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By Bloomberg

Germany's largest steel producer may abandon its roots as it reshapes its strategy after emerging from the global economic slump and poor investments in the Americas that fueled losses for three consecutive years.

ThyssenKrupp AG, based in Essen in Germany's industrial heartland, may give up making the metal it has forged in its Ruhr region home for two centuries to focus on elevators and car components, investors and analysts said.

In his first five-year term as chief executive officer, Heinrich Hiesinger began scaling back steelmaking operations, selling a U.S. plant that generated 9 billion euros ($11.3 billion) in writedowns and losses after taking the helm in 2011.

Chairman Ulrich Lehner said he'd like the 54-year-old engineer to stay after his contract expires next year, giving Hiesinger more time to finish the task of reviving ThyssenKrupp's fortunes. Investors are already giving him the benefit of the doubt: the stock has climbed 11 percent this year to become the second-best performer in Germany's DAX Index.

ThyssenKrupp gets just 28 percent of revenue from producing the metal. Profit margins are much higher in the company's other businesses, giving rise to speculation that shareholders would benefit from an exit from steelmaking.

"We have left the intensive care unit and are now in the anesthetic recovery room," Hiesinger said in a speech in Dusseldorf last month. "We decided to rebuild ThyssenKrupp from a steel company to a diversified industrial group," which may take several years, he said.

Stainless Steel

The retreat from steel is continuing. Hiesinger's seeking buyers for a foundry in Brazil's Rio de Janeiro state as well as stainless steel operations.

"It may make sense to sell the steel unit after the Brazil plant," said Damien Lanternier, who manages the 2.4 percent stake Financiere de l'Echiquier's Agressor fund has in the company.

ThyssenKrupp declined to comment beyond Hiesinger's speech.

The industrial giant with 160,000 staff is expected to report a small profit for the year ended last week after three consecutive annual losses. It increased market value by about 12 percent since the disposal of the U.S. plant

Hiesinger "started a project of which less than half has been implemented," said Christian Obst, an analyst at Baader Bank AG. He "has to continue to work intensely on disposals to simplify the structure, leverage value and pave the way for growth opportunities which aren't within reach organically."

Potential Disposals

He predicts ThyssenKrupp will sell the VDM and AST stainless steel businesses as well as the Brazil plant by the end of Hiesinger's second term. Marine Systems and Berco are other potential disposals, he said.

Hiesinger needs to strengthen the balance sheet as the company "isn't prepared well enough for another possible economic crisis," Obst said in an interview from Munich.

The company remains heavily indebted and some of its funding is dependent on not exceeding a debt-to-equity ratio, of 150 percent. It stood at 130 percent as of June 30.

ThyssenKrupp is "considerably stabilized but not satisfactory," Ingo-Martin Schachel, an analyst at Commerzbank AG, said by phone from Frankfurt. "When Hiesinger assumed office he took on one of the biggest challenges in Germany at that time."

While Hiesinger's under no pressure to sell the company's remaining steel operations, the opportunity may arise by 2020, he said. Satisfactory profitability of the unit is "a long way" away.

Corporate Culture

Disposals are an easy part of management compared with changing the corporate culture, Hiesinger told reporters in February 2013. Two months earlier, half the company's board had been ousted after corruption probes and antitrust fines.

ThyssenKrupp has just completed the first employee survey for the whole company, asking more than 150,000 staff in 71 countries to answer 75 questions related to 14 topics such as innovation, collaboration and operational processes.

One constraint for Hiesinger may be the diverging aims of ThyssenKrupp's largest shareholders, the Alfried Krupp von Bohlen und Halbach Foundation and Cevian Capital AB, which hold a combined stake of 38 percent.

Their "objectives don't exactly coincide," said Obst. "The foundation rather conserves, Cevian Capital pushes for more rapid and more consistent changes of the corporate structure."

The foundation's board of trustees had been headed by Berthold Beitz for 45 years until the man whose name had been synonymous with Germany's biggest steelmaker died last year and was succeeded by Ursula Gather.

The foundation and Cevian both declined to comment.

ThyssenKrupp's annual earnings before interest and taxes will double by the the end of Hiesinger's second tenure, Schachel said. The average estimate for this year of 23 analysts surveyed by Bloomberg is 1.24 billion euros.

Investors are aware that some more patience is necessary. "It's not priority to resume dividend payments, there's more to earn from improving the balance sheet," said Financiere de l'Echiquier's Lanternier.