German industrial group Thyssenkrupp announced a further shakeup of its Industrial Solutions unit, which it is restructuring in the face of weak demand for plant engineering and challenges in its naval business.
The unit is Thyssenkrupp’s main heavy manufacturing business whose activities range from shipbuilding to mining technology to automotive engineering systems.
But it has been hit as customers have been reluctant to invest in large projects because of weak oil and raw material prices, and its naval business lost out on a $40bn Australian defence contract to French rival DCNS in April.
Industrial Solutions’ services business is more profitable than construction and Thyssenkrupp, in a statement yesterday, said that Industrial Solutions would aim to increase sales from services to around a third of its total sales from 13% now, but did not give a timeframe.
To that end, Industrial Solutions will redistribute its Germany-heavy workforce more evenly around the world, establishing three or four project management hubs globally to be nearer to customers.
Industrial Solutions’ chief executive Jens Michael Wegmann told reporters he could not yet detail what this would entail in terms of cost or job cuts for the unit’s almost 20,000 staff, but said Thyssenkrupp was consulting with employee representatives and aimed to complete the review by the autumn.
“Our culture is too much focused on acquiring big projects,” Wegmann said, speaking at Thyssenkrupp’s headquarters in Essen.”German engineering is still a brand in the world but it’s not enough on its own.”
Thyssenkrupp, which announced a restructuring of its steel and plant-engineering businesses in May, is under pressure to improve its performance from activist investor Cevian, which recently increased its stake in Thyssenkrupp to just under 20%.
“It is clear to everyone that it will take a lot of effort and will before the company is really competitive and successful,” Cevian’s co-founder told German monthly Manager Magazin last month.
Industrial Solutions booked no major projects last quarter, Thyssenkrupp said when it announced quarterly results.
The industrial group has given Industrial Solutions a long-term target to increase sales by on average 5% a year to €8bn ($8.9bn) with a sustainable operating profit margin of 6 to 7%, but did not say by when.
It generated annual sales of €6.3bn last year.
Wegmann said he expected the unit to grow by 3% to 5% a year until 2021.
Its profit margin was 6.8% last year.
Thyssenkrupp has already said it plans to restructure its naval business after losing out on the Australian contract and hopes to win a submarine order from Norway that would go some way to compensate for that.
Wegmann declined to speculate on the consequences for Thyssenkrupp if it failed to win the Norwegian tender.
He also said the company was not in talks with any potential buyers or joint venture partners for its marine business, after DCMS said it was prepared to enter talks with Thyssenkrupp.