By Maria Sheahan and Tom Käckenhoff
FRANKFURT/BOCHUM (Reuters) - Thyssenkrupp (DE:TKAG) Chief Executive Heinrich Hiesinger warned shareholders on Friday that the German industrial group still faces an uphill battle due to tough steel markets, pushing its shares to their lowest level in more than two and a half years.
Low steel prices are still hurting the steelmaker despite efforts to transform itself into a diversified industrial group with three quarters of its sales now coming from elevators, car parts and components for energy plants.
"The situation in the European steel industry is indeed worrying," Hiesinger said at the company's annual general meeting of shareholders in the industrial city of Bochum.
While Thyssenkrupp's capital goods businesses had a solid performance at the start of the group's fiscal year, steel markets had deteriorated considerably since the start of the group's financial year in October, he said.
He said a "critical" situation for steel markets is increasing the pressure for mergers and acquisitions among European makers of flat steel, which supply the likes of carmakers and home appliance manufacturers.
There has been speculation in the past that Thyssenkrupp could merge its European steel business with a rival like Tata Steel (NS:TISC) and Hiesinger recently told a German newspaper his company aimed to play a role in consolidation.
On Friday he maintained the group's forecast for earnings before interest and tax (EBIT) this year of between 1.6 billion euros and 1.9 billion euros ($1.7-$2.1 billion) but said those numbers depended on steel markets recovering in the second half.
Commerzbank analyst Ingo-Martin Schachel on Friday cut his forecast for EBIT by 14 percent to 1.59 billion euros, citing the further decline in steel prices in November and December.
Shares in Thyssenkrupp were down 3.3 percent at 14.23 euros by 1354 GMT, their lowest level since June 2013.
FRAGILE FINANCES
Thyssenkrupp last year earned more money than it spent for the first time in nine years, with free cashflow of 65 million euros, and posted better than expected underlying earnings, but some shareholders have voiced concern over its still-fragile balance sheet.
At the end of September Thyssenkrupp had more debt than equity. By comparison, ArcelorMittal most recently reported gearing stood at 42 percent of its equity.
Some investors, including 15 percent shareholder Cevian oppose the company's move to raise its dividend payment to shareholders by more than a third to 0.15 euros per share.
"Instead of paying almost 85 million euros to shareholders, the balance sheet should urgently be strengthened," Union Investment fund manager Ingo Speich said at the AGM.
Other shareholders in contrast demanded higher dividends, with Thomas Hechtfischer of shareholder rights group DSW saying the payout wasn't sufficient to spark investors' joy.
($1 = 0.9181 euros)