Thyssenkrupp raises cash flow outlook on defence division strength

By Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUESSELDORF (Reuters) - Industrial conglomerate Thyssenkrupp raised its free cash flow outlook on Thursday due to a strong performance at its warship division, which has gained momentum in light of a tighter focus on security after the outbreak of the Ukraine war.

Thyssenkrupp said a major submarine order from the German military in December had led to an advance payment of 1 billion euros ($1.04 billion) during the first quarter, in what it says is a "changed security policy environment" for defence firms.

The news highlights the strength of Thyssenkrupp's marine business, TKMS, which makes submarines, frigates, and sensor and mine-hunting technology, ahead of the planned spin-off of a minority stake either this year or next.

Germany approved the purchase of four submarines manufactured by Thyssenkrupp in December in a deal worth 4.7 billion euros, highlighting the division's appeal as governments ramp up defense spending due to the Ukraine war.

Analysts at Barclays, highlighting TKMS's order backlog of more than 16 billion euros, said the timing of the spin-off made sense "and should assuage some concerns that ongoing peace talks around Ukraine may dampen valuation".

Earlier, U.S. President Donald Trump said both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy had expressed a desire for peace in separate phone calls with him on Wednesday. Trump ordered top U.S. officials to begin talks on ending the war in Ukraine.

As a result of the advance payment, Thyssenkrupp now expects free cash flow before M&A - a key indicator for investors on the group's ability to earn money - of between 0 and 300 million euros in 2025, having previously forecast a negative range of 200 million to 400 million euros.

Shares in the company, which is active in materials trading, steel and automotive parts, rose as much as 11% to their highest level in nearly nine months.

Citing a "persistently very challenging market environment", Thyssenkrupp also cut its sales outlook for the year, and now expects revenue to be flat at best and possibly down as much as 3%. It had previously expected a rise of as much as 3%.

First-quarter adjusted operating profit more than doubled to 191 million euros, mainly boosted by the group's steel division, which paid less for raw materials and energy.

Order intake rose by more than half to 12.48 billion euros, boosted by the German submarine order.

Finance Chief Jens Schulte said that even though Thyssenkrupp had received significant interest from strategic players regarding TKMS, the group was not running a dual track process and was solely focused on the spin-off.

($1 = 0.9602 euros)

(Reporting by Christoph Steitz and Tom Kaeckenhoff; Editing by Nick Zieminski, Rachel More, Sherry Jacob-Phillips and Jan Harvey)