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SEGMENTSSteel: Continuing very positive performance
The focus of the Steel segment since the beginning of fiscal 2005/2006 has been on high-value carbon steel flat products including associated services. The four business units Steelmaking, Industry, Auto and Processing were formed to improve customer support; the prior-year figures have been restated. In the 1st quarter 2005/2006 the segment continued to perform very positively. The value of new orders increased by 22% for volume and price reasons. Sales rose by 8% with shipments slightly lower than the good prior-year level. The main factors in this were price increases and shifts to higher-value products. The Steelmaking business unit combines the metallurgical operations in Duisburg and the logistics activities. Crude steel capacities were fully utilized. Including purchases from investee company Hüttenwerke Krupp Mannesmann, the business unit produced 3.4 million metric tons of slabs in the 1st quarter 2005/2006, unchanged from a year earlier. Sales of pig iron, slabs and energy to external customers increased due to higher raw material costs. The Industry business unit is focused on a broad spectrum of customers in the steel processing industries. Shipments in the core area showed a rising trend, with a continuing weakness in hot-dip galvanized products being offset by attractive project deals for hot-rolled products for tube/pipe. Heavy plate products continued to profit from a strong market environment. With regard to prices, the high level of contract business had a stabilizing effect. The €20 to €30/t price increase announced for quarterly deals from October 01, 2005 was not fully accepted by the market. Overall, average prices were higher than a year earlier. The construction elements business profited from brisker demand in the modernization and maintenance sector. However, prices remained under pressure. The Auto business unit's customers are the global auto manufacturers. Orders showed a clear upward trend in the reporting quarter but this was not fully reflected in sales, due partly to fire damage to an electrolytic coating line. Sales of tailored blanks increased mainly due to the ramp-up of the new production sites in China; in Germany, business stabilized at a high level. The steel service operations in North America won additional spot market orders. The companies in the Processing business unit are focused on specialized markets for carbon steel flat products. Shipments of tinplate increased in connection with the forward strategy at the Andernach site. Prices per ton were also higher than a year earlier. Sales of Hoesch Hohenlimburg's medium-wide strip products increased mainly for price reasons. The special profiles business, which is still included in the figures, was sold effective December 31, 2005 as part of a best-owner solution. The grain-oriented electrical steel business performed very well. Brisk global demand in the energy sector allowed prices to be raised significantly. The Steel segment increased its profits in the reporting quarter by €20 million to €272 million. The Steelmaking business unit comprises the cost centers Metallurgy Germany and Logistics as well as the administrative functions for the Steel segment. Drastic cost increases for key raw materials such as ore, coal/coke and scrap and for freight rates resulted in higher slab costs which were passed on to the customer-facing business units Industry, Auto and Processing. Earnings from the sale of pig iron and byproducts improved. The Industry business unit reported a decline in profits. Slab cost increases due to higher raw material prices, together with increased energy costs, resulted in a significant drop in earnings at all of the unit's profit centers with the exception of heavy plate. Thanks to a very positive market performance heavy plate further improved on its good prior-year profits and made a substantial earnings contribution. The construction elements business comprising the building construction and cold room operations reported unchanged earnings in a continuing difficult market environment. Profits at the European steel service operations were lower due to volume and structural effects. The Auto business unit achieved an increase in profits. Included in this is income from insurance payments in the amount of €35 million in connection with the fire damage to the electrolytic coating line in Duisburg. This was offset by reduced profits due to the business interruption. The operating earnings of the business unit decreased significantly reflecting lower shipments and considerably higher procurement prices. The tailored blanks operations performed positively and achieved a substantial earnings improvement. Profits at the North American steel service operations decreased. The Processing business unit significantly increased its profits, benefiting in particular from the outstanding performance of the market and the restructuring measures carried out at grain-oriented electrical steel. Medium-wide strip also achieved a substantial earnings improvement. Profits at tinplate were well down from the good prior-year level. Stainless: Stainless steel market under pressure
Since the start of the fiscal year, the production and distribution of flat-rolled stainless steel as well as the high-performance materials nickel-base alloys and titanium have been combined in the Stainless segment. In a tight overall market environment, Stainless recorded higher orders and sales. In terms of volume, order intake was up 7% from the weak prior-year period. Contributory factors were an increase in demand toward the end of 2005 and lively replenishment activity, particularly in European trading. Due to these higher orders and slight price improvements in December 2005, the value of orders received rose 15%. The ThyssenKrupp VDM business unit made a disproportionately large contribution to this. Thanks to continuing high demand from the aerospace and plant engineering sectors, the company's nickel-base alloys enjoyed strong growth. Overall, Stainless's shipments were level with the comparable prior-year quarter. There was an increase in shipments of hot-rolled strip by the ThyssenKrupp Nirosta and ThyssenKrupp Acciai Speciali Terni business units, while shipments by the ThyssenKrupp VDM business unit remained virtually unchanged. In the 1st quarter 2005/2006 Stainless achieved sales of €1.4 billion. This 4% year-on-year improvement was largely due to higher revenues for nickel-base alloys in the ThyssenKrupp VDM business unit; the slight increase in shipments and the influence of raw materials at the other business units in the Stainless segment resulted in only minor sales growth. The ThyssenKrupp Mexinox business unit is Mexico's only producer of cold-rolled stainless products. In addition to the domestic Mexican market, the company serves the other NAFTA markets in the USA and Canada. By concentrating more strongly on end customer business, focusing on high-quality cold-rolled products and extending its value chain, in the 1st quarter 2005/2006 ThyssenKrupp Mexinox managed to grow its shipments and sales and strengthen its market position in a softening North American market. The Shanghai Krupp Stainless business unit, a joint venture with Chinese steel producer Baosteel, operates a stainless cold rolling mill in Shanghai whose capacity was increased to around 250,000 metric tons in 2005 as further equipment was taken into operation. However, with the imbalance between supply and demand on the Chinese market increasing and base prices at an extremely low level, only part of this available capacity was utilized. A hot strip annealing/pickling line currently under construction will start operation in the 2nd quarter 2006 and allow starting material for cold-rolled strip production to be sourced locally. The plant will thus be able to respond more quickly to market changes in the future. Despite a very difficult market environment, the Stainless segment closed the 1st quarter 2005/2006 with a profit of €7 million, compared with €125 million a year earlier. The decline in base prices in Western Europe from the start of 2005, due mainly to a stagnant market, increased capacities at competitors and an accelerated reduction in inventories held by distributors, reached its low point in the first fiscal quarter. In part massive production cutbacks by all European producers succeeded in adapting supply to the change in demand. Rising costs for energy – in particular electricity and gas – and for transportation increased the pressure on margins. The temporary slight fall in raw material prices had an impact on earnings from the sale of inventories valued with higher manufacturing costs, but on the other hand it also stimulated demand for cold-rolled products. However, this only alleviated the trend to a minor extent, and as a result the German and Italian operations returned a significantly lower profit than in the prior-year quarter. Despite the continued strong growth of the US economy, the North American market softened slightly. Moreover, the base price level decreased continuously in the course of 2005 due to subdued demand. The increasingly difficult market situation coupled with increases in energy and transportation costs resulted in a clear reduction in earnings at the Mexican cold rolling operations. Despite persistently rising demand for cold-rolled stainless products in Asia, and in particular in China, a disproportionate increase in supply due to the start-up of new Chinese cold rolling capacities resulted in significant market uncertainty and a dramatic fall in prices from the 2nd quarter 2005. The consequent underutilization of capacity in combination with the market price level resulted in negative earnings. Driven by the aviation, oil and gas segments, demand in the nickel-base alloys area remained strong. In this environment, the nickel-base alloys business unit achieved a significant improvement in profit compared with the prior-year quarter. Automotive: Impacted by weak auto market
The weakness of the international automobile market impacted Automotive's business performance. Despite this, the segment achieved a 6% increase in sales to €2.0 billion. The strengthening of the US dollar and the Brazilian real against the euro contributed to this improvement in sales. It should also be considered that the prior-year figures include the sales of the aluminum castings and truck springs businesses, both of which have now been sold. Effective October 01, 2005, the segment reorganized its activities along product-oriented lines and combined them in the three business units Body, Chassis and Powertrain. The prior-year figures have been restated. Sales in the Body business unit were slightly higher than a year earlier. While the North American stamping plants reported declining sales for volume reasons, the North American foundries achieved sales growth driven by volumes and prices. The Chassis business unit recorded a significant year-on-year increase in sales. Both the chassis structure and suspension units contributed to this. The ramp-up of new plants allowed an expansion of system business. In addition, the production ramp-up of new vehicle models in Europe and the USA had a positive impact on the suspension unit. The decrease in sales at the Powertrain business unit was mainly due to the disposal of the aluminum castings operations. In the crankshafts area, the strength of the Brazilian real against the US dollar impacted the value of exports from Brazil to the USA. The Automotive segment returned a breakeven result. In the same quarter a year earlier, which included the earnings of the since-sold aluminum castings activity (Powertrain business unit), the segment generated a profit of €24 million The Powertrain business unit once again made the biggest contribution to earnings in the 1st quarter 2005/2006. The Body business unit returned a loss, compared with a profit in the comparable prior-year quarter. Earnings were impacted by declining capacity utilization at the American and French stamping operations and by higher starting material prices at the North American foundries. The Chassis business unit returned a higher profit than a year earlier. The fall in earnings at the Kitchener frame plant was outweighed by higher profits in the steering and suspension units. The Powertrain business unit again returned a significant profit but failed to match the high level of the prior-year quarter. In addition to the absence of income from the sold aluminum castings unit, the exchange rate movements of the Brazilian real and US dollar also impacted earnings. Technologies: Still on growth course
In the 1st quarter 2005/2006, Technologies achieved a substantial 42% increase in sales to €1.6 billion. In addition to the inclusion of the HDW group, which was not included in the prior-year quarter, this pleasing development was attributable to sales growth in all three major business units. At €1.6 billion, order intake was also higher than a year earlier. The order backlog of €8.9 billion at December 31, 2005 covers more than a full year's sales. The Plant Technology business unit recorded a significant increase in sales billings from its high order backlog in the 1st quarter 2005/2006. The encouraging trend in order intake also continued thanks to the strong project situation. Persistent high demand for raw materials, above all from developing and emerging countries, coupled with limited production and transportation capacities as well as raw material price increases for iron ore, coal, copper and nickel resulted in opportunities for new business with mining and handling equipment. Oil sands mining – now profitable due to the increase in crude oil prices – is another market with high growth potential and provides the opportunity for further orders. Marine Systems almost trebled its sales compared with the prior-year quarter. This was mainly due to the inclusion of the HDW group, but also to higher sales billings in the pre-existing businesses. Order intake was slightly higher than a year earlier. Mechanical Engineering benefited from the continuing good business situation in many branches of the mechanical engineering sector. Order intake was down from the prior-year period, particularly as a result of disposals made in the meantime. Sales increased slightly. Excluding the disposals, sales volumes climbed significantly on the back of strong demand. A major contribution to this positive performance came from business with large-diameter bearings and construction equipment components. On December 30, 2005, an agreement was signed with BAE Systems to acquire the naval electronics company Atlas Elektronik; in the future, ThyssenKrupp Technologies will hold a 60% interest in this company and EADS the remaining 40%. Atlas Elektronik is market leader for integrated submarine sonar systems and a long-standing supplier to ThyssenKrupp Marine Systems. This acquisition represents a continuation of the consolidation of the German naval industry started by the merger of ThyssenKrupps shipyards and HDW and helps strengthen our leading technology position in non-nuclear submarines. The acquisition will be consummated as soon as the relevant supervisory bodies and regulatory authorities have provided their approval. The Technologies segment increased its profit to €92 million, almost double the figure in the prior-year quarter. This was mainly the result of demand-driven high capacity utilization in Mechanical Engineering, higher sales at Plant Technology and improved order earnings at Marine Systems. Mechanical Engineering and Plant Technology made the biggest contributions to the segment's income. In the prior-year quarter, the earnings of the MetalCutting business unit, sold in October 2005, were posted under discontinued operations. Plant Technology once again returned a double-digit million profit which was higher than a year earlier. This was mainly thanks to higher sales. Taking account of the fact that the prior-year earnings were boosted by gains from the fair-value recognition of currency hedges, operating profits climbed significantly. Marine Systems returned a double-digit million € profit which showed a substantial improvement on the prior-year quarter. Key factors in this were improved order earnings and good utilization of ship repair capacities. At Mechanical Engineering, sales growth, good workloads and the disposal of loss-making businesses resulted in a clear improvement in profit. As in the prior-year quarter, the business unit's earnings were in the double-digit million range. Transrapid reported slightly lower losses, mainly due to cost-cutting measures and lower depreciation. Elevator: Strong growth in North America
Elevator continued to perform very successfully at the start of fiscal 2005/2006. Despite continuing pressure on prices and margins, the segment grew its business volume on key markets in the 1st quarter. Of particular importance was the persistently strong demand for new installations in North America, but the service and modernization businesses also achieved further growth. In addition to positive operating effects, the development of the euro versus the US dollar also led to an increase in orders and sales. Overall, 1st quarter order intake was up 26% at €1.3 billion, while sales increased by 15% to €1.0 billion. The Central/Eastern/Northern Europe business unit improved on its good prior-year figures for order intake and sales. Alongside a stable performance in Germany, growth in business volume was achieved in particular in France and Eastern Europe, also due to increased demand for new installations. By contrast, the situation in the United Kingdom was subdued. The Americas business unit returned a particularly positive performance. Numerous small and medium-size projects provided significant growth in the new installations business. But the systematic expansion of the service activities and further efficiency improvements combined with favorable exchange rate developments also contributed to an increase in orders and sales in both North and Latin America. The Southern Europe/Africa/Middle East business unit recorded higher orders. Positive impetus again came from the new installations business in Spain and the remainder of the Mediterranean region. By contrast, sales just failed to match the high level of the previous year due to temporary deferments. The Asia/Pacific business unit achieved higher orders and sales. The operations in China benefited significantly from continued strong demand for new installations. However, the operations in India and Southeast Asia also performed positively and further consolidated their market presence. The Escalators/Passenger Boarding Bridges business unit reported a very strong order intake. Several new airport projects were won, including for London Heathrow, Cairo and Los Angeles. Sales were up slightly from the prior year. The Accessibility business unit remains on a clear growth course. Pleasing increases were achieved in both order intake and sales. In addition to the effect from the inclusion of the Italian company Ceteco, business was also expanded in America and Europe. The Elevator segment returned a profit of €85 million in the 1st quarter of fiscal 2005/2006, compared with €98 million a year earlier. It should be taken into account that in the prior-year quarter positive effects were realized from the fair-value measurement of currency derivatives, while in the reporting period this partly resulted in losses. At operating level, Elevator held up well in an intensely competitive market. The biggest contributions to earnings came from the Central/Eastern/Northern Europe, Americas and Southern Europe/Africa/Middle East business units. The Central/Eastern/Northern Europe business unit matched its prior-year profit. The increase in earnings due to the inclusion of the Swiss company Trapo Küng and the positive performances in France and the Benelux countries was offset by the still subdued situation in the UK. By contrast, income at the Southern Europe/Africa/Middle East business unit fell short of the prior-year figure. Earnings were impacted by effects from the fair-value measurement of currency derivatives, which had a positive effect in the prior-year quarter. At operating level, the activities consolidated their market positions. However, pressure on margins is increasing, particularly on the Iberian peninsula. The Americas business unit reported a pleasing improvement in income. In the USA in particular, further efficiency improvements were realized in production and service; the strengthening of the US dollar also had a positive effect when converting earnings figures into euros. The Latin American activities – above all in Brazil – profited from the generally positive economic climate in the region. By contrast, the Asia/Pacific business unit failed to match its prior-year earnings. While income from the Chinese activities was higher as a result of expanding volumes, in Korea continuing high price and cost pressure impacted negatively on the new installations business. Earnings of the other activities in the region remained stable. Income in the Escalators/Passenger Boarding Bridges business unit was impacted by negative nonrecurring effects from the valuation of currency derivatives. In addition, falling prices on the European escalator market meant that margins were lower than a year earlier. Overall, the business unit posted a loss, compared with a profit a year earlier. Earnings at the Accessibility business unit were again very pleasing. In addition to the profit contribution from the new company in Italy, the other activities also continued their positive earnings trend. Services: Materials market weaker
The Services segment reported sales of €3.1 billion in the 1st quarter 2005/2006, down 4% from the comparable prior-year quarter. Materials Services Europe, the biggest business unit, recorded a significant decrease in sales, particularly in Germany. This reflected the lower price level for rolled and specialty steel compared with the prior-year quarter, with demand largely stagnant. By contrast, there were positive developments in the plastics business and on the Eastern European markets, above all in Poland. The Materials Services North America business unit experienced a similar business situation to Europe. Above all, the reduction in rolled steel prices compared with a year earlier had a significant impact on sales. By contrast, prices for most nonferrous metals were at a high level. Demand was stable overall. The Industrial Services business unit recorded significant sales growth, mainly in its international business and primarily with North American customers. The number of employees increased markedly for order reasons. There was also encouraging growth in Germany. Sales at the Special Products business unit suffered from weak demand and lower prices for rolled steel and some raw materials, in particular coke. By contrast, the technical trading business was significantly expanded. Services reported earnings of €85 million, €7 million lower than a year earlier. Profits were down at the Materials Services Europe and Materials Services North America business units, mainly due to declining materials markets with in part significantly lower prices. The Industrial Services business unit returned higher earnings, in particular from its foreign business. Special Products achieved a further improvement on its good prior-year profit thanks to its technical and raw materials trading business.
Corporate includes the Group's head office and internal service providers as well as inactive companies not assignable to individual segments. The non-operating real estate is also managed and utilized centrally by Corporate. Sales at Corporate were €36 million compared with €34 million in the prior-year quarter. Expense at Corporate rose by €9 million to €111 million. Reduced interest expense for financial liabilities and pensions was set against additional expenditure for a Groupwide project to promote research and development activities.
Consolidation mainly includes the results of intercompany profit elimination. |
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