By Christoph Steitz and Tom Käckenhoff
FRANKFURT/ESSEN, Germany (Reuters) -Germany's Thyssenkrupp (ETR:TKAG) on Wednesday announced a 2.1-billion-euro ($2.3 billion) impairment on its steel unit due to a "gloomy" outlook for the sector, highlighting the challenge in efforts to win Czech energy group EPH as a co-owner for the business.
Still the industrial conglomerate posted its first positive free cash flow before mergers and acquisitions, a key gauge for investors, in seven years, sending its shares to a 7-week high.
Thyssenkrupp shares rose as much as 7.5% after the group said free cash flow before M&A came in at 363 million euros and proposed a stable dividend of 0.15 euros per share. Shares were still up 6.4% higher at 1041 GMT.
As a result of the impairment, Thyssenkrupp, which has been trying to divest its steel division for several years, posted a 2 billion euro net loss for the fourth quarter, while adjusted operating profit fell 45% to 88 million euros.
"To put it bluntly, we are not earning enough money," Thyssenkrupp CEO Miguel Lopez said during the company's annual press conference. "There are clear expectations of us to finally get a handle on the situation."
Lopez, who took over the helm in June, has therefore launched APEX, a performance programme that is expected to have a positive impact of 2 billion on the group's adjusted EBIT, and is hoping to finally divest the group's Steel Europe division.
Thyssenkrupp - which apart from steel, builds submarines, car parts and operates a large materials trading business - said it was in constructive and open-ended talks with EPH about a potential 50-50 steel joint venture.
EPH, controlled by Czech billionaire Daniel Kretinsky, would support Thyssenkrupp Steel Europe with its energy expertise in any tie-up, Thyssenkrupp said, adding all co-determination and collective bargaining agreements would remain in place.
Thyssenkrupp last month flagged a marked deterioration in the steel market, adding optimistic assumptions had been dampened by a mix of economic weakness in Germany and other markets as well as higher raw materials and energy costs.
Cheap Chinese steel imports into Europe have been an additional headache, along with the fact that Asian rivals do not have to bear the costs of CO2 emissions, which puts local players at a disadvantage.
Following the impairment, Thyssenkrupp still values Steel Europe at 3.6 billion euros while pension liabilities tied to the business came down further to 2.6 billion, Chief Financial Officer Klaus Keysberg said.
($1 = 0.9168 euros)