By Georgina Prodhan
ESSEN, Germany (Reuters) - Germany's Thyssenkrupp (DE:TKAG) gave a modest earnings outlook and increased its dividend by less than expected on Thursday, citing continued pressure on steel prices for its conservative stance after full-year results highlighted significant progress with its turnaround plan.
Thyssenkrupp, with 19th-century roots in German steel, has been transforming itself into a diversified industrial group, with three quarters of its sales now coming from capital goods such as elevators, car parts and components for energy plants.
The company earned more money than it spent in the year to Sept. 30 for the first time in nine years, with free cash flow of 65 million euros (45 million pounds), and posted a better than expected 26 percent rise in adjusted operating profit.
Its shares reversed early losses on Thursday to trade up 2.9 percent at 19.72 euros by 0935 GMT and were the second-biggest gainer on Germany's blue-chip DAX index, which was up 1.4 percent.
But the group said it was worried about cheap imports, especially from China, continuing to depress steel prices and expects operating profit in the current quarter to be lower than in the same period last year.
Thyssenkrupp forecast EBIT in a wide range of 1.6 billion euros to 1.9 billion euros for the coming financial year, against 1.68 billion euros in 2014/15. The forecast reflected confidence in the capital goods businesses but uncertainty over steel and other materials, it said, adding that sales should be flat on a comparable basis.
'STEP IN THE RIGHT DIRECTION'
The proposed dividend of 0.15 euros per share, up from the token 0.11 euros it paid for 2013/14, was at the bottom end of analysts' forecasts.
"This cannot be a satisfactory dividend over the medium term. But it is a step in the right direction, which also takes into account our balance sheet needs," Chief Executive Heinrich Hiesinger said in a statement.
Jefferies analyst Seth Rosenfeld said the outlook had "something for everyone" and kept his "buy" rating on the stock.
"Thyssenkrupp continues to execute on a slow-burn restructuring story and remains one of our top picks," he wrote in a note.
ArcelorMittal, the world's largest steel producer, cut its full-year profit forecast this month, saying that cheap Chinese exports had hit prices and customers were holding off making new orders.
Some steelmakers, notably Voestalpine, are keeping profit margins relatively high by offering more specialised steel products, but the Austrian company also reported a drop in quarterly profit because of weakness in China.
Thyssenkrupp has few levers in the short term to combat this other than cutting costs. It said that it made efficiency improvements of 1.1 billion euros in 2014/15, beating its target of 850 million euros, mainly through consolidating purchasing.
The company announced a further 850 million euro efficiency programme for this fiscal year.
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