ESSEN, Germany -- German industrial group ThyssenKrupp raised its dividend for the second straight year on Wednesday after reporting its best results since the company's merger in 1999, but forecast only flat earnings in 2004/05.
Red-hot demand for steel helped Thyssen rake in $2.1 billion in pretax profit in the fiscal year that ended in September.
Europe's third-largest listed steelmaker by volumes warned it sees further increases in raw material prices, but expects demand for steel to remain stable over the longer term thanks in particular to continued strong economic growth in China.
The company, which played down speculation it might merge with another steelmaker such as Anglo-Dutch rival Corus, forecast higher sales and earnings for the medium term.
"Through organic growth, strategic acquisitions and an even stronger services focus, the aim is to boost ThyssenKrupp's sales in the medium term to 45-50 billion euros," said CEO Ekkehard Schulz. "The group's performance holds potential for further improvement in earnings."
But the stock fell more than 1 percent on what dealers called disappointment over the near-term outlook and the moderate dividend increase.
Thyssen said it would aim to match pretax results in the current fiscal year and proposed raising its dividend payout back up to 0.60 euro per share from 0.50 euro.
Sales increased 11 percent to 39.3 billion euros, while new orders rose 17 percent to 41 billion. Net debt plunged to 2.8 billion euros from 4.2 billion in the year earlier.
The company, which makes everything from elevators to automotive chassis to luxury yachts, said earnings per share climbed to 1.81 euros from 1.09 euros a year ago.
MERGERS AND ACQUISITIONS
Schulz also said his company did not rule out taking a majority stake in any entity that arises from mergers among European naval shipyards. But the creation of European shipyard champions would need at least a few years to take shape.
Schulz said the group was not in negotiations with steelmakers about mergers and said ThyssenKrupp would not invest to build coking coal capacity.
But talks are being held with investors for the group's residential real estate business. "We are at the start of the process, in the so-called due diligence phase," Schulz said.
Analysts were impressed by the group's cutting of its debt.
"The company is easily earning more than its cost of capital and has made excellent progress in reducing its debt, which will probably mean S&P will have to raise its credit rating," said Michael Broeker, analyst at Steubing brokerage.
Fitch raised its rating one notch to "BBB", while Standard & Poor's revised its credit outlook to positive.
Although ThyssenKrupp may be enjoying demand fed by explosive industrial growth in China, analysts are concerned that falling orders means the steel cycle could peak next year.
A decline in volume and price growth would leave margins in danger of being squeezed from continued high input costs for materials such as iron ore, coking coal, nickel, and scrap, not to mention rising expenses for shipping capacity and energy.
Driven in part by a desire to protect themselves from the ebb and flow of this highly cyclical business, steelmakers such as LNM Group seek additional savings through takeovers.
Entrepreneur Lakshmi Mittal of LNM and his son Aditya have announced plans to forge Mittal Steel, a giant that will surpass Arcelor as the world's largest steel producer by volumes.
In October, Thyssen's steel chief Ulrich Middelmann had said the company was considering acquiring a European rival.