By Maria Sheahan and Tom Käckenhoff
FRANKFURT (Reuters) - Three years after taking the helm at ThyssenKrupp
Setbacks in selling weak assets - as well as costly price-fixing scandals he inherited - have made Hiesinger's promises of sweeping transformation look optimistic. At an annual meeting on Friday, the former Siemens man will face tough questions from shareholders who, for a second year, have received no dividend.
"Some thought that he was the guy who can restructure ThyssenKrupp and move it forward. But he hasn't really achieved that yet," said Joerg Schneider, a fund manager at Union Investment in Frankfurt. "He set the expectations too high."
Adding to pressure on Hiesinger are small but significant shifts in the group's ownership since the last AGM. The family trust, which long shielded managers from predators, has seen its holding diluted below a blocking 25 percent. Meanwhile, activist Swedish fund Cevian has built up an 11-percent stake.
Needing cash to expand higher-margin lines, such as elevators and high-performance car parts, Hiesinger has already sold assets accounting for a quarter of group sales. Yet delays and other problems have sparked speculation - which the CEO has consistently rejected - that he might yet pull out of steelmaking altogether, ending two centuries of Krupp tradition.
A senior manager who has worked with the 53-year-old electrical engineer told Reuters that sentiment would play little role when the CEO determines what must be sold.
"There are," he said, "no sacred cows for Hiesinger."
Despite a 40-percent fall in the share price since he took over, many investors say they are keeping faith in him, for now.
"I do believe that Hiesinger can still turn things around," said Schneider at Union Investment.
"But he needs to show shareholders and employees a clear path so they can finally see a light at the end of the tunnel."
Public professions of confidence in Hiesinger's strategy have also come from Cevian, whose founding partner Christer Gardell was dubbed "The Butcher" in Sweden for pushing aggressively for restructurings of underperforming firms. The investment group has quadrupled its stake in ThyssenKrupp since the middle of last year , giving it a significant voice at the
There has also been change at the Krupp Foundation. The last family owner, jailed but later pardoned for his role in the Nazi war effort, left his fortune to the trust to fund philanthropy.
His confidant Berthold Beitz oversaw the charity's influence on the group for decades, before and after the 1999 merger with Thyssen. Beitz's death last July at the age of 99 could lead to shifts in its stance.
Last month, by not participating in a capital increase, the Foundation let its stake slip below the 25 percent that gave it a blocking minority at the company's AGMs.
The stake now stands at 23 percent, still a level that gives it great sway over decisions which require the support of 75 percent of votes cast.
The scale of difficulties since he won support for his restructuring plan in 2011 underlines how much there is still to do for Hiesinger, whose contract is up in September next year.
Once synonymous with the rise of Germany's industrial and military might, producing munitions, tanks and big guns from its Ruhr valley base, today's ThyssenKrupp is a diversified global conglomerate making products ranging from bulk steel to elevators, automotive parts, fertilizer plants and warships.
When Hiesinger took over, the group appeared to be in decent shape, with most of its businesses posting profits. But as he started shaking it up, shifting the group away from the volatile steel market, lurking problems came to light. ThyssenKrupp has now posted three straight years of losses and racked up debts.
"Three years ago, many risk factors were only partly visible," said a senior ThyssenKrupp manager who declined to be named. "We couldn't yet see the consequences of investment decisions. But the root of the problems was already there."
Its most profitable units are elevators, buoyed by a construction boom in China, and industrial solutions, where the U.S. shale gas boom has driven demand for petrochemical plants.
Hiesinger has sold off units with at least 10 billion euros ($13.6 billion) of annual sales - a quarter of group turnover.
But two of the biggest items on his to-do list have become major headaches - the sales of stainless steel business Inoxum and the loss-making company Steel Americas, comprising a steel mill in Brazil and a processing plant in Alabama.
Almost a year after completing the sale of Inoxum to Outokumpu
And after repeatedly extending the deadline for a deal on Steel Americas, Hiesinger was in the end able to sell just the Alabama unit, leaving the Brazilian mill a drag on finances.
ThyssenKrupp is also trying to find buyers for other units such as Berco, a supplier of undercarriages for construction and mining equipment, and awaiting the outcome of a cartel investigation into firms selling steel to carmakers.
The ill-fated investment in Brazil as well as a downturn in the global steel market has weighed heavily on ThyssenKrupp's finances, causing its debt pile to swell. At end-September, it stood at about 5 billion euros ($6.8 billion), twice its equity, and it had to ask banks to waive some loan covenants.
To ease the strain, ThyssenKrupp raised 882 million euros by issuing new shares and will receive another 1.1 billion from the Alabama deal once regulators have signed off. In a positive development, the company posted positive free cash flow for the first time in six years in 2013.
Hiesinger has asked investors to be patient.
"It seems the will is there," said Nomura analyst Neil Sampat. "But the reality is that the failure to sell Brazil and having to take back Terni and VDM is a step backwards."
One way or another, Hiesinger must convince investors that his efforts to overhaul the company are worth the wait.
"The story with which ThyssenKrupp tried to enthuse the capital market didn't work," said Union Investment's Schneider, who believes Hiesinger can still pull off the turnaround but has reduced his holdings of the stock.
"I don't believe in it as an investment story right now," he said. "Management over-promised."
(Additional reporting by Matthias Inverardi, Arno Schuetze and Jens Hack; Editing by Noah Barkin and Alastair Macdonald)