profit share from steel sinks as earnings from technology grow
An elevator shaft at Thyssenkrupp Elevator's testing tower in Rottweil, Germany. Photographer: Thomas Lohnes/Getty Images
It is a mark of the transformation going on at Thyssenkrupp AG that the most profitable operation at Germany’s biggest steel company is producing elevators not metal.
The industrial giant, with roots dating to 1811, has poured research into its elevator unit to turn what was a sideline into a primary business. The strategy is Thyssenkrupp’s bid to survive in an international steel market flooded with cheap imports from Chinese rivals.
In the past six years, Thyssenkrupp has earned more from elevators than steel as the market for metals weakened. The company’s investments are pushing the elevator industry into new areas, with innovations like the first model to move sideways as well as up and down, and moving walkways that levitate on magnets. Other manufacturers are taking note.
“We’ve managed to stimulate competition, in some cases to the point where our concepts are taken over or adapted,” Andreas Schierenbeck, the elevator unit’s chief executive officer, said in an interview at its main office in Essen, Germany. “That’s good. If you’re being copied, you’re doing something right.”
In one example, Thyssenkrupp’s twin system, where two cars travel independently in the same shaft, led others to push alternatives such as double-decker elevators. Such rivalry can also help increase acceptance of the new technology by architects and builders, wary of installing costly machinery that lacks a proven track record, as well as developing a necessary market for equipment and maintenance suppliers.
Chinese Rivals
While the elevator business has been growing for a decade, and earnings are rising, steel revenue has been dropping as competition from China slashed prices and eroded profit. While Thyssenkrupp has recovered from three years of losses that ended in 2014, the materials division including steel made up 28 percent of total earnings last fiscal year, down from 40 percent just before CEO Heinrich Hiesinger took the helm in January 2011.
Almost a decade after the global financial crisis, demand for European steel is still about a quarter below 2008 levels. More than 75,000 jobs, or about one in five, have gone in that period. At the same time, China is exporting record amounts.
Thyssenkrupp isn’t alone in seeking creative answers to market woes. Voestalpine AG, Austria’s once state-owned steelmaker, is focused on making components for the auto and aerospace industries, and even branching out into systems for monitoring railroads.
Volatile Business
As steel margins declined at Thyssenkrupp, Hiesinger has sought to rely less on the volatile business and build up other areas including the elevator operation.
The company agreed in February to sell its Brazilian steel plant to Ternium SA, drawing a line under the worst investment in its history. It completes Thyssenkrupp’s exit from its Steel Americas unit, following 8 billion euros ($9 billion) of losses from a decision to expand in the region in 2005.
The producer has also been in talks with Tata Steel Ltd. for over a year on placing their European steel businesses into a joint venture.
Such transactions set the German company on a path that would see it changed fundamentally, according to Independent Research GmbH analyst Sven Diermeier.
“Ultimately, it will mean that Thyssenkrupp will become an industrial goods company that holds a stake in a steel joint venture,” he said from Frankfurt.
The company could potentially spin off the venture in an initial public offering and sell the Materials Services division that includes managing steel supply, warehousing and inventory, according to a Credit Suisse Group AG report this month.