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SEGMENTSSteel: Earnings improved
All areas of the Steel segment profited from the strong demand on the international steel markets. Higher volumes and revenues led to a 24% rise in order intake to €2.9 billion. The volume of orders booked was higher than production capacity. Sales increased by 15% to €2.7 billion, with shipments up by a similar amount. The Steelmaking business unit combines the metallurgical operations in Duisburg and the logistics activities. At 3.3 million metric tons, crude steel production was down 5% from the comparable prior-year quarter. The reason for this was a fire at the Hüttenwerke Krupp Mannesmann melt shop. However, the lost crude steel output was largely offset by running down slab stocks and outsourcing from third parties. The business unit’s sales of pig iron, slabs and energy to external customers were higher than a year earlier as increased raw material costs were passed on. The Industry business unit is focused on a broad spectrum of customers in the steel processing industries. Lively demand in all product groups boosted shipments significantly. It was not possible to fully meet demand for hot-rolled strip and hot-dip galvanized sheet. Average revenues were slightly higher than in the prior-year quarter. The Heavy Plate and Color units continued to perform very strongly. Business at the European steel service centers and with construction elements revived recently. The Auto business unit’s customers are the global auto manufacturers. Order intake was high. However, the damage to an electrolytic coating line in Duisburg incurred in September 2005 continued to reduce shipments. The price rises agreed at the beginning of the year in long-term contracts resulted in an increase in sales compared with the prior-year quarter. Expansion at Tailored Blanks was mainly attributable to the new production sites outside Germany. The North American steel service activities profited primarily from additional spot business and exchangerate effects. The companies in the Processing business unit are active on specialized markets with specific customer groups in the packaging, electrical and other industries. In the tinplate business, the higher volumes resulting from investments at the Andernach site had an increasingly positive impact on sales. Sales of medium-wide strip from Hoesch Hohenlimburg were affected by problems in the supply of starting materials from Hüttenwerke Krupp Mannesmann. Supplies to customers were secured by using slab stocks. The grain-oriented electrical steel business performed exceptionally well, with shipments and revenues significantly higher than a year earlier. In fiscal 2005/2006, the Steel segment increased its 2nd-quarter profits by €158 million to €416 million. The Steelmaking business unit returned a profit. This was due in particular to higher revenues for byproducts and commodities. The significant price increases for raw materials and freight were passed on to the other business units. Profits at the Industry business unit fell just short of the high prior-year level. Higher shipments and improved net revenues were outweighed by increased costs for starting material and energy. With shipments slightly higher than a year earlier, the European steel service centers returned a lower profit. In a difficult market environment, the construction elements operations made a small loss despite a slight increase in shipments. The Auto business unit significantly increased its profits. With net revenues higher and shipments slightly above the year-earlier level, earnings were however strongly impacted by increased starting material and processing costs. The insurance compensation received for the fire damage in September 2005 provided additional income, through this was partially offset by increased expenses. Tailored Blanks improved its profits through higher shipments and the implementation of efficiency-enhancement measures. Earnings of the North American steel service activities increased on the back of higher sales volumes and improved revenues. The Processing business unit achieved a significant increase in income, to which the electrical steel operations made a major contribution. In a positive market environment, all units achieved higher volumes and prices. Significant increases in starting material costs had a negative impact. The improvement measures implemented resulted in substantial earnings improvements. Stainless: Significant increase in demand
In terms of volume, 2nd-quarter 2005/2006 orders at Stainless were up 62% from the prior-year quarter. Contributing factors were a significant increase in demand for stainless products and lively replenishment activity, particularly in the European trading segment. The ThyssenKrupp Nirosta business unit made a disproportionately large contribution to this. At the end of the 2nd quarter the group’s European companies had over four months’ worth of orders in hand, more than twice as much as a year earlier. The value of orders received by Stainless rose by only 51% because base prices in the reporting period were significantly lower than in the comparable prior-year quarter. The value of orders received by the nickel-base alloys activities increased by 34%, with volumes virtually unchanged. Overall, Stainless’s shipments in the reporting period were 29% higher than in the comparable prior-year quarter, in particular due to higher deliveries of cold-rolled strip and partially also as a result of destocking. Stainless achieved sales of €1.6 billion in the 2nd quarter 2005/2006. This 17% year-on-year increase fell well short of the increase in shipments due to lower base prices and lower alloy surcharges compared with the prior year. ThyssenKrupp Mexinox held up well on the North American market despite weak market growth. Despite the generally tight situation on the Chinese stainless market, Shanghai Krupp Stainless was able to profit from a brief easing of market conditions and improved both its volumes and sales compared with the prior-year quarter. The ThyssenKrupp VDM business unit performed well and significantly grew its business volume on the back of sustained high demand for nickel-base materials. The Stainless segment’s profits were €45 million lower than a year earlier at €52 million. The majority of European producers introduced production cutbacks from the middle of last year in an attempt to counter the decline in demand for stainless flat-rolled products which started in mid-2004 and triggered the fall in base prices in 2005. Stockbuilding and a marked recovery in demand led to a significant improvement in order intake and shipments from the beginning of 2006; this made it possible to push through base price rises following an all-time low in the 4th quarter 2005. However, the average base prices in the reporting period were still well below the year-earlier level. The further increases in the cost of energy – in particular electricity and gas – and transportation services also influenced the earnings situation. After declining in 2005, demand also picked up again in North America at the beginning of 2006. Despite announcing base price increases, the Mexican cold rolling activities fell short of their prior-year earnings due to the still low base price level. With demand for stainless cold-rolled products remaining strong in Asia, especially in China, the start-up of new Chinese stainless cold rolling capacities in 2005 led to an extreme imbalance of supply and demand and consequently a dramatic fall in prices. Although the market stabilized toward the end of the year and first price increases were pushed through in the 2nd fiscal quarter as raw material prices rose, the Chinese cold rolling activities nonetheless returned a loss. The nickel-base alloy operations achieved a strong increase in profits driven by good demand from the engineering and aviation industries as well as the oil and gas markets. Automotive: Market environment remains difficult
Although growth rates remained low on key automobile markets, the Automotive segment performed positively overall and achieved 2nd quarter 2005/2006 sales of €2.2 billion, a 10% improvement on the prior-year quarter. The current appreciation of the US dollar and the Brazilian real against the euro had a particularly positive impact. On the other hand it should be considered that the prior-year figures included sales from the aluminum castings and truck springs businesses which have since been sold. Sales at the Body business unit were higher than a year earlier, particularly due to volume- and price-driven growth at the North American foundries. Higher billings for tooling also had a positive impact. The Chassis business unit recorded a clear increase in year-on-year sales overall. Both the Chassis Structure and Suspension units contributed to this. The improvement was partly due to significant growth in the systems business, made possible by the ramp-up and full start of production at the new plant in Leipzig. In addition, the production ramp-up of new vehicle models in Europe and the USA had a positive impact on the Suspension unit. The increase in sales at the Powertrain business unit was primarily attributable to the Crankshafts business and was mainly due to exchangerate effects resulting from the strengthening of the Brazilian real against the euro. The disposal of the aluminum castings business had a negative effect on sales. The Automotive segment recorded a loss of €10 million compared with a profit of €67 million in the comparable prior-year quarter. Earnings in the reporting quarter include an impairment loss of €49 million on assets at the Canadian Kitchener plant of the Chassis business unit. The comparable prior-year quarter included the profits and disposal gain from the aluminum castings business in the Powertrain business unit (totaling €41 million) and nonrecurring expense of €8 million connected with the Rover insolvency. Apart from the aforementioned impairment expense, all three business units recorded positive operating earnings in the 2nd quarter 2005/2006. The Powertrain business unit once again made the biggest contribution. Profits at the Body business unit were level with the prior-year quarter. The negative impact of declining workloads at the American and European stamping activities was offset by the American foundries and the absence of the nonrecurring expense from the Rover insolvency. Disregarding the impairment loss at the Kitchener plant, the Chassis business unit achieved a profit compared with a break-even result a year earlier. This was due to improvements in operating performance in the Chassis Stampings and Suspension areas. The Powertrain business unit once again returned a significant profit but failed to match the level of the prior-year quarter. In addition to the loss of income from the sold aluminum castings business, earnings were particularly impacted by the exchangerate movements of the Brazilian real and US dollar. Technologies: Income significantly improved, business volume still high
Technologies continued to perform very strongly in the 2nd quarter 2005/2006. Despite disposals, sales at €1.5 billion almost matched the high prior-year quarter. The main drivers of this pleasing performance were higher sales in the Plant Technology and Mechanical Engineering business units. At €1.5 billion, order intake was down on the high year-earlier level, but several promising projects are set to be awarded in the coming months. The order backlog of €9 billion at March 31, 2006 covers more than one year’s sales. The Plant Technology business unit once again recorded an increase in sales billings from its order backlog in the 2nd quarter 2005/2006. Due to the strong project situation, order intake was significantly higher than a year earlier. Continuing high raw material prices are improving the profitability of exploration and production projects – e.g. oil sands and oil shale mining, coal gasification and liquefaction, the production of fuels from renewable raw materials – for which Plant Technology offers advanced technologies and processes. At Marine Systems, sales and order intake were both down from the prior-year level. Major projects are expected to be awarded in the coming months. The strong business situation continued in many areas of the mechanical engineering sector which are important customers of Mechanical Engineering. However, orders were lower than a year earlier as a result of disposals. Sales increased slightly. Excluding the disposals, sales grew significantly. A major contribution to this positive performance came from business with large-diameter bearings and construction equipment components. In March 2006, Polysius acquired Maerz Ofenbau AG, Zurich, a world-leading manufacturer of lime shaft kilns. A further step toward optimizing the portfolio was taken with the sale of the steam turbine division of B+V Industrietechnik, Hamburg to MAN TURBO, Oberhausen on April 07, 2006. The Technologies segment returned a profit of €85 million, a €70 million improvement on the year-earlier figure. This was mainly the result of demand-driven high capacity utilization and the elimination of loss-making areas at Mechanical Engineering, higher profits at Plant Technology and improved order earnings at Marine Systems. The prior-year earnings of the MetalCutting business unit sold in October 2005 are posted under discontinued operations. Plant Technology achieved a significant increase in profits in the 2nd quarter 2005/2006. Positive factors were higher sales billings for cement plants and materials handling equipment and the absence of expense from the fair-value recognition of currency hedges, which negatively impacted the prior-year quarter. 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 cost reductions due to restructuring measures. At Mechanical Engineering, sales growth, good workloads and the disposal of loss-making businesses resulted in a clear improvement in profit. All operating groups contributed to this. Transrapid reported slightly lower losses in the 2nd quarter 2005/2006, mainly due to cost-cutting measures and lower depreciation. Elevator: Growth trend continues
Elevator continued its success in the 2nd quarter 2005/2006. In addition to growth in the service business, driven by the systematic expansion of the maintenance portfolio, new installations business also increased. While demand for new installations improved only slightly in Europe, it remained strong in America. However, increasingly fierce price competition is being observed and this cannot be fully offset by efficiency improvements. Overall order intake in the 2nd quarter climbed 12% to €1.2 billion; sales were 22% higher at €1.1 billion. These figures also include positive exchange rate effects, due mainly to the movement of the euro against the US dollar. The Central/Eastern/Northern Europe business unit increased its order intake and sales. All regions expanded their business volume, mainly thanks to new installations. The activities in the United Kingdom were alone in not being quite able to match the prior-year figures. The Southern Europe/Africa/Middle East business unit could not repeat the high order intake of a year earlier, which was boosted by the major order for Dubai. However, sales showed a significant year-on-year improvement thanks to the further strengthening of the unit’s market presence on the Iberian peninsula. In the other countries of the Mediterranean and the Middle East, business was stable. The Americas business unit again performed very positively. Both order intake and sales were well in excess of the year before – partly for exchange rate reasons, but mainly due to sustained high demand for new installations. This situation also benefited the Latin American activities. Services sales also increased. The Asia/Pacific business unit increased its order intake and sales. While order intake in Korea was lower due to weak demand for new installations, the Chinese activities benefited from market growth and recorded slightly higher orders. The increase in sales was more pronounced – thanks partly to positive exchangerate effects but mainly to the continued strength of the new installations business in China. Business volume in other regions also increased. Although the prior-year order intake of the Escalators/Passenger Boarding Bridges business unit was boosted by the large Dubai order, that performance was almost equaled in the reporting period thanks to numerous mid-size airport and subway projects. Sales of both escalators and passenger boarding bridges increased. The growth of the Accessibility business unit continues. Increasing market presence in both Europe and America led to an encouraging rise in both order intake and sales. The Elevator segment returned a profit of €94 million, compared with €71 million in the corresponding prior-year quarter. Volume and efficiency improvements compensated for rising price and cost pressure on key markets and led to an increase in operating earnings. Other positive factors were the exchange rate trend and effects from the valuation of currency hedges. All business units were in profit. The Central/Eastern/Northern Europe business unit almost matched its prior-year earnings, which were boosted by nonrecurring income from the sale of real estate. Additional earnings contributions were achieved through efficiency enhancements and increased capacity utilization. The restructuring carried out in the United Kingdom in the reporting period resulted in charges; positive effects are expected before the end of the fiscal year. The Southern Europe/Africa/Middle East business unit exceeded its prior-year earnings on account of income from the valuation of currency hedges. Operating business was impacted above all by increasing margin pressure on the Iberian peninsula. The Americas business unit achieved significantly higher profits. It benefited from the positive market trend in North America; efficiency-enhancing measures also made an impact. The translation effect from the increased value of the US dollar against the euro also contributed to the increased profit. The Latin American activities – especially Brazil – reported a significant improvement in income. By contrast, the Asia/Pacific business unit failed to reach the profit level of the previous year. The activities in South Korea continue to suffer from the deterioration in the new installations market. This was not offset by the profits of the newly acquired Taiwanese activities. The activities in India and Southeast Asia reported higher earnings. The Escalators/Passenger Boarding Bridges business unit increased its profit. A significant factor here was income from currency hedging. At operating level, the business unit held its own in a difficult market environment. The Accessibility business unit achieved a further increase in profit. Alongside the positive impact of the acquisition of activities in Italy, the other activities in Europe and North America were also again very successful. Services: Marked improvement in business
The Services segment achieved sales of €3.4 billion in the 2nd quarter 2005/2006, up 10% from the corresponding prior-year quarter International business was substantially strengthened in the reporting period, especially in the services sector. Key areas were the chemicals/petrochemicals, energy, automobile and aviation industries. As a result of acquisitions and business expansion, the number of employees increased by almost 6,000, more than three quarters of these in South and North America. The Materials Services Europe and Materials Services North America business units benefited from improving demand and rising prices for rolled steel, specialty steel and tubular products and above all nonferrous metals. Growth was much stronger in North America than in Europe. The booming American market was also the main reason for the leap in sales in the Industrial Services business unit. In Germany, too, encouraging sales growth was recorded and major projects were billed. In addition, the consolidation of the new companies ThyssenKrupp Xervon Energy and RIP in Brazil had a positive effect. In the Special Products business unit, the technical trading activities were significantly expanded. Increased sales volumes and a high price level had a favorable impact on the metallurgical raw material trading business. Rolled steel business in the Far East showed a decline against the year before. Services generated a profit of €91 million, €13 million more than in the corresponding prior-year quarter. In addition to the ongoing efficiency enhancement programs and sales initiatives in all business units, key factors were the recovery in demand and prices for part of the industrial and raw material range. The Materials Services Europe business unit, which in addition to the European activities also comprises the activities being developed in South America and Asia, did not quite match its high prior-year profit. Gross margins were in some cases significantly lower than in 2004/2005. Materials Services North America reported increased profits, mainly due to the strong nonferrous metals business. Demand and prices for copper were at an extremely high level. Large quantities of titanium and aluminum were supplied to the aviation industry. The Industrial Services business unit more than doubled its profit. This is mainly attributable to the scaffold services business in North America; the activities for the energy and petrochemicals sectors as well as for the construction industry were significantly expanded. Benefiting from currency effects and other nonrecurring income, the Special Products business unit again significantly exceeded its very good prior-year profit. This applies not only to the rolled steel and tubular products business but also to the technical trading and raw materials activities.
Corporate includes the Group’s head office and internal service providers as well as inactive companies not assignable to the individual segments. Also included here is the non-operating property which is managed and utilized centrally by Corporate. Sales of Corporate were €35 million, compared with €33 million in the prior-year quarter.
Corporate generated a profit of €49 million, a €128 million improvement against the corresponding prior-year figure. The main contribution factors were the receipt of the break fee of €142 million net of transaction costs from the takeover bid for Dofasco, and the improvement in net interest income at ThyssenKrupp AG.
Consolidation mainly includes the results of intercompany profit elimination. |
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