Weak German Economy Hits Krupp Profits

Krupp said in an interim report that all six of its business divisions were profitable in the first six months of the year, but that the sluggish economy hit the group's steel division, causing profit to slide.

Pre-tax earnings fell to DM185 million ($124.2 million) from DM223 million in the same period the year before. Sales edged up one per cent to DM11.7 billion and orders rose two per cent to DM12.7 billion.

The decline is a result of the unsatisfactory economic development during the period under review, Krupp said. The drop in earnings in the steel sector and related industries could be only partially offset, it added.

Krupp warned that business in the second half of the year would not recover as strongly as previously thought. The statement sent the company's shares tumbling on the Frankfurt stock exchange. At midday they were trading down 2.7 per cent at DM214. The broader market was down 0.62 per cent.

The market interpreted Krupp's statement as a profit warning, which also put pressure on shares in Thyssen AG, Germany's biggest steel maker.

Demand for steel in Europe in the first half of the year was well below year-earlier levels and put pressure on steel prices. Sales and turnover in the stainless steel division rose because of acquisitions, particularly the takeover of a majority stake in Italy's Acciai Speciali Terni.

Turnover advanced 43 per cent to DM2.8 billion and orders rose 35 per cent to 2.5 billion, but Krupp said prices on flat steel products were not satisfactory.

Krupp said sales in the quality steel and sectional steel division fell 14 per cent to DM2.4 billion and orders dropped 21 per cent to DM2.5 billion.

Engineering sales rose eight per cent to DM1.4 billion, but orders were down eight per cent because of divestments in the sector.