Financial position
ThyssenKrupp's financial position is characterized by increased enterprise value. The cash flow statements and balance sheet structure document the success of the company. Our success is also due to a central financing system which optimizes capital procurement and investment for the Group.
Central financing and maintenance of liquidity
The aim of our financing policy is to ensure that we have sufficient liquidity reserves at all times to meet the Group's payment commitments.
The financing of the Group is managed centrally by ThyssenKrupp AG, which maintains the liquidity of the Group companies mainly by making available funds within the Group financing system, negotiating and guaranteeing loans or providing financing support in the form of letters of comfort. Liquidity is maintained on the basis of a multi-year financial planning system and a liquidity planning system on a rolling monthly basis. Both planning systems comprise all consolidated Group companies.
The operating activities of our Group subsidiaries and the resultant cash inflows represent the Group's main source of liquidity. Our cash management systems take advantage of the surplus funds of individual Group companies to cover the financial requirements of others. By settling intercompany sales via intercompany financial accounts, we can reduce bank account transactions and thus bank charges. Our intercompany cash management system reduces external financing requirements with a positive effect on our net interest.
Any external financing required is covered by bilateral and committed syndicated credit facilities. These funds can be obtained in various currencies and over various terms. In addition, money and equity market instruments are used as well as other selected off-balance financing instruments such as factoring programs and operating leases. Information on the available credit facilities is provided in Note 25.
Our centralized financing system strengthens the Group's negotiating position vis-à-vis banks and other market participants, enabling us to procure and invest capital on optimum terms. Interest and foreign currency management is also carried out on a centralized basis.
Issuer rating since 2001
Issuer ratings facilitate access to international capital markets. ThyssenKrupp has been rated by Moody's and Standard & Poor's (S&P) since 2001 and by Fitch since 2003. ThyssenKrupp is currently rated by the agencies as follows:
| Long-term rating | Short-term rating | Outlook | ||||
|---|---|---|---|---|---|---|
| Standard & Poor’s | BBB | A2 | stable | |||
| Moody’s | Baa2 | Prime–2 | positive | |||
| Fitch | BBB+ | F2 | stable |
Analysis of statements of cash flows
The amounts taken into consideration in the statements of cash flows correspond to the balance sheet item "Cash and cash equivalents".
Operating activities provided €2.2 billion during fiscal year 2006/2007 compared with €3.5 billion in the previous year. The decrease in operating cash flows by €1.3 billion mainly resulted from the stronger increase in working capital as a result of the business expansion.
Cash flows from investing activities increased by €0.6 billion to €2.3 billion in the reporting year. This was mainly the result of the €1.2 billion increase in cash outflows for the purchase of property, plant and equipment, mostly in connection with the construction of the steel mill in Brazil. Running counter to this, cash outflows for the purchase of consolidated companies and financial assets decreased by €0.3 billion and cash inflows from the sale of consolidated companies and property, plant and equipment increased by €0.3 billion against the year before.
In accordance with this situation, the free cash flow, i.e. the sum of operating cash flows and cash flows from investing activities, decreased by €1.9 billion to €(0.1) billion in fiscal 2006/2007.
Cash flows from financing activities decreased by €1.3 billion to €0.7 billion during the year under review. The higher cash outflows the year before were mainly the result of the repayment of two bonds in the total amount of €0.8 billion and cash outflows for the repurchase of treasury stock in the amount of €0.7 billion, which were set against cash inflows of €0.3 billion from the sale of treasury stock to the Alfried Krupp von Bohlen und Halbach Foundation. In addition, cash outflows for the repayment of financial liabilities decreased by €0.2 billion in fiscal 2006/2007.
Analysis of balance sheet structure
The following balance sheet presentation includes assets and liabilities held for sale which were reported separately in the previous year.
The balance sheet total increased by €1,612 million to €38,074 million.
Significant balance sheet line items, particularly inventories, trade accounts receivable and payable, and total equity increased compared with September 30, 2006. This is mainly the result of the expansion in business. Property, plant and equipment and net financial liabilities likewise increased on account of the growth in investment activity. Shifts in exchange rate relations, primarily the relation of the US dollar to the euro, which increased from €1.27/US dollar as of September 30, 2006 to €1.42/US dollar as of September 30, 2007, led to a decrease in the balance sheet total by €468 million.
The decrease in intangible assets by €122 million resulted primarily from shifts in exchange rate relations and from goodwill impairment charges in particular in the Steel segment. The capitalization of development costs and software had the opposite effect.
The €917 million rise in property, plant and equipment was mainly the result of progress on the construction of the steel mill in Brazil. The €112 million reduction in investment property is connected with the sale of non-operating real estate as part of the concentration of ThyssenKrupp's administrative sites in Germany.
The increase in inventories by €1,349 million to €9,480 million is chiefly attributable to raw material price rises and increased inventory levels due to sales expansions. In particular the sharp decline in nickel prices from the beginning of June led to impairments in the amount of €157 million.
Trade accounts receivable as of September 30, 2007 were up by €313 million from a year earlier. The amount of sold trade accounts receivable as of September 30, 2007 decreased by €60 million compared with the previous year. The increase in trade accounts receivable is the result of sales expansion in terms of volume and price in all segments.
Cash outflows for acquisitions, dividends and the repayment of financial liabilities exceeded cash inflows from operating activities, resulting in a decrease in cash and cash equivalents by €789 million to €3,658 million.
Deferred tax assets declined by €322 million mainly as a result of the adjustment of the tax assessment basis applied to accrued pension obligations in line with the corresponding IFRS rules. At the same time deferred tax liabilities increased by €128 million. Current income tax assets increased by €265 million.
Total equity increased by €1,520 million to €10,447 million. The main factor here was the net income achieved during the fiscal year of €2,190 million. In addition, actuarial gains associated with accrued pensions and similar obligations recognized directly in equity raised equity by €462 million before taxes. Equity decreased due to dividend payments [€521 million], currency translation adjustments [€261 million] and unrealized losses from derivative financial instruments [€193 million]. In addition, total equity was reduced by €111 million due to taxes on income and expenses directly recognized in equity.
Accrued pensions and similar obligations in the reporting period decreased by €972 million to €7,139 million. This drop mainly resulted from a further increase in the discount rate in most of the relevant currency areas, the sale of the body and chassis activities in North America, and shifts in the exchange rate relations, in particular the US dollar to the euro.
Other current and non-current provisions were unchanged overall from the previous year.
Current and non-current financial liabilities declined in total by €166 million. The mostly cash-relevant reduction in financial liabilities was reinforced by an exchange-rate-related decrease.
Trade accounts payable increased by €231 million as a result of business expansion.
The €745 million rise in other current liabilities was also primarily the result of business expansion and related mainly to increased liabilities in connection with manufacturing orders [€251 million] in the Technologies and Elevator segments, an increase in customer advance payments received [€112 million] and higher trade accounts payable to associated companies and other investees [€119 million]. In addition, a liability from a put option previously classified as non-current was reclassified to current liabilities.
Chart: Net financial receivables
Assets not recognized and off-balance financing instruments
In addition to the assets posted in the consolidated balance sheet, the Group uses assets which cannot be recognized in the balance sheet. These mainly concern specific leased or rented assets (operating leases). More details on this are presented under Note 16.
The main off-balance financing instruments used by the Group are factoring programs. More details can be found under Note 19.
A major intangible asset is the ThyssenKrupp brand. It is continually further developed via a package of measures including an image film, TV commercials, press advertisements and outdoor advertising. Our logo also contributes to the brand value by enhancing the brand's impact and recognition value and distinguishing us from our competitors.
Also of special importance are our long-standing and trustful relations with suppliers and customers. They bring stability to our business activities and make us less sensitive to sudden market fluctuations. They also allow close technical cooperation with our partners in which the expertise and development capacities of the companies involved can be combined to create new, future-oriented products. These well established collaborations provide a competitive advantage over newcomers on our markets and therefore safeguard our market positions.
One example of our network of capabilities along the process chain is the cooperation between our Steel segment and the automotive industry. Our input as steel producer includes all stages in the development and production process from high-quality materials through to finished components and complete auto body concepts for vehicle designers. Such intelligent and mature solutions based on our materials expertise provide our customers with real value added which pays dividends on the market.