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RISK POLICY AND MANAGEMENT:
AIMED AT INCREASING CORPORATE VALUE

The Group's risk policy is aimed at systematically and continuously increasing corporate value and achieving the mid-term financial key performance targets. The name and reputation of the ThyssenKrupp Group and the "ThyssenKrupp" brand are key priorities for the Group.

We accept reasonable and manageable risks the more they are associated with building and utilizing the core competencies of the Group. The opportunities they present must provide an appropriate increase in value. Risks connected with support processes are transferred to other risk carriers, provided this is economically expedient. Risks not connected with core and/or support processes are not accepted. Overall the aggregate risk volume must not exceed the risk coverage potential available at ThyssenKrupp AG.

Apart from this, the Group has a code of conduct which is set out in policies and other directives, compliance with which is supported by training and monitoring measures. Speculative transactions or other measures of speculative character are inadmissible. Our conduct toward suppliers, customers and society is marked by fairness and a sense of responsibility.

Efficient risk management system

The Executive Board of ThyssenKrupp AG has installed a systematic and efficient risk management system. Direct responsibility for early identification, control and communication of risks lies with the operating management of the risk holder; responsibility for monitoring lies with the next highest level.

Under the risk management system, the occurrence, status and significant changes of major risks are communicated by the Group companies bottom up, in line with tiered threshold values. The segments inform the Executive Board of ThyssenKrupp AG about the current risk situation on a bi-weekly basis. In addition, risks occurring at short notice and urgent risks with an impact on the entire Group are communicated outside the normal reporting channels directly to the responsible offices of ThyssenKrupp AG.

The adherence of the Group companies to the risk management system and their risk control measures were examined by external and internal auditors in Germany and abroad. The findings made serve to further improve early risk identification and control.

Risk transfer controlled on a Groupwide basis

The central service provider Risk and Insurance Services GmbH controls the transfer of risks to insurers using global insurance programs in coordination with the Executive Board of ThyssenKrupp AG. To counter the risk of excessive deductibles, especially in the area of property insurance, the Group regularly prepares and evaluates risk and damage analyses. Work groups were also formed to develop joint and binding risk prevention standards and monitor adherence to these in regular audits. In association with ThyssenKrupp Risk and Insurance Services, standing work groups were formed in the segments to develop and monitor risk improvement measures and common minimum standards relating to fire protection in the framework of a property insurance risk management system. In addition, internal and external audits are carried out.

FINANCIAL RISKS

Central responsibilities of ThyssenKrupp AG include resource allocation and securing the financial independence of the Group; in this connection ThyssenKrupp AG is also responsible for optimizing Group financing and containing financial risks.

The procurement of funds in international financial and capital markets is effected in different currencies – predominantly in euros and US dollars – and with various maturities. The resulting financial liabilities are partially exposed to risks from changing interest rates. To manage these risks, regular interest rate risk analyses are prepared. The regular communication of the results of the interest rate risk analyses is part of the Group's risk management system.

To contain the risks of the numerous cash flows in different currencies – in particular in US dollars – Groupwide regulations exist for the centrally organized foreign currency management of the ThyssenKrupp Group. All companies of the ThyssenKrupp Group are obliged to hedge foreign currency positions at the time of their inception.

Among other things, derivative financial instruments are used to hedge the risks. The Group's centralized foreign currency management, centralized management of interest rate risks as well as hedging against commodity price risks are disclosed in detail in Note 30.

Generally, hedging of translation risks arising from currency conversion does not take place.

Sale of real estate/companies and restructurings

To hedge against processing risks from the disposal of real estate, companies or other business activities and for restructuring measures in the Group, such risks that are probable are accounted for.

Information security

To ensure the safe processing of IT-assisted business processes, the information technologies in use are continuously evaluated and adjusted. Measures to improve information security are being developed continuously to eliminate or at least minimize the risks relating to business processes between Group subsidiaries and with customers, suppliers and business partners.

Pension and healthcare measures

The fund assets for the financing of pension liabilities are exposed to capital market risks. Pension obligations are subject to risks from increased life expectancies of beneficiaries and from obligations to adjust pension amounts on a regular basis. In addition, cost increases for healthcare commitments in the USA and Canada cannot be ruled out. Furthermore, in some countries there is a risk of significantly higher payments having to be made to finance pension plans due to increased statutory requirements.

Litigation and claims for damages

A report on pending litigation and claims for damages can be found in Note 29.

Real estate and environmental protection

The former use and continued ownership of real estate gives rise in particular to risks from contaminated sites and mining subsidence. ThyssenKrupp counteracts these risks with appropriate preventive measures and the scheduled fulfillment of remediation obligations. Insofar as the measures cannot be completed within a fiscal year, we recognize accrued liabilities in the requisite volume.

Rising standards in environmental protection and conservation of resources are also causing increased expense in other areas. On the other hand, the use of modern plant and equipment reduces charges and energy costs. In addition, the likelihood of environmental risks being realized is reduced by the growing number of subsidiaries with certified environmental management systems.

Volatility of steel prices and dependency on the automotive industry

The volatility of steel prices and the dependency on the economic situation in the automotive industry have a significant influence on the economic development of the Group. However, the broad business portfolio, both product-wise and geographically, has a stabilizing effect.

Volatility on the energy markets

To counter the risk resulting from the continuous rise in electricity and gas prices since the beginning of 2005, the Group applies a structured procurement system on the electricity market and concludes or renews long-term gas supply contracts.

Personnel risks

To safeguard and strengthen the competencies and commitment of management personnel within the Group, ThyssenKrupp will continue to position itself as an attractive employer and strive for long-term retention of senior executives in the Group. In particular, the creation of perspectives, target group-oriented mentoring, the early identification and promotion of potential executives and an attractive incentive system for senior executives are elements of systematic management development.

RISKS OF FUTURE DEVELOPMENTS IN THE ECONOMY

For 2007 we expect continuing growth of the world economy. World GDP is expected to increase by 4.5%, slightly lower than the year before. For 2008, too, we expect the growth to continue, albeit at a slightly slower rate. This forecast is based on a number of assumptions. It is assumed that the geopolitical and economic situation will remain largely stable, in particular in respect of developments on the capital, foreign currency and raw materials markets and in international trade.

Prices of crude oil and other energy raw materials are not expected to increase significantly in 2007. A marked rise in the price of oil would slow down global economic growth, increase our procurement costs and negatively impact sales prospects on the international markets. We expect supplies of energy and other raw materials to remain secure.

Against the background of the slight slowdown in world economic growth and the limited inflation risks, we expect at most only isolated interest rate increases by the central banks. In particular in the USA the central bank is unlikely to introduce further interest rate rises. As a result we do not expect any major changes in the US dollar/euro exchange rate. An interest and exchange rate risk would occur if the capital markets were to significantly change their positive stance toward the financial feasibility of the US trade deficit. This would lead to an increase in the value of the euro with negative effects on the competitiveness of European businesses.

MARKET RISKS IN THE SEGMENTS

In the steel business we counter the risks arising from cyclical trends by optimizing costs, adjusting production in a timely manner and concentrating on exacting market segments. Quality and delivery deadline risks are minimized through continuing optimization of the value chains.

In the Steel segment there are major opportunities as well as risks on the market side regarding the implementation and development of sales prices and volumes. Disproportionate increases in raw materials prices pose risks on the cost side. We therefore keep a constant eye on developments and influential factors. In addition, potential damage events could negatively impact earnings even though organizational and technical measures are implemented on an ongoing basis to prevent such events.

Despite our special market position, there remains a risk of surplus capacities arising particularly in China in the coming years which would disturb the balance on the world markets and could lead to inadequate price structures. This poses significant risks for ThyssenKrupp Steel and its competitors. Developments in Asia are therefore being closely monitored.

In addition to the general risks affecting the steel business, the Stainless segment also faces risks mainly from existing or anticipated overcapacities at the stainless producers in Asia, in particular China. Stainless counters these market risks by expanding its business with end customers, providing local customer services, enhancing quality and strengthening its delivery performance. In addition, the segment develops new applications for stainless steels and nickel alloys, innovative products from these materials as well as modern and cost-saving process technologies.

We minimize the risks arising from the availability and prices of raw materials, especially for nickel, chromium and alloyed scrap, by means of adequate contracts and hedging mechanisms. In addition, the Stainless segment prepares for possible substitution risks for stainless flat products due to consistently high alloying element prices by developing alternative material concepts.

Declining demand from the auto industry has led to a sharp reduction in earnings in the Automotive segment. In the future we will therefore focus the automotive activities on the components business and tailored product innovations. These measures could lead to further financial burdens. Increasing steel prices, which experience shows can only be partly passed on to customers on account of the market situation, place a sustained burden on earnings for the automotive activities concerned. To compensate for the increasing cost pressure on the procurement side and the increasing price pressure from automotive manufacturers on the sales side, ambitious segment-wide cost-reduction programs have been implemented and are being further accelerated.

The market for production facilities for the auto industry is currently characterized by a sharp fall in prices, making extensive restructuring measures and capacity cutbacks necessary. In the past fiscal year sales and earnings were also negatively impacted by exchange rate developments in foreign currency transactions, e.g. the US dollar-based supplies from Brazil to the USA.

Possible risks arising from the discontinuation of currently manufactured automotive products are offset through research and development and by cooperation with partners or acquisition of investments. The increasing complexity of products and underlying production processes in some cases carry the risks of higher start-up costs and earnings charges.

In the Technologies segment, the Plant Technology and Marine Systems business units both continue to curb risks arising from the processing of long-term contracts and technological innovations, e.g. by intensified project controls, increased use of project management measures and the speedy implementation of efficiency enhancement and organization optimization measures. Marine Systems offsets competitive disadvantages vis-à-vis Asian competitors in merchant shipbuilding by concentrating on market niches and increasingly initiating performance-enhancing and cost-reducing measures. The Mechanical Engineering business unit aims to swiftly continue the development of new sales markets by establishing/expanding production capacities in growth regions such as India and China to counter risks resulting from declining demand in core markets.

In the Transrapid business unit, a concrete follow-up project for the Shanghai line and the government contract for the manufacture and testing of a prototype vehicle under the further development program will further reduce the market risk. The extent to which delays will be caused as a result of the tragic accident on the test track in Lathen operated by third parties cannot yet be assessed with any certainty.

The risk structure within the Elevator segment reflects not only the different business activities but also the wide regional presence. While the service and modernization activities are relatively unaffected by cyclical fluctuations and thus have a stabilizing effect on earnings, the new installation business is dependent upon the cyclical situation in the construction sectors of the various countries. Activity on the American construction market is expected to slow. However, stable growth will continue in Asia and the Eastern European region. Risks also arise from the processing of major projects, and risk management methods are already in operation here. The service activities counter risks relating to the loss of maintenance units by developing and implementing customer retention strategies.

Financial hedges are used to limit dependency on exchange-rate effects. In addition, the billing of sales and costs is largely congruent.

The Services segment focuses on materials trading and services. Services counters the price risks in procurement and sales through the systematic further development of logistics and logistics control systems, in particular the expansion of the centralized warehousing concept to optimize inventories and expand the service business, which does not depend on the price of materials. Risks from the cyclical development on the markets as a whole and in specific sectors are reduced by a worldwide presence, a broad customer base and a high degree of diversification. The resultant wide spread of risks also applies to the risks from potentially uncollectible receivables, which are additionally limited by the use of hedging instruments.

Risks for the Industrial Services unit result from the considerable competition and price pressure. We counter this pressure by continuous capacity adjustments on the one hand and new service offerings and sales initiatives directed at specific sectors and customers on the other. An ongoing project controlling system is in place to manage risks from the final completion of projects.

SUMMARY: NO THREAT TO EXISTENCE OF COMPANY

The overall evaluation of the risks shows that the Group is affected principally by market risks; these include economic price and volume developments in particular, as well as the dependency on the performance of major customers and industries. Business processes are well controlled in general and, therefore, less subject to risks. Overall, the risks at ThyssenKrupp are contained and manageable and do not pose a threat to the existence of the Company. Nor are any risks discernible that may jeopardize the existence of the Company in the future.