Letter to stockholders

One of the most important measures of a company's success is its pre-tax income. In the past fiscal year, your Company achieved pre-tax income of €2.6 billion, some €950 million more than in 2004/2005. This figure will come as no surprise to you, as we reported our improved earnings forecast during the year when signs of our excellent performance became evident. But what you will not know is the dividend we are proposing for 2005/2006. In January 2007, the Executive Board and Supervisory Board will propose to the Annual General Meeting the payment of a dividend of €1.00 per share. Excluding the special dividend paid in 2004/2005, that represents a 43% increase compared with last year.

This Annual Report provides details on the most successful year for your Company since the merger in 1999. It is designed not only to take you through the business world of ThyssenKrupp but also to take you back to the Ideas Park 2006. The Ideas Park is part of our "Discovering future technology" initiative which we launched to promote an innovation-friendly climate in Germany and generate greater enthusiasm for technology among the German public. If you were not one of the 200,000 visitors to Hanover, here's your chance to find out what you missed.

Some of the information in the 2005/2006 Annual Report may no longer be where you would expect to find it, as it is now based on the new rules governing management reporting. But everything is still there, and we have provided detailed contents and index pages to help you find your way around. In addition, our accounting in 2005/2006 was based for the first time on International Financial Reporting Standards (IFRS), and to improve comparability we have also presented the prior-year figures on an IFRS basis.

In this letter to you I would like to address three questions: the first concerns the factors behind our success, the second our growth strategy and the third our vision of the future.

What were the key success factors in 2005/2006?

There can be no doubt that the past fiscal year was an outstanding success. In addition to our pre-tax earnings, other indicators also reached record highs. Sales were up 10% from the prior year at €47.1 billion. Earnings per share increased from €2.08 to €3.24. Our roce climbed from 14.4% last year to 17.9%. On September 30, 2006 we had net financial receivables of €747 million, as opposed to net financial liabilities of €177 million a year earlier.

The Steel, Stainless, Technologies, Elevator and Services segments further improved their market positions, sales and earnings. The Automotive segment continued its restructuring program, particularly in the USA. In parallel with the sale of the North American body and chassis operations, the Automotive activities were merged into the Technologies segment effective October 01, 2006, where in the future they will be developed in the Mechanical Components and Automotive Solutions business units.

Our pleasing business performance was in part due to strong economic activity in our key customer sectors. But equally important were the successes of our improvement programs. They helped further increase productivity and efficiency, which in turn among other things helped counter the rise in prices for raw materials and energy. Our focus was on improving performance and profitability in all segments. The ThyssenKrupp best corporate program continued to be a success.

But unfortunately it was not all good news last fiscal year. I am not talking about the questions and problems every company has to deal with on a day-to-day basis. I am talking about the tragic accident on the Transrapid test line in Lathen. We were all deeply shocked when the news reached us on September 22, 2006. We mourn the victims and our thoughts are with their families. We have made donations to assist the bereaved and the helpers.

How is the transition from the consolidation phase to the growth phase going?

A year ago I reported that the phase of consolidation at ThyssenKrupp was largely completed. Our goal is now to achieve profitable and sustainable growth in our three main business areas of Steel, Capital Goods and Services. In this way we will be able to continuously increase the earning power and the value of your Company. The results of the reporting year show that we have already achieved initial successes, so we are definitely on the right track.

In 2005/2006 we set the course for the future strategic development of the segments. In September 2006 the foundation stone was laid for the new steel mill in Brazil. As regards the Canadian steel producer Dofasco – an important element in developing the NAFTA market – we expect a final decision in the coming weeks. Alternatively, we have drawn up plans to build a new plant in the USA. These plans can be realized quickly from 2007. For more about the future of Steel and the strategic prospects of our other segments Stainless, Technologies, Elevator and Services, please turn to the management report.

Our capital expenditure plans are ambitious but realistic. In the next few years, we intend to invest up to €20 billion in the future of the Company, around half in organic growth and acquisitions and half in maintaining existing facilities and equipment. And before anyone asks about financing, all our projects are robustly costed and we have adequate funds to realize them.

What will ThyssenKrupp look like a few years from now?

Through organic growth, strategic acquisitions and an even stronger service focus, we aim to achieve sales of around €50 billion. Roughly €30 billion of this will be generated by product-oriented activities and €20 billion by service business. Our sustainable goal for earnings before taxes – over the economic cycles – is €2.5 billion. We achieved this figure in 2005/2006 and are confident we can repeat it in 2006/2007. This is based on the assumption that the global economy remains stable and oil prices stay within manageable limits.

In the areas of steel, capital goods and services we will continue to satisfy our customers with innovative products and services. Customer focus is the key to sustainable, profitable growth, and that in turn is a solid foundation for a long-term, earnings-based dividend policy. Our innovativeness, earning power and dynamism will continue to motivate our employees and managers to top performances and make ThyssenKrupp an attractive company to work for. A commitment to society has always been part of our corporate philosophy: we will continue to be actively involved in areas outside our business activities. As I see it, these are all convincing reasons to invest in ThyssenKrupp and to join the Company on its journey into the future as a stockholder. I hope you will agree. Thank you for your trust.

 

Yours sincerely,

Dr.-Ing. Ekkehard D. Schulz, Chairman of the Executive Board
Düsseldorf, November 2006