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Group review
ThyssenKrupp – outstanding start in fiscal year 2006/2007
ThyssenKrupp carried on seamlessly from a very good fiscal 2005/2006 in the 1st quarter 2006/2007.
In a generally favorable economic environment we successfully continued our course of sustainable, profitable growth. Group sales increased by 13% from the prior-year quarter to €12.3 billion. Group earnings before taxes improved to €1,062 million from €425 million in the prior-year period.
The highlights for the 1st quarter 2006/2007 were as follows:
- Order intake reached €13.3 billion, 15% more than in the corresponding prior-year quarter.
- Sales increased by 13% to €12.3 billion.
- EBITDA was €1,507 million, compared with €898 million in the 1st quarter of the prior year.
- Earnings before taxes improved from €425 million in the prior-year quarter to €1,062 million.
- Earnings per share increased to €1.31 from €0.49 in the prior-year quarter.
- Net financial liabilities at December 31, 2006 were €391 million, an increase of €1,138 million compared with September 30, 2006, when we reported net financial receivables of €747 million.
On December 31, 2005 net financial liabilities stood at €315 million.
Mergers & Acquisitions activities in the 1st quarter 2006/2007 focused on the Technologies, Services and Elevator segments. The disposal of the North American body and chassis operations of ThyssenKrupp Budd with sales of around €1 billion was largely concluded with the closing on November 30, 2006. The Technologies segment sold ThyssenKrupp Fundições Ltda, Brazil. Services acquired the aerospace service business of Alcoa and Schöbel Technik & Service GmbH, Oldenburg. The Elevator segment made a number of smaller acquisitions.
Since the merger ThyssenKrupp has carried out disposals representing sales of €9 billion and acquisitions accounting for sales of €8 billion.
We expect the generally positive business situation to continue in the further course of the year. For the full year 2006/2007 we forecast sales of €48 billion to €49 billion. Our sustainable goal for earnings before taxes is €2.5 billion. After exceeding this figure significantly in 2005/2006 we are confident of doing the same in the current fiscal year. A similar level is targeted for 2007/2008. This is based on the assumption that the world economy remains stable and energy prices stay within manageable limits.
Economic environment
The world economy continued to grow strongly in the second half of 2006, although the pace of expansion slowed in some regions. The situation on the international oil market eased a little, reducing slightly the risk of an energy price-induced slowdown in the global economy.
The situation in the industrialized countries remained positive. In Japan, the moderate upward trend continued thanks to rising exports. In the USA, robust growth has weakened slightly recently as a result of slower consumer and business spending. The economic upturn in the euro zone and Germany was stronger than expected. In Germany, high capital spending as well as increasing exports and rising private consumption provided growth impetus.
The developing countries in Asia, Latin America and Central and Eastern Europe were again among the most dynamic economic regions in the 2nd half of 2006. India and China in particular continued to record high growth rates.
In the sectors of importance to ThyssenKrupp the picture was as follows:
- The international steel markets were in robust condition on the whole. World steel production in the final quarter of 2006 again significantly exceeded the comparable prior-year figure but there were regional differences. The Asian countries reported almost uninterrupted expansion, causing volume and price pressure through increased exports to the Western markets. North America was initially hit hardest by this. Against a background of increased supply, high inventory levels and weaker demand growth, the US steel industry cut back production. In Europe, too, market supply increased strongly under pressure from rising third-country imports, resulting in oversupply particularly at the lower end of the carbon steel flat product market. From fall 2006 this triggered a downward movement in steel prices for commodities in southern Europe but this was less pronounced than in the USA. In northern Europe, the market remained largely stable. Suppliers of higher- and high-quality carbon steel were able to achieve appropriate price increases enabling them to offset cost rises for raw materials, energy and goods.
- The market for stainless steel flat products continued to improve in the fourth calendar quarter 2006. Producers in Europe significantly expanded their shipments despite temporary production losses at some producers, while order intake returned to normal towards the end of the year after unusually high orders in previous quarters. In this positive market environment, it was possible to raise base prices again in the fourth calendar quarter 2006. However, as a result of continuing strong demand combined with a relatively high price level in Europe and increasing overcapacities in Asia, imports also rose further, particularly into southern Europe. This trend resulted in a significant increase in inventories at distributors and service centers. The price situation for major raw materials showed no sign of easing; prices for nickel reached a new record level in the first quarter of the fiscal year. In North America, demand was also positive. Prices stabilized at a high level. Despite increased demand in Asia, prices there are unsatisfactory. In contrast to Europe and the USA, Asian manufacturers were unable to pass on increased raw material prices to the market due to the lack of an alloy surcharge. Strong demand for nickel alloys and titanium continued in the reporting quarter.
- The international auto industry showed regional differences. Thanks to high production growth, China became the world's third-largest vehicle producer in 2006 after the USA and Japan. In Brazil too, vehicle production increased significantly in the fourth calendar quarter 2006. The performance of the auto industry in North America was weaker. In the USA, vehicle production in the final quarter of 2006 was markedly lower than a year earlier. US manufacturers lost market share to Asian and European producers. The auto market in Europe was positive. In the European Union, new car sales in the fourth calendar quarter 2006 were higher than a year earlier. The German car industry benefited from a positive market environment and a further increase in exports.
- The mechanical engineering sector showed an improvement against a background of continuing high world economic growth and increasing investment. In the USA, Japan and China, mechanical engineering output increased further. Production in Germany also grew vigorously thanks to strong orders from Germany and abroad. The plant engineering sector also achieved high growth rates.
- The construction sector reported growth in 2006 above all in the developing countries of Asia and in Central and Eastern Europe. In the USA, construction output weakened towards the end of the year.
The situation in the German construction industry stabilized further. The biggest growth impetus is coming from commercial building, which is benefiting from the favorable economic situation.
| ThyssenKrupp in figures |
| * before taxes |
|
|
|
|
Order intake |
million € |
|
11,555 |
|
13,301 |
Sales |
million € |
|
10,942 |
|
12,332 |
EBITDA |
million € |
|
898 |
|
1,507 |
Income* |
million € |
|
425 |
|
1,062 |
Employees |
December 31 |
|
184,980 |
|
184,240 |
Order intake and sales
In a generally pleasing economic environment demand for the products and services of ThyssenKrupp increased in the first quarter 2006/2007. Order intake rose by 15% from the prior-year quarter to €13.3 billion.
Group sales increased by 13% to €12.3 billion. The Steel and Stainless segments profited from high demand and increased prices for our carbon and stainless steel flat products. Technologies just failed to equal its prior-year sales as a result of the weak US dollar, disposals and lower sales in the automotive system business. Elevator increased its sales in all areas. Services also continued to expand, achieving record sales.
Sales billion €
Income
ThyssenKrupp achieved a pre-tax profit of €1,062 million in the 1st quarter of the current fiscal year, its highest ever quarterly earnings. Compared with the 1st quarter 2005/2006 profit rose by €637 million.
The increase compared with the 1st quarter of the prior year is due mainly to the high earnings contribution of the Stainless segment, which was achieved thanks to high price levels and strong demand for stainless steel products and despite the continuing effects of the fire at the Krefeld plant.
The Steel and Services segments also achieved significant profit increases due to high demand and the favorable price situation for steel and industrial materials. Technologies and Elevator increased their earnings contributions from a high level.
Net sales increased more than the cost of sales, with the result that gross margin improved substantially from 16% to 19%. Administrative and selling expenses also increased less than net sales.
Other operating income includes the insurance recovery for the business interruption resulting from the fire in Krefeld. Set against this income were earnings reductions as a result of lower sales revenues and increased expenses for maintaining supply readiness and loss reduction measures.
Net income for the period was €661 million, compared with €255 million in the 1st quarter 2005/2006. Deducting from this the minority interest in profits of €20 million, earnings per share is €1.31, compared with €0.49 in the comparable prior-year quarter.
Income* million €
Also compared with the previous quarter, i.e. the 4th quarter 2005/2006, profit increased again distinctly by €443 million. While the final quarter of fiscal 2005/2006 was marked by high nonrecurring expenses in connection with the sale and restructuring of Automotive activities, even taking these special charges into account the profit gain is still over €200 million. The earnings trend in the reporting quarter and the preceding quarter was characterized by a continuous increase in the Steel, Stainless and Services segments.
Net financial liabilities/receivables and capital expenditures
At December 31, 2006 the Group had net financial liabilities of €391 million, an increase of €1,138 million. On September 30, 2006 we reported net financial receivables of €747 million. The change is mainly attributable to increased working capital due to business expansion but it also reflects higher capital expenditures, for example for the new steel mill in Brazil.
Capital expenditures in the 1st quarter 2006/2007 totaled €832 million, 74% more than in the prior-year quarter. €769 million was invested in property, plant and equipment and intangible assets, with the remaining €63 million being used for the acquisition of businesses, shareholdings and other financial assets.
Net financial (receivables)/liabilities million €
Change on the Executive Board
Dr. A. Stefan Kirsten left the Executive Board of ThyssenKrupp AG at November 30, 2006 after the establishment of the annual financial statements. He informed the Supervisory Board in the summer of last year that he did not wish to renew his contract as Chief Financial Officer. However, he will continue to be available to the company in various supervisory boards. His functions have been taken on additionally by Dr. Ulrich Middelmann, Vice Chairman of the Executive Board, and the Information Management function by Ralph Labonte.
