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STEEL

Steel in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		9,148		11,057
Sales	million €		9,568		10,747
Steelmaking	million €		937		1,004
Industry	million €		5,230		5,846
Auto	million €		2,505		2,947
Processing	million €		2,081		2,433
Consolidation	million €		(1,185)		(1,483)
Income*	million €		1,094		1,417
Employees (September 30)			31,634		30,647

Order intake and sales: Higher volumes and prices

The Steel segment is focused on the production and sale of high-quality carbon steel flat products including associated services. Thanks to the extremely positive market environment business increased significantly in 2005/2006. Order intake rose by 21% to €11.1 billion, reflecting not only significantly higher order volumes but also the price increases achieved on the market. Sales were also up, by 12% to €10.7 billion, due to both volume and price factors.

Crude steel production was level with the prior year at 13.8 million metric tons. Crude steel volumes were significantly affected by several disruptions at our investee company Hüttenwerke Krupp Mannesmann. Despite increased production in our own steel mills it was not possible to fully offset the losses. To meet high steel demand, slabs from our own inventories and outside purchases were additionally used. Rolled steel production for customers increased by a total of 4% compared with the prior year. The cold-rolled uncoated and coated flat products benefited primarily from this, whereas volumes of hot-rolled flat products were unchanged from the prior year. Production capacities were fully utilized for the most part.

The Steelmaking business unit combines the metallurgical operations in Duisburg and the logistics activities. Its main role is to supply the three other business units with low-cost, high-quality starting material. The business unit's sales of pig iron, slabs and energy to external customers were higher than a year earlier due to the passing on of higher raw material costs. The transport companies also recorded higher sales revenues.

The Industry business unit is focused on a broad spectrum of customers in the steel-using sector. Sales were up 12% from the prior year. With customers continuing to enjoy good workloads, shipments increased significantly, in particular of hot strip, sheet and hot-dip coated material. Not all demand could be met. Given the lively demand, prices for quarterly deals were raised from the second fiscal half. Price reductions had to be accepted on some annual contracts. The European steel service centers and the construction elements business also recorded higher sales than a year earlier.

The Auto business unit supplies steel products and services to automotive customers throughout the world. Sales increased by 18% on account of the substantial price increases agreed at the beginning of the year with the auto industry. Shipments also increased compared with a year earlier. In the case of tailored blanks, the increase in sales against a slight rise in operating volumes was mainly the result of higher material prices being passed on to customers. In addition, the ramp-up of the production sites in China and Sweden had a positive effect. The steel service activities in North America also expanded their sales significantly. Despite the difficult situation on the North American auto market, sales volumes increased considerably.

The Processing business unit combines our tinplate, medium-wide strip and grain-oriented electrical steel activities. Sales increased in total by 17%. The tinplate business recorded significant growth due to volume and price factors. The platform for the increase in shipments was the successful expansion carried out at the Andernach location. Sales of medium-wide strip at Hoesch Hohenlimburg decreased as a result of the disposal of the special profiles business. Sales of the medium-wide strip business were affected by insufficient supplies of starting material from Hüttenwerke Krupp Mannesmann. By contrast, grain-oriented electrical steel continued to develop very dynamically. The capacity expansion at the plants in Germany and France permitted significant volume increases, in particular for the higher-value grades. Revenues also improved significantly.

Earnings

The Steel segment increased its profits by €323 million to €1,417 million. Higher net revenues and shipments more than offset the significant price rises for key raw materials and increased processing costs.

The Steelmaking business unit improved its earnings and returned a profit. This was mainly attributable to an improved revenue structure for pig iron and the systematic realization of cost-cutting potential. The price rises for key raw materials, energy and freights were passed on to the downstream business units as starting material costs.

The Industry business unit once again generated a significant profit but fell short of the prior-year level. Higher volumes and cost-cutting measures were not enough to offset increases in the cost of starting materials and zinc. The European steel service centers also failed to match their high prior-year profits as higher volumes were outweighed by negative price effects. In a continuing difficult market environment, the construction elements activity achieved a slightly improved profit.

The Auto business unit significantly expanded its earnings, mainly as a result of higher prices and volumes. Efficiency enhancement programs also had a positive effect. All of this more than offset the higher procurement costs. Tailored blanks achieved higher income on the back of higher volumes and successful rationalization measures. Profits at the North American steel service activities rose as a result of higher volumes. The earnings of the Auto business unit also include insurance recoveries from the fire in the EBA 2 line in the previous year.

The Processing business unit again improved distinctly on its very good prior-year earnings. Profits from the tinplate operations were level with a year earlier; higher volumes and net revenues almost completely offset the significant increase in starting material prices and shipment costs. Despite declining shipments, the medium-wide strip business improved slightly on its good prior-year income. At the electrical steel activity, the positive market environment with significantly higher net revenues combined with earnings-improvement programs to achieve a substantial increase in profits.

Significant events

Steel continued its active portfolio management in the reporting period and restructured its operations in accordance with the market situation. ThyssenKrupp Tailored Blanks expanded its business, mainly in China and Sweden. Production was ceased at the Dortmund location and transferred to Duisburg and Wolfsburg.

In the Construction Elements area, further measures were resolved to adapt the structure to market requirements. The Hof and Leipzig plants are to be closed and production concentrated on the Eichen and Oldenburg plants. A new plant is to be set up in Eastern Europe to better tap the growing markets in that region.

A site optimization process has also been initiated in the Steel Service Europe business. The UK operations were sold to a management buyout at the end of the fiscal year. Presence in the expanding Eastern European market is being strengthened with a new steel service center in Poland.

ThyssenKrupp Steel disposed of its last remaining long products activity by selling the special profiles division of Hoesch Hohenlimburg.

Capital expenditures

The capital expenditures of the Steel segment amounted to €515 million in the reporting period, with depreciation at €571 million. At ThyssenKrupp Steel AG, the focus of investment was the modernization of the ironmaking facilities in Duisburg. The centerpiece of this is the construction of a new blast furnace 8, supported by the relining of neighboring blast furnace 9; work began in the reporting period. The total investment for the blast furnace project is €340 million. In addition, we began to expand the hot strip mills and improve our logistical infrastructure with an eye on the steel mill project in Brazil. The modernization of the cold rolling mills was completed.

Towards the end of the reporting period ThyssenKrupp Tailored Blanks opened a new plant in southern Sweden with two welding lines and a total capacity of 60,000 metric tons. Investment was also made in the world's first tailored strip facility.

Rasselstein completed its investment projects under the forward strategy for tinplate on schedule. The facilities began full operation in March 2006. The total investment of €160 million included the building of a continuous annealing furnace, the relocation of the Dortmund coating facility and inspection line, a new finished-products warehouse as well as the creation of the necessary infrastructure. The investment has increased capacity by 20%. Hoesch Hohenlimburg mainly invested in a new slitting and packaging line, which is scheduled to go into operation at the beginning of 2007.

ThyssenKrupp Electrical Steel invested large sums in the expansion of its two plants in Gelsenkirchen and Isbergues, mainly to increase existing decarburizing capacities. In addition, the foundation stone was laid for a new decarburizing line in Gelsenkirchen. Following successful restructuring, the forward strategy for electrical steel has now been largely implemented. The measures completed in the past fiscal year will increase production capacity to 250,000 metric tons and at the same time further raise the proportion of higher-value material.

STAINLESS

Stainless in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		5,573		7,292
Sales	million €		5,572		6,437
ThyssenKrupp Nirosta	million €		2,554		2,682
ThyssenKrupp Acciai Speciali Terni	million €		2,095		2,505
ThyssenKrupp Mexinox	million €		472		559
Shanghai Krupp Stainless	million €		182		364
ThyssenKrupp Stainless International	million €		1,278		1,186
ThyssenKrupp VDM	million €		789		998
Consolidation	million €		(1,798)		(1,857)
Income*	million €		286		423
Employees (September 30)			12,201		12,197

Order intake and sales: Significant expansion of business

The Stainless segment is a leading supplier of stainless steel, nickel alloys and titanium. The strong market revival, coupled with increasingly effective base price rises in the European market and NAFTA region, the further improvement in the product range – associated with an increase in added value – as well as the passing on of increased raw material costs led to a significant expansion of business.

Order intake rose by 31% to €7.3 billion, reflecting volume and price factors. Total shipments were 10% higher than a year earlier, mainly due to increased deliveries of cold-rolled strip.

Stainless expanded its sales by 16% to €6.4 billion in the reporting period. The main reasons for this were higher customer deliveries and significantly increased base prices for stainless steel. In addition, alloy surcharges increased as a result of higher raw material costs, particularly for nickel.

The ThyssenKrupp Nirosta and ThyssenKrupp Acciai Speciali Terni business units in particular recorded high order volumes and expanded their sales significantly. Both business units profited from the sharp increase in stainless steel demand in Europe. ThyssenKrupp Acciai Speciali Terni also increased its business with end customers due to the expansion of the finishing line in Terni. Despite a fire in the Krefeld cold rolling mill, ThyssenKrupp Nirosta was able to fill most customer orders thanks to targeted redistribution within the segment.

The order situation also improved significantly at ThyssenKrupp Mexinox and Shanghai Krupp Stainless. Both business units also increased their sales. At ThyssenKrupp Mexinox, high demand in North America coupled with favorable prices had a positive impact. In addition, ThyssenKrupp Mexinox was able to further improve its market position in higher-value stainless steel products. Shanghai Krupp Stainless also achieved higher sales, mainly due to production support given to ThyssenKrupp Nirosta to minimize the fire-related losses. Despite quickening Chinese domestic demand, prices failed to reach a satisfactory level in line with the raw material price trend.

ThyssenKrupp Stainless International benefited in particular from a significant increase in service center business following the restructuring last year of the international service center network and the opening of the distribution center in Guangzhou (China).

Orders at ThyssenKrupp VDM were higher than a year earlier. This was mainly due to a much higher price level; prices increased as a result of higher demand in the aerospace, energy generation and oil and gas sectors as well as higher costs for raw materials. Sales at ThyssenKrupp VDM increased significantly.

Earnings

Profits in the Stainless segment rose by €137 million to €423 million. The increase reflected the recovery in demand which took place in almost all market segments from early 2006, accompanied by a continuous increase in base prices. This positive trend was driven by a significant increase in demand from end users and by restocking after the depletion of stocks in the previous year. The temporary and permanent production cutbacks and losses by European producers also contributed to the stabilization of prices. Earnings were impacted by the drastic rise in raw material and energy costs.

The German flat stainless steel business improved only slightly on its prior-year income, although higher expense from the fire damage in the Krefeld plant was offset by insurance recoveries. The profits of the Italian operations were significantly higher than a year earlier; the forging and titanium activities made a major contribution to this. In a positive market environment, the Mexican cold rolling activities matched the good earnings of the prior year. The Chinese cold rolling operation once again returned a loss, albeit significantly lower than a year earlier. Although demand is still increasing on the Asian market, and in particular in China, overcapacities are growing as well. As a result, it was not possible to offset the higher costs of raw materials through price increases. In an improving stainless market, the global service center and distribution activities returned significantly higher profits.

The nickel alloy operations achieved a substantial improvement in earnings. Key to this was the continuing strong demand from the plant engineering, aerospace, oil and gas sectors. Cost-cutting and efficiency enhancement programs also contributed to the positive performance.

Significant events

Due to a technical defect, a major fire occurred in the cold rolling mill of ThyssenKrupp Nirosta in Krefeld on June 22, 2006. Work on replacing the two production lines affected will run into the new fiscal year. In the meantime we are filling customer orders as far as possible from the production capacities of other mills.

Capital expenditures

Stainless invested €230 million in fiscal 2005/2006, with depreciation at €142 million. The main areas of investment were the expansion of processing capacities and the further optimization of our worldwide distribution structures. Significant funds were invested to modernize production equipment and extend finishing and processing capacities. The distribution network was expanded and enhanced.

ThyssenKrupp Nirosta completed the expansion of the EBOR service center in Sachsenheim that was begun in the prior year. The new production shop with cut-to-length and grinding/brushing facilities allows us to maintain our focus on the high-margin processing business, in particular supplying stainless flat products to industrial customers engaged in the manufacture of white goods such as refrigerators and washing machines.

The extensive investment program at ThyssenKrupp Acciai Speciali Terni was aimed at strengthening the stainless business, particularly at the Italian location Terni. The largest single project was an advanced 20-high cold rolling stand for the Terni mill. The stand was ordered in mid-2005 and after commissioning in October 2006 replaced two older stands. It will allow ThyssenKrupp Acciai Speciali Terni to manufacture more products with higher value-added and so increase its proportion of higher-margin end customer business. Also at Terni, construction began of a new annealing/pickling line for stainless hot-rolled strip which will have a capacity of around 650,000 tons per year and replace several existing lines. The end product is pickled hot-rolled stainless in widths up to 1,570 mm and thicknesses of 1.5 to 7.0 mm. It is intended as a starting material for our own cold rolling mills and will also be supplied to end users. Production is scheduled to begin in the 3rd quarter 2007. The conversion of the former service center CS Inox in Terni into a mill finishing department is largely complete, as is the construction of a paint line for producing stainless steel strip with the newly developed transparent coating SilverIce® UV for highly demanding applications.

At Deutsche Titan in Essen, a company in the ThyssenKrupp Acciai Speciali Terni business unit, we built a further vacuum arc furnace and thus significantly expanded our production capacity for titanium ingots.

In August 2006, ThyssenKrupp Mexinox started operation of a bright annealing line in San Luis Potosi (Mexico) which had previously been used in the Terni plant of ThyssenKrupp Acciai Speciali Terni. In the space of only 18 months the line was dismantled at its original location, shipped to Mexico, completely refurbished and rebuilt. The investment in this additional production line and the associated expansion of finishing capacities will allow ThyssenKrupp Mexinox to increase its capacities and widen its product range, particularly in the area of higher-value products. Annual production will increase by around 30,000 to roughly 250,000 metric tons of stainless cold-rolled. This measure will significantly strengthen our position on the important stainless steel markets in Central and particularly North America.

ThyssenKrupp VDM intends to expand in highly profitable segments of the nickel alloy market, particularly in superalloys, i.e. high-performance materials with special corrosion and heat resistance properties. As part of this, remelting capacities in the Unna mill are being expanded. To reduce our dependence on outside manufacturers in the long products area, we are also building a new forging line at this location. The new line will start operation in 2008.

AUTOMOTIVE

Automotive in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		8,128		7,868
Sales	million €		7,867		8,045
Body	million €		2,866		2,853
Chassis	million €		3,459		3,657
Powertrain	million €		1,700		1,679
Consolidation	million €		(158)		(144)
Income*	million €		118		(174)
Employees (September 30)			43,537		39,446

Order intake and sales: Market environment difficult

As an international partner to the automobile industry, the Automotive segment develops and produces innovative components and systems for the chassis, body and powertrain areas. This market is in a phase of upheaval worldwide. Rising raw material and energy costs cannot be passed on to customers in full if at all in a highly competitive market. In North America, suppliers as well as traditional auto manufacturers are in the middle of a radical restructuring and downsizing process. In Europe, suppliers are under major pressure from manufacturers to further reduce costs. In Brazil, vehicle exports were made more difficult by the significant increase in value of the Brazilian real. Competition also intensified in growing markets such as China. The need to gain market share is increasing pressure on the prices of vehicles and vehicle part suppliers.

This market environment also impacted the performance of Automotive, particularly its earnings. Order intake decreased by 3% to €7.9 billion. Sales were slightly higher than the prior year at €8.0 billion, due to significant growth in the systems business, additional volumes and price-related growth at the North American foundries as well as increased sales from ongoing contracts. In addition, new production lines began operation in a large number of Automotive companies.

In the Body business unit, sales in 2005/2006 were almost level with the previous year at €2.9 billion. The North American foundries of ThyssenKrupp Waupaca benefited from continuing strong demand for trucks. Demand was particularly strong for products for medium and heavy trucks as well as construction and agricultural equipment. ThyssenKrupp Umfortmtechnik began production of stampings for a new van and a luxury class vehicle. Sales of the Body business units were severely impacted by the collapse in demand for sport utility vehicles, previously very popular in the USA. This resulted in significant volume decreases in the North American stamping plants. Business at ThyssenKrupp Sofedit was impacted by lower demand from French automobile manufacturers. The decrease in sales at ThyssenKrupp Drauz Nothelfer was due to lower market volumes as well as stiffer competition on the European production equipment market.

The Chassis business unit increased its sales by 6% to €3.7 billion in the reporting period. This pleasing development was due among other things to a significant increase in systems business. As well as the start of production of axle assembly plants in Leipzig and Mexico, the three plants of ThyssenKrupp Budd Systems in London, Columbia and Fowlerville recorded significantly higher orders. At ThyssenKrupp Umformtechnik, ThyssenKrupp Presta SteerTec USA and ThyssenKrupp Bilstein Suspension, new orders from various German auto manufacturers went into production. ThyssenKrupp Tallent Chassis also reported increasing order numbers. Sales of the business unit were adversely impacted by lower orders from US manufacturers in particular. Divestments also had a negative effect on sales.

The Powertrain business unit achieved sales of €1.7 billion. Favorable factors were the start of production on various crankshaft and camshaft orders, price increases in South America, and exchange rate effects. In the Transmission & Driveline Components business, numerous programs were launched for German, French and American auto manufacturers. Lower truck output and massive competition in the area of 4-cylinder car crankshafts had a negative impact on sales.

Earnings

The Automotive segment returned a loss of €174 million, compared with a profit of €118 million a year earlier. The loss was mainly due to restructuring expense and impairment charges on goodwill and property, plant and equipment. The impairment charges resulted primarily from the initiation of the disposal of the North American body and chassis business, but also from the deterioration in the situation in Germany for body lines and tool/die making. Non-recurring expense for restructuring and impairment charges amounted to €339 million. This was set against disposal gains of €35 million.

Operating profits in the Body business unit, i.e. disregarding non-recurring expense, fell short of the prior-year level. This was mainly due to declining workloads at the North American and French stamping plants and higher scrap prices at the American foundries.

The Chassis business unit increased its operating income, thanks to improved operating performances at the British stamping plants and in the areas of steering and suspension.

The Powertrain business unit failed to match the high operating earnings of the previous year. Profits were impacted by the development of the exchange rate for the Brazilian real against the US dollar.

Significant events

The Automotive segment further optimized its portfolio in 2005/2006. In the USA, the plastics plants and the ThyssenKrupp Stahl Company aluminum foundry were sold. The closure of the Detroit plant of ThyssenKrupp Budd began on September 30, 2006. In addition, the operations of Aluminiumfeinguss Soest are no longer part of the portfolio. On the other hand there were various acquisitions. We increased our shareholding in Liaoyang KS Automotive Spring, a manufacturer of coil springs, from 30% to 60%. In addition, we purchased the remaining shares in ThyssenKrupp Presta SteerTec held by DaimlerChrysler.

The operations of the Automotive segment are being realigned. The reasons for this are the well-known restructuring requirements of the body and chassis business, especially in North America. On October 16, 2006, an agreement was signed to sell the North American body and chassis operations with sales of around €1 billion and 3,500 employees to the Canadian company Martinrea International, Ontario.

Capital expenditures

Automotive invested €448 million in the reporting period, with depreciation at €323 million. The focus was again on capacity adjustments to meet new customer orders. In the Body business unit, welding capacities in the UK were expanded to fill an order for stampings and welded parts from a Japanese auto manufacturer. ThyssenKrupp Waupaca expanded its melting capacities in the USA to permit further sales growth. In France, ThyssenKrupp Sofedit increased its capacities with a second hot stamping line. At ThyssenKrupp Umformtechnik, a newly built body stamping plant began operation in Bielefeld, while in Ludwigsfelde investment was carried out to expand the stamping and assembly lines.

In the Chassis business unit, the welding, stamping and assembly lines were adapted to meet new orders. ThyssenKrupp Automotive Tallent expanded its welding and assembly capacities in the UK for the production of front and rear axle components of a large car platform. In Germany, ThyssenKrupp Umformformtechnik began building new production lines for subframes and control arms. In India, stamping capacities for the Asian market are being expanded. ThyssenKrupp Automotive Systems invested in new production lines for the manufacture of axle components in Brazil. ThyssenKrupp Presta also adapted and expanded its production lines to meet new orders for steering columns and steering gears. ThyssenKrupp Bilstein did likewise for the production of shock absorbers, stabilizers and springs.

In the Powertrain business unit, ThyssenKrupp Gerlach modernized and expanded its production capacities for forged crankshafts. An induction hardening facility is being built for the production of large crankshafts. Investment was also carried out in North America and Brazil to increase crankshaft production capacity. We are setting up a company with a partner in China to move into the production of forged truck crankshafts on the Asian continent. ThyssenKrupp Presta invested in new production lines to meet orders for assembled crankshafts. A new assembly and grinding facility is being set up at the Chemnitz location. ThyssenKrupp Präzisionsschmiede also expanded its production capacities to meet encouragingly high demand for warm forged differential bevel gears.

TECHNOLOGIES

Technologies in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		5,643		7,968
Sales	million €		5,765		6,012
Plant Technology	million €		2,223		2,266
Marine Systems	million €		1,674		1,932
Mechanical Engineering	million €		1,865		1,810
Transrapid	million €		21		17
Consolidation	million €		(18)		(13)
Income*	million €		40		357
Employees (September 30)			28,042		27,492

Order intake and sales: On profitable growth track with leading-edge technology

The Technologies segment is a high-tech engineering group which holds leading market positions worldwide and boasts innovative system and engineering expertise. Its capabilities are focused on systems, plants and components as well as associated services. The market environment in the reporting period was favorable. Order intake totaled €8.0 billion, up 41% from the prior year. Sales increased significantly by 4% to €6.0 billion. The order backlog at the end of the reporting period was €10.7 billion, 19% higher than a year earlier.

The Plant Technology business unit recorded strong growth in orders, due above all to stable raw material demand worldwide. The foreign markets continued to show high growth. Thanks to the price trend in crude oil and gas, countries in the Middle East were able to push ahead with investments in the industrial sector. The business unit also profited from rising demand for its technologies for oil sands mining projects. Sales at Plant Technology were again at a high level, reflecting above all significant growth in cement plants and materials handling/mining equipment.

Marine Systems also increased its order intake significantly from the prior year. The business unit won several large contracts, including a submarine modernization contract for Singapore as well as orders for two mega yachts and numerous container ships. Sales increased substantially due to the inclusion of the HWD group for the full fiscal year. In addition, sales from existing orders were higher and the volume of repair business also increased.

Order intake at Mechanical Engineering decreased, but only as a result of disposals. Excluding these, orders increased significantly. The business unit benefited from continuing high demand for construction equipment and general engineering components. Business in large-diameter bearings for wind turbines was again at a high level. High raw material costs had a negative effect. Sales were slightly lower than a year earlier due to disposals. Excluding these, however, sales showed a pleasing increase. The positive trend in large-diameter bearings and construction equipment components played a major part in this.

The order situation in the Transrapid business unit improved. Activity focused on the planned extension of the Transrapid line in Shanghai and the 37-kilometer Transrapid link from Franz-Josef-Strauss Airport to Munich Central Station. Sales were level with the prior year.

Earnings

The Technologies segment increased its income from continuing activities before taxes by €317 million to €357 million. All business units achieved significant improvements in their operating earnings. The disposal of low-profit areas in fiscal years 2004/2005 and 2005/2006 also had a positive effect. The MetalCutting business unit sold in October 2005 is included in discontinued operations; the prior-year comparative figures have been adjusted accordingly.

The Plant Technology business unit generated a nine-figure profit. This significant increase was based on improved earnings from orders, higher sales of cement plants and materials handling equipment and the absence of restructuring expenses which impacted negatively on the previous year. In addition, the fair value recognition of currency hedges had a positive effect. The overall situation for foreign projects in the plant and mechanical engineering activities was very good thanks to strong demand for raw materials, energy and petrochemical feedstocks. All operating groups in the Plant Technology unit benefited from this.

Marine Systems also returned significantly higher earnings. Positive effects came from the absence of restructuring expenses, which impacted the prior year, higher sales from orders in hand, increased capacity utilization and a greater volume of repair business.

Mechanical Engineering increased its profit into the three-figure millions and thus provided the biggest contribution to the earnings of the Technologies segment. This was partly due to high capacity utilization as a result of stronger demand, but also to the elimination of loss-making areas and the absence of expenses from the fair value recognition of currency hedges which impacted the prior year.

The Transrapid business significantly reduced its losses to an amount in the single-figure millions, mainly due to lower restructuring expense and lower depreciation.

Significant events

Technologies acquired 60% of Atlas Elektronik, which will be run jointly with EADS in the future. As a leading electronics and systems company, Atlas Elektronik specializes in equipment and systems for naval forces. The company employs 1,750 people and has a balanced technology base and a product range for submarines and surface ships. It is regarded as one of the market leaders in the development of integrated sonar systems for submarines and is a longstanding supplier to, and systems partner of, ThyssenKrupp Marine Systems.

As well as acquisitions, Technologies also disposed of non-core operations in the reporting period. The Noske-Kaeser group and the steam turbine business of B + V Industrietechnik were sold.

Capital expenditures

Technologies invested €300 million in the reporting period; depreciation amounted to €134 million. The spending focused on programs to increase the efficiency of production processes. At Berco in the Mechanical Engineering business unit, the rationalization of roller assembly was continued with the commissioning of highly automated assembly lines. Other major projects were mainly aimed at increasing capacities.

The Marine Systems business unit completed a ship repair center in Emden. The largest lathe in northern Europe was installed at the Hamburg site; it can machine workpieces up to 20 meters long and up to three meters in diameter. Hellenic Shipyards in Skaramanga, Greece, invested in two shipyard cranes to create the conditions for repair business and modular construction in the newbuilding business.

The Mechanical Engineering business unit continued the strategic expansion of large-diameter bearing production in the reporting period and began building up a ring rolling mill in China.

ELEVATOR

Elevator in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		4,151		4,690
Sales	million €		3,773		4,298
Central/Eastern/Nothern Europe	million €		1,209		1,282
Southern Europe/Africa/Middle East	million €		498		571
Americas	million €		1,485		1,804
Asia/Pacific	million €		419		453
Escalators/Passenger Boarding Bridges	million €		247		306
Accessibility	million €		134		167
Consolidation	million €		(219)		(285)
Income*	million €		355		391
Employees (September 30)			34,151		36,247

Order intake and sales: Market presence further expanded

The product range of the Elevator segment includes elevators, escalators, moving walks, passenger boarding bridges as well as accessibility products for the elderly and disabled such as stair and platform lifts. The company further expanded its market presence in all areas in the reporting period. Following the large orders in previous years, the focus this time was more on small and medium-sized orders. In sum they resulted in another successful year. Order intake increased significantly by 13% to €4.7 billion, while sales increased by 14% to €4.3 billion.

This encouraging performance was due among other things to the implementation of our cross-selling strategy. Cross-selling is based on leveraging customer satisfaction to create demand for other products offered by the segment. This strategy has led to positive results in the airport sector in particular where we are strongly represented in several product areas

The Central/Eastern/Northern Europe business unit again achieved higher order intake and sales. The increase was mainly due to the activities in the United Kingdom, France, the Benelux countries and Eastern Europe. Despite continuing price pressure, the other markets recorded a stable business trend. In Switzerland, the first-time inclusion of Trapo Küng had a positive effect.

The Southern Europe/Africa/Middle East business unit achieved significant growth in sales. Order intake was lower due to the major orders received for Dubai Airport in the previous year. Excluding this effect, order intake increased, particularly as a result of new infrastructure projects in Spain. In the other markets, the volume of business was maintained or slightly increased, except in Portugal, where the realignment of the new installations business resulted in a decrease.

Strong growth in both order intake and sales was recorded by the Americas business unit. All regions contributed to this, with the new installations business in North America being particularly successful. In addition, the modernization and the service operations were further expanded. Exchange rate factors had a positive impact.

In the Asia/Pacific business unit, order intake and sales were significantly higher than a year earlier. Exchange rate developments also had a positive effect here. In China, the business trend was again upward. The market environment in South Korea remained difficult. Higher service sales were unable to offset weaker sales of new equipment. The operations in Australia, India and Southeast Asia further expanded their business volume, among other things due to the inclusion for the first time of the Indonesian and Taiwanese companies.

The Escalators/Passenger Boarding Bridges business unit showed strong growth in order intake and sales. The escalator business profited in particular from the positive new installations trend, but the volume of business in passenger boarding bridges was also higher than a year earlier as a result of growth in air traffic.

The Accessibility business unit recorded substantial growth in both orders and sales. All of the operations in Europe and North America contributed to this. The effect was reinforced by the first-time inclusion of Ceteco in Italy and the addition of the accessibility operations in Spain and Norway which were previously supported by the elevator organization. The operations in the UK were sold.

Earnings

The Elevator segment achieved a profit of €391 million, compared with €355 million a year earlier. Income in the Central/Eastern/Northern Europe business unit decreased slightly due to lower earnings from the new installations business. This was countered by efficiency improvements and higher workloads at all the European production plants. The newly acquired activity in Switzerland also made a positive contribution.

The Southern Europe/Africa/Middle East business unit improved on its prior-year profits. In Spain, the business unit achieved significantly higher earnings, while all other regions matched their good prior-year performance despite increasing price pressure. There were also positive contributions to income from the newly acquired companies in Italy and Egypt, which were included for the first time, and the absence of expense for the valuation of currency derivatives, which impacted the previous year's figures.

The Americas business unit returned substantially higher profits. Growth in North America was mainly driven by efficiency enhancements, especially in the production area, and the systematic expansion of the service business. The Latin American activities, particularly in Brazil, also achieved significant earnings improvements. The higher average value of the US dollar also resulted in translation gains.

The Asia/Pacific business unit returned a loss in the reporting period due to developments in South Korea: sharply increased competition in the new installations market resulted in a significant decline in earnings. An extensive restructuring program also impacted income. By contrast, the activities in China, India and Southeast Asia returned higher profits. The newly acquired Taiwanese activities also made a positive earnings contribution.

The Escalators/Passenger Boarding Bridges business unit achieved a higher profit. The escalator activities matched their prior-year performance. Passenger boarding bridge construction benefited from the significant growth in air traffic. The absence of expense for currency hedges, which had a negative impact a year earlier, also contributed to the earnings improvement.

The Accessibility business unit achieved a sharp increase in income, with contributions from both the European and the North American activities. Added to this came positive earnings contributions from a newly acquired Italian company.

Significant events

Several acquisitions contributed to the growth of the Elevator segment in 2005/2006. In the US state of Florida, our modernization and service operations were expanded with the acquisition of Atlantic Elevator Sales & Service. ThyssenKrupp Elevator now has its own market presence in Taiwan following the acquisition of Sun Rhine Enterprises at the end of 2005.

The growth strategy was also continued in Italy with the acquisition of SIAR, a company specializing in maintenance and service. Our first Serbian subsidiary, ThyssenKrupp Elevatori Serbien, began operation in Belgrade.

The segment strengthened its market position in passenger boarding bridges in South America, Europe and North Africa with the acquisition of the TEAM companies in Italy and the UK and of Trabosa in Spain. The Accessibility business unit set up a subsidiary in Portugal, ThyssenKrupp Acessibilidades, Unipessoal.

Capital expenditures

Capital expenditures in the Elevator segment amounted to €164 million, with depreciation at €52 million. Spending on property, plant and equipment focused mainly on maintaining existing operations. In addition, a factory was built in Zhongshan, China, to produce escalators and passenger boarding bridges. However the majority of the investment went on acquiring shareholdings and numerous smaller service packages in various countries.

SERVICES

Services in figures
All figures relate to continuing operations. * before taxes
			2004/2005		2005/2006
Order intake	million €		12,655		14,602
Sales	million €		12,678		14,204
Materials Services Europe	million €		5,773		6,449
Materials Services North America	million €		1,779		2,330
Industrial Services	million €		1,390		1,716
Special Products	million €		3,536		3,650
Discontinued operations/Consolidation	million €		200		59
Income*	million €		261		482
Employees (September 30)			35,067		40,163

Order intake and sales: Record results

The Services segment is focused on material and process services for the production and manufacturing industries. Successful portfolio optimization, efficiency increases and sales initiatives combined with a much improved raw and industrial material market made fiscal 2005/2006 a record year. Sales were 12% higher at €14.2 billion. All the companies and operations established or acquired in the reporting period performed well and contributed to the success.

The Materials Services Europe business unit bettered its strong prior-year figures. Sales increased by 12%. Thanks to good customer and supplier relationships and a sophisticated warehouse and logistics organization, business in material services was very successful. Levels of capacity utilization in key sectors such as engineering, plant construction and the automotive supply industry were very high. In Germany, integrated supplies of products and services performed very well. The operations in France continued to perform at a high level. In Spain and Portugal, too, we equaled our prior-year figures. Sales in Eastern Europe showed a rising trend, above all in Hungary, Poland and the Czech Republic. There were demand overhangs in almost all product areas. Due to the strong demand delivery times on the procurement side increased drastically and sales prices rose substantially, particularly for stainless steel, nonferrous metals and rolled steel.

The growth in the NAFTA region was even more pronounced than in Europe. The Materials Services North America business unit increased its sales by 31% through internal and external growth, and further strengthened its position on the market. New performance programs and acquisitions were very successful. Despite the slowing US economy, demand increased in all sectors relevant to the business unit. As in Europe, prices rose sharply for rolled steel, stainless steel and tubular products and especially for nonferrous metals.

The fast growing US materials market was likewise the main reason for the 24% sales increase in the Industrial Services business unit, which also performed well in the highly fragmented European market. In Scandinavia, capital spending by the petrochemical industry contributed to a significant increase in business. Sales initiatives to win new customers and improve customer penetration had a pleasing effect, as did the first-time inclusion of the new companies ThyssenKrupp Xervon Energy and RIP in Brazil. The operations in Germany also recorded growth. The in-plant logistics and production support operating groups were further expanded. The energy sector was a major customer. By contrast, the construction-related operations suffered from the weak state of the German market and low public spending; however this was offset by the continuing outsourcing trend.

Sales of the Special Products business unit improved 3% from the high level of the prior year. The raw materials and in particular the engineering operations made significant progress with numerous new projects. Key factors in this were a pleasing level of domestic business, a strong increase in exports and a continuing sharp focus on customer-specific services and integrated solutions. Sales of rolled steel in the Far East were down from the extremely high level of the prior year. On the other hand, tubular products performed very well with numerous new contracts. Sales here were much higher than a year earlier. Technical trading benefited from a very good level of business, including in the offshore area. The alloy and metal distribution business also performed well. Sales of Chinese blast furnace and foundry coke and of coal were slightly weaker. Prices for imported coke from China as well as freight rates decreased significantly compared with the prior year.

Earnings

The Services segment reported earnings of €482 million, up €221 million from a year earlier. In addition to improvements at operating level, the absence of now-sold loss-making areas also had a positive effect.

The Materials Services Europe business unit, which also includes the South American and Asia businesses currently being built up, made the biggest contribution to income, improving significantly on the very good profit of the previous year. Key to this was a substantial recovery on the global materials markets, resulting in a demand overhang in many product areas with drastic price increases. This applied to rolled steel, stainless steel, tubular products and in particular nonferrous metals. The further expansion of business in Eastern Europe and the success of the performance programs initiated in all areas also had a major influence.

The largest increase in profit was achieved by the Materials Services North America business unit. Earnings almost trebled as a result of the product range, with a very high share of nonferrous metals, the targeted expansion of sales activities and the successful integration of new companies. Higher supplies of titanium and aluminum products to the booming aerospace industry also contributed to the earnings improvement.

The Industrial Services business unit achieved slight income growth. While the service business in North America more than doubled its profits, the unit was impacted by non-recurring charges for restructuring. This affected above all the process industry division in Germany, while the companies working for the metal industry and manufacturing sector achieved higher profits.

The Special Products business unit achieved a further significant improvement on its high prior-year earnings. All areas increased their profit contributions, and further gains came from the disposal of businesses.

Significant events

Services completed its extensive portfolio streamlining program in the reporting period with the sale of the Hommel group and Krupp Druckereibetriebe. At the same time it added significantly to its activities, especially outside Germany. The main acquisitions centered on the further expansion of the US and Eastern European operations. Activities were also strengthened in South America, Germany and Asia. The aim was to further integrate materials services – for example processing, warehouse and inventory management, logistics, supply chain management – with industrial process services. The technical systems business was also further expanded.

In the area of materials services, the segment acquired 80% of Jupiter Stomana in Bulgaria. Under the new name ThyssenKrupp Jupiter Stomana the company will rapidly expand its warehouse and service business for rolled steel and tubular products. Stainless steel and nonferrous metals are to be added to the range. Services strengthened its capabilities in the UK with the acquisition of Metalfast. The company offers services in the area of aluminum and has various warehouse and processing sites. In China, the segment established the materials services provider ThyssenKrupp Materials Shanghai together with a local partner.

In Europe and North America, Services will acquire the aerospace service business of Alcoa. The segment is thus expanding its activities in the distribution and warehousing of aluminum materials to include high-quality processing services for aircraft manufacturers. We strengthened our position in copper and brass distribution in Canada with the acquisition of the operations of VPK Metals. In addition, the industrial service, warehouse and logistics operations of the Hearn group in the USA and Canada were acquired.

In Brazil, Services acquired majority shareholdings in the industrial service providers RIP Serviços Industriais and RIP Comércio. RIP provides fire-proof coating, insulation, corrosion protection and scaffold services primarily for the chemical, petrochemical, aluminum, paper, energy and mining sectors. In Germany, the industrial services operations were expanded with the acquisition of the German service companies of the Standardkessel group. The companies, now trading under the name ThyssenKrupp Xervon Energy, specialize in energy plant, power plant and incinerator services as well as the refractory lining of boilers.

Capital expenditures

Capital expenditures in the Services segment amounted to €393 million, with depreciation at €128 million. In the growing Polish market Services invested in the expansion of a new service center for materials, the largest of its kind in Eastern Europe with a warehouse area of roughly 70,000 square meters. In Germany, the track engineering business invested in a rail welding plant and a facility for reconditioning and reprofiling used rails. The remaining investment focused on maintaining existing operations, opening up new sales channels and acquiring patents. Other important areas were the expansion, modernization and process optimization of the warehouse business, particularly in Germany, North America and Asia.

CORPORATE

Corporate embraces the Group's head office including financial and insurance service providers as well as other service companies and the national holding companies. Following the sale of the residential real estate business, Corporate Real Estate Management is now also included in Corporate. Sales at Corporate were €148 million, compared with €138 million in the prior year.

Expenditure in the reporting period amounted to €230 million before taxes, an improvement of €152 million from the prior year. This comparison does not include the non-recurring charge allocated to Corporate in the prior year in connection with the revaluation of the investment in RAG Aktiengesellschaft. The improvement is mainly due to the receipt in the 2nd quarter of the €153 million Dofasco break-up fee. The consulting costs incurred in this connection are also included in the results of Corporate. Other changes compared with 2004/2005 largely balance out. These include higher communications costs and costs for supporting research and development projects. Set against this were lower interest expense, lower pension costs and the absence of charges for risk provisions in the previous year. Net interest expense improved by €92 million to €(142) million. This was due to the elimination of net financial debt and a further decline in interest expense for pension obligations.