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Segment reviewSteel: High earnings rise
The Steel segment continued its very pleasing performance of the past fiscal year in the first quarter 2006/2007. Both order intake and sales were higher than in the prior-year quarter. The value of new orders increased by 6% to €2.8 billion; this was due to increased price levels, with order volumes down slightly on the whole. Sales increased by 13% to €2.8 billion as a result of higher volumes and prices. In addition, a further shift in the supply structure towards higher-grade products had a positive impact. The Steelmaking business unit increased its crude steel production by 3% to almost 3.6 million metric tons. Due to repairs to blast furnace 1 in Duisburg-Schwelgern, ThyssenKrupp Steel AG just failed to reach its planned output. However, the reduction in iron production was offset by internal optimization measures in the melt shops, the use of existing slab inventories and purchases from third parties, so the volume of hot strip output was not affected. With shipments almost unchanged, the Industry business unit achieved growth in sales. It did this despite the fact that shipments in various areas were temporarily impacted by starting material bottlenecks due to problems in the past. To overcome the bottlenecks, inventories of finished products were run down as far as possible; despite this, not all demand could be met. At the same time, further slight improvements in quarterly deals with many customers in the steel-using sector resulted in higher revenues. The European steel service centers expanded their sales strongly due to substantially higher volumes and also higher prices. The construction elements business also achieved volume and price-related growth against the weak prior-year quarter – not least as a result of the improving situation in the German construction industry. The Auto business unit profited from generally lively sector demand in Europe and achieved a strong increase in sales. The main reasons for this were higher orders from most auto manufacturers and the continued impact of price increases under annual contracts. The steel service activities in North America reported lower sales as the large US auto producers cut back their production substantially. However, prices remained steady at a high level. Sales also increased in the Processing business unit. Shipments and prices of tinplate were higher in a very competitive European market. Hoesch Hohenlimburg showed only a slight improvement in sales as the figures of the comparable prior-year quarter still included the since-sold long products business: volumes and prices for medium-wide strip were significantly higher than the below-average values of the corresponding prior-year quarter. The grain-oriented electrical steel business again performed strongly. Growing worldwide demand for this special product was again accompanied by a significant increase in price levels. IncomeThe Steel segment increased its pre-tax income by €137 million to €409 million. The growth in income was generated by the external market operations of the Industry, Auto und Processing business units, while the Steelmaking business unit's contribution to earnings was considerably lower due to the temporarily restricted availability of one of the two large blast furnaces in Duisburg-Schwelgern. The Industry business unit reported strong growth in profits on virtually unchanged shipments. Price and product-mix improvements as well as further cost reduction measures offset the cost increases for zinc and other starting materials. The steel service centers were able to maintain the positive earnings level of the previous year; higher costs were balanced by increased shipments. Increased profits in the construction elements operating group were the result of higher prices and sales volumes. The Auto business unit also achieved a substantial improvement in earnings. Higher prices and sales volumes together with advantages gained through the continuous improvement process outweighed the rise in costs on the procurement side. Tailored Blanks increased its profits mainly through higher sales volumes in Germany and abroad. The North American steel service center reported income unchanged from the prior-year quarter. The Processing business unit achieved earnings significantly in excess of the high prior-year level. The main factor here was the positive price trend for electrical steel. In the medium-wide strip business earnings were again higher than the year before, mainly as a result of increased sales volumes. The tinplate operating group reported a slight improvement in profits. Higher volumes and prices offset the cost increases. Stainless: Significantly higher stainless steel prices
The Stainless segment performed very strongly in the 1st quarter 2006/2007. With order volumes returning to normal, the value of orders increased by 25% against the prior-year period to €1.9 billion. Contributing factors were the higher costs of alloying elements, which are passed onto customers via the alloy surcharge, and the multiple increases in base prices introduced since the beginning of 2006. At around 550,000 metric tons, total shipments in the Stainless segment were at around the same level as the year before. Within this total, deliveries of cold-rolled strip showed a particularly strong increase against the previous year. Stainless reported 1st quarter sales of €2.0 billion. This year-on-year improvement of 46% was mainly attributable to the recovery in global demand, the significantly higher base price level and in particular the nickel component included in the transaction price. The ThyssenKrupp Nirosta business unit profited from continued high demand in Europe. Sales showed a distinct improvement on the prior-year quarter. Despite a fire at the Krefeld cold-rolling mill in June 2006, customer requirements were largely met thanks to the support of the Shanghai Krupp Stainless and ThyssenKrupp Acciai Speciali Terni business units. The ThyssenKrupp Acciai Speciali Terni business unit also achieved high sales growth thanks to continued strong demand for stainless products. The capacity of the Terni plant was expanded with the start-up of a new Sendzimir mill in October 2006. Further investments are currently under way to strengthen the site's stainless activities; in addition the forge is undergoing modernization. The increased capacity and wider product mix made possible by the new bright annealing line enabled ThyssenKrupp Mexinox to further expand its strong position in the North American market for high-quality stainless steel products. A substantial increase in sales was achieved. The Shanghai Krupp Stainless business unit reported the highest growth in sales, mainly attributable to strong demand for stainless steel cold-rolled products on the Chinese domestic market and the start-up of the hot strip annealing/pickling line. In addition, Shanghai supported the ThyssenKrupp Nirosta business unit with material deliveries following the fire at its plant and associated production restrictions. The ThyssenKrupp VDM business unit continued its comprehensive business process improvement program. In addition, a number of investments were initiated to build forging and remelting capacities to strengthen the company's long-term profitability. Sales of high-performance materials improved significantly thanks to increased demand from the chemical, plant construction and aerospace sectors together with considerably higher raw material prices for alloying elements. The ThyssenKrupp Stainless International business unit strengthened its distribution capabilities by opening two new service centers in Poland and the United Kingdom to allow better coverage of the British and Eastern European markets. Sales were significantly expanded. IncomeThe Stainless segment's profit increased by €318 million to €325 million in the reporting period. The stainless business reached its low point towards the end of the 1st quarter of the previous year. In the 1st quarter 2006/2007 the demand recovery that began in early 2006 continued in almost all market segments. This was reflected in base price increases and also in higher shipment volumes. The positive trend was based on both increased demand from end consumers and restocking by distributors. In addition, the price increase for nickel had a positive earnings impact via the inventory buildup. The in some cases extreme rise in costs of raw materials and energy, in particular electricity and gas, had a negative impact on earnings. Against this background the stainless activities worldwide reported significant growth in profits compared with the previous year. In Germany, increased expenditures for measures to maintain supply readiness and minimize damages following the fire at the Krefeld plant were offset by insurance recoveries. The stainless operations in Italy achieved considerable growth in profits. The Mexican cold-rolling activities also significantly improved their earnings in a positive market environment. On the Asian market, especially in China, demand for stainless steel flat products continues to grow. However, the price increases realized by Chinese producers will not be enough to offset the current cost increases on the purchasing side. Despite the continued difficult market environment, the Chinese cold-rolling activities posted a profit, having reported a loss in the same quarter a year earlier. This reflects the improved product mix, increased export activities and hire work as well as the cost advantages achieved through the start-up of the annealing and pickling line for hot strip. The nickel alloys activity also achieved significantly higher profits on the back of continued strong demand from the plant construction, aviation, oil and gas industries. Technologies: High order volume
At October 01, 2006 the Automotive activities of ThyssenKrupp were integrated into the Technologies segment in order to concentrate the Group's engineering competencies and further enhance its innovative strength. We also realigned the Automotive activities. The body and chassis business in North America with sales of around €1 billion and 3,500 employees was sold on November 30, 2006. The Technologies segment is now divided into the business units Plant Technology, Marine Systems, Mechanical Components, Automotive Solutions and Transrapid. The prior-year figures have been adjusted in line with the new structure. Order intake and salesTechnologies started the new fiscal year well although the figures were weighed down by the negative effects of the US dollar exchange rate and the business disposals. At €3.8 billion, order intake showed an 18% improvement on the good prior-year quarter. Sales fell just short of the prior-year level at €3.1 billion. This was partly due to lower sales in the automotive systems business. With an order backlog of €13.9 million at December 31, 2006, orders in hand currently cover one year's sales. The order situation at Plant Technology was particularly encouraging, with new projects significantly boosting order intake. Sales exceeded the high level of the prior-year quarter. Demand was particularly strong from regions with large raw material deposits and growing demand for energy and primary materials. Above all in the developing and emerging countries with limited production and transport capacities, this led to a sustained high level of project business for manufacturers of handling equipment. Marine Systems recorded a slight improvement in orders against the previous year with the booking of orders for two SWATH ships for the German customs authority, three new yachts and increased repair and service orders. Sales were lower than the year before. SWATH ships are vessels with specially designed hulls for high stability even in rough seas. The Mechanical Components business unit offers products and services for the automotive and construction equipment sectors and for general engineering applications. Overall demand in the 1st quarter 2006/2007 was positive. Order intake exceeded sales. Due to the appreciation of the euro against the US dollar and the Brazilian real and the absence of sales from the since-sold Brazilian foundry, sales were slightly lower than the year before. Excluding these factors, however, sales showed a slight improvement. The Automotive Solutions business unit supplies innovative system solutions for the auto industry for use in steering systems, shock absorbers, body-in-white, body and chassis components as well as assembly systems for engines, transmissions and axles. Order intake increased, mainly as a result of higher orders for body-in-white lines, tooling and assembly systems. Sales were down from the year before due to lower billings of body shop equipment, tooling and assembly systems in Germany and the USA. Sales of shock absorber systems were also lower. Transrapid achieved higher sales than a year earlier. IncomeThe Technologies segment returned a profit of €138 million, compared with €118 million in the comparable prior-year quarter. The biggest contributions to earnings came from the Plant Technology, Marine Systems and Mechanical Components business units, which each achieved profits in the high two-digit million region. Plant Technology reported a considerable improvement in income. This reflects increased sales with high-margin orders. Added to this were positive effects from the fair-value recognition of currency hedges. Marine Systems more than doubled its profits compared with the 1st quarter of the previous year. The growth in profits was mainly the result of improved earnings from orders and an expansion of the service business. As already reported, the remaining activities of the former Automotive segment have been integrated in the Mechanical Components and Automotive Solutions business units with effect from the current fiscal year. The components business was assigned to Mechanical Components. The Mechanical Components business unit achieved a further significant increase in its already high profits. This was mainly the result of continued strong demand for large-diameter antifriction bearings and rings and reduced starting material prices at the North American foundries. The sale of a Brazilian foundry also made a positive contribution to earnings. The Automotive Solutions business unit, which now also includes the systems business of the former Automotive segment, reported a single-digit million loss, having returned a profit the year before. Operating income was negatively affected by start-up costs for major orders at the German stamping plants and restructuring measures introduced in the steering gear business. Transrapid reported a further reduced, small loss. License billings and cost reduction measures had a positive effect. Elevator: Continuing growth track
Order intake and salesElevator remained on growth track in the 1st quarter 2006/2007. Both order intake and sales increased despite continued margin pressure and negative exchange rate effects. Order intake climbed 3% to €1.3 billion. Sales were 7% up on the previous year at €1.1 billion. All business units contributed to the growth. In the Central/Eastern/Northern Europe business unit, order intake and sales improved against the previous year. Above all in Germany and France, business was significantly expanded thanks to increased demand for new installations. The other regions achieved slight growth or equaled their good prior-year performance. Lower figures were reported only in Austria, Switzerland and the Benelux countries. The Southern Europe/Africa/Middle East business unit significantly expanded its sales but could not quite match the high order level of the previous year. The growth in sales was mainly due to strong business with new installations in Spain. The other regions, too, reported rising sales. The Americas business unit succeeded in maintaining the high prior-year order level and even increased sales slightly despite strongly negative exchange rate effects. The growth in sales was the result of expanding new installations business in North America. The Asia/Pacific business unit recorded significantly higher order intake and slightly improved sales. In China we again profited from continued strong demand for new installations. In India, Australia and Southeast Asia, too, order intake was higher. All regions contributed to the rise in sales. Only in Korea were order intake and sales lower due to a further decline in new installations business. In the Escalators/Passenger Boarding Bridges business unit, higher sales were achieved in both activities. Order intake, however, decreased against the previous year which was characterized by numerous new airport projects. The growth trend in the Accessibility business unit continued unabated. Sales expanded compared with the previous year. IncomeIncome in the Elevator segment increased by €12 million to €97 million in the 1st quarter 2006/2007. The Central/Eastern/Northern Europe business unit achieved slightly higher earnings as a result of increased sales in particular in Germany and the United Kingdom. Negative effects were the deterioration in margins in Switzerland and the decline in income due to lower sales in the Benelux countries. The Southern Europe/Africa/Middle East business unit posted higher income. Positive factors were the expansion of sales in Spain and the effects of the reorganization of the new installations business in Portugal. In the Americas business unit, the main growth in profits came from the North American activities. In addition to a higher volume of business in new installations, efficiency enhancements in the service business had a positive effect. The Latin American activities – especially in Brazil – also achieved efficiency improvements. The lower average value of the US dollar in the quarter led to a translation loss. The Asia/Pacific business unit failed to achieve its prior-year income and reported a loss. In Korea the situation in the new installations business remains difficult; in addition, further restructuring costs impacted earnings. Profits in China were stable. All other activities in the region achieved higher income contributions. Earnings in the passenger boarding bridges business were level with the year before. Margin pressure again had a negative effect on the escalator activities in Europe. Overall the Escalators/Passenger Boarding Bridges business unit returned a loss. Thanks to the expanded business volume in the Accessibility business unit, profits again increased, especially in the European activities. Services: Record figures
Order intake and salesThe Services segment achieved its highest ever quarterly sales of €4.0 billion in the first three months of fiscal 2006/2007. This was a 30% improvement on the prior-year quarter. All business units reported significant growth. Alongside the improved cyclical situation, the main reasons were extensive sales initiatives and the successful integration and development of the newly established companies and acquisitions. The largest business unit, Materials Services Europe, which includes the South American and Asian as well as the European operations, changed its name to Materials Services International at the beginning of fiscal 2006/2007. This reflects in particular the increasing importance of business outside Europe. Materials Services International recorded significant growth in sales in the reporting period. Demand and prices recovered strongly from the relatively weak prior-year quarter. This was true of the entire range – rolled steel, stainless steel, tubular products, nonferrous metals and plastics – and virtually all regions of Europe. Business at the Materials Services North America business unit followed a similar pattern to that in Europe. Demand and price levels – especially for rolled and stainless steel – showed signs of consolidating but were nevertheless significantly higher than in the 1st quarter 2005/2006. The Industrial Services business unit also recorded substantial growth in sales. Business expanded significantly thanks to both the newly acquired companies and organic growth. The new activities in South America performed pleasingly. Sales in North America showed a slight improvement on the extremely high level of the prior year. Substantial growth in technical trading activities and largely stable demand for metallurgical raw materials, in part at very high prices, enabled the Special Products business unit to significantly expand its sales compared with the year-earlier period. IncomeAt €192 million, 1st quarter 2006/2007 profits at Services more than doubled compared with the prior-year period. The highest earnings were returned by the Materials Services International business unit, which tripled its profit contribution thanks to stronger demand and high prices. The same was true of the Materials Services North America business unit. The Industrial Services business unit doubled its income. Services for the German process industry in particular returned higher earnings, and the acquisition of activities in Brazil and Germany had a further positive effect. The Special Products business unit achieved a further improvement on its high prior-year profit, to which all activities contributed. This applied to the rolled steel and tubular products business and in particular to the technical trading and raw material activities.
Corporate includes the Group's head office and internal service providers as well as inactive companies not assignable to individual segments. Also included here is the non-operating real estate, which is managed and utilized centrally by Corporate. The retained assets and liabilities and held-for-sale operations of ThyssenKrupp Budd are also assigned to Corporate. The disposal in the meantime of the held-for-sale operations is responsible for the significant decrease in Corporate's sales. Corporate reported a loss of €93 million, an improvement of €44 million on the prior-year quarter. This was mainly the result of positive earnings effects from the Group's internal financing system and from decreased pension obligations in Germany and the USA. This was partly offset by higher expense in the area of Real Estate. Consolidation mainly includes the results of intercompany profit elimination. |
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