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Segment review

Steel: Earnings further improved

In a continuing robust economic environment the Steel segment continued to perform very successfully. The value of orders received increased by 4% to €3.3 billion. With order volumes down this was exclusively due to higher prices. Sales rose by 8% to €3.4 billion. Here too, increased prices in quarterly and annual contracts were the key factor. Steel shipments almost reached the level of the prior year. With production higher than shipments there was a slight increase in finished-product inventories.

In the Steelmaking business unit crude steel output was unchanged from the prior year at 3.5 million metric tons. Slab purchases from Hüttenwerke Krupp Mannesmann were higher than in the prior-year period, which was marked by outage-related losses. Slab purchases were made from third parties to ensure maximum utilization of our hot-rolled capacities.

The Industry business unit reported an increase in sales which was due solely to higher prices. Our customers in the steel-using sectors continue to have a good workload but also have high inventories. Shipments were slightly lower than a year earlier, while the decline in order volumes was more pronounced for seasonal reasons. However, this was offset by higher prices in quarterly contracts. Once again we were unable to supply all quantities required, particularly the Heavy Plate profit center of ThyssenKrupp Steel. The European steel service centers reported significantly higher sales than a year earlier, reflecting slightly increased volumes and higher prices. A new service center in Poland began operation in the reporting period. The moderate sales increase in the construction elements business was exclusively price-related. Shipments decreased.

In the Auto business unit an increase in contract prices compared with the year before boosted sales. Shipments generally remained stable at a high level. In a robust automobile market, orders from customers in Europe remained high, more than compensating for lower volumes at our North American steel service centers. The sales expansion achieved at Tailored Blanks was also the result of higher volumes and prices. A new subsidiary was established in Turkey, the first tailored blanks production plant in this growth market. The Metal Forming business, which manufactures body and chassis components for the automobile industry and was integrated into the Steel segment with
retroactive effect at October 01, 2006, also expanded its sales in the reporting quarter. This was mainly due to higher steel prices which were passed on to customers. In addition, the sales base was expanded with the acquisition of chassis activities in China and Brazil last year and this.

Higher tinplate shipments together with volume- and price-related growth in the other activities contributed to the rise in sales in the Processing business unit. The encouraging growth in medium-wide strip business was sustained. Demand for grain-oriented electrical steel remained robust, leading to a further increase in prices.

Income

The Steel segment increased its profit in the reporting quarter by €42 million to €428 million. Contained in this figure is an impairment charge of €76 million in the Metal Forming activity of the Auto business unit. Excluding this charge, pre-tax income amounts to €504 million.

The Steelmaking business unit directs the logistics and metallurgy activities, including the newbuild project in Brazil. The business unit achieved break-even earnings.

The Industry business unit again achieved a significant year-on-year increase in profits in the 3rd quarter. The improvements stemmed in particular from the IDS (Industry, Distribution and Steel Service) and heavy plate activities. Key factors were higher average prices and cost reductions as a result of efficiency-enhancement measures, which outweighed increased starting material costs and a slight decline in shipments. The construction elements business reported lower profits on reduced volumes. The European steel service centers returned significantly higher profits in a good market environment.

Disregarding the €76 million impairment charge at Metal Forming, the Auto business unit achieved a substantial increase in profits as a result of the improved price situation and the effects of the performance-enhancement programs. Shipments remained generally stable at a high level. Running counter to this were cost increases on the procurement side. The North American steel service activities recorded a decline in profits due mainly to the lower US dollar/euro exchange rate. At Tailored Blanks the ramp-up of the new plant in Sweden led to growth in profits. Excluding the impairment charge, earnings at Metal Forming were down slightly from the year-earlier quarter owing to start-up costs for new products.

The Processing business unit reported a further significant increase in earnings, which was due mainly to higher prices brought about in part by an improved product mix in electrical steel. The medium-wide strip business achieved strong growth in profits with higher prices and increased shipments, though higher costs for starting material impacted earnings. Income in the tinplate business was slightly higher than a year earlier.

Stainless: Strong sales growth

The Stainless segment reported a large year-on-year decline in 3rd quarter order volumes. Order intake for hot-rolled strip in particular was significantly lower. In terms of value, however, order intake remained roughly unchanged owing to the still high nickel price. Orders were impacted by continuing high imports, excessive inventories at distributors, increasing product mix shifts towards low-nickel austenitics or ferritic materials, and by the slump in demand triggered by the recent sharp drop in the price of nickel.

At around 580,000 metric tons, total deliveries in the Stainless segment were 12% lower than a year earlier, primarily due to lower shipments of hot-rolled strip.

Sales in the Stainless segment climbed 58% to €2.6 billion. This strong growth, despite the reduction in deliveries, is attributable to the enormous increase in alloy surcharges, especially for nickel.

The ThyssenKrupp Nirosta business unit reported a significant fall in demand from distributors in Germany due to high inventories and the nickel price erosion. However, sales increased strongly. The cold-rolled annealing/pickling line almost completely destroyed by the fire at the Krefeld cold rolling mill in June 2006 will start production again in fall 2007. The hot-rolled line which was also damaged went back into operation in the 1st quarter 2007.

ThyssenKrupp Acciai Speciali Terni also felt the effect of reduced demand for stainless products from service centers, distributors and tube manufacturers, with order intake showing a sharp decline. Despite this, sales increased substantially in the 3rd quarter. A changed product mix with a higher proportion of ferritic grades and the new finishing shop at the Terni location are having an increasingly positive effect by increasing value added and thus allowing us to do more business with end customers. In June 2007 plans were unveiled for the step-by-step relocation of production from Turin to Terni. This relocation is part of an extensive program of measures to further improve competitiveness and expand capacities at the Terni plant in the medium term. Connected with this is an additional investment program to increase meltshop and processing capacities and expand the product range. The aim is to develop Terni into a world-class integrated stainless mill.

ThyssenKrupp Mexinox reported very strong order volumes and significantly higher sales in the 3rd quarter, further strengthening the company's market position in the NAFTA region.

Shanghai Krupp Stainless was unable to maintain the overall volume of orders received in the prior-year quarter owing to weak demand on the Chinese market. However, business with ferritic stainless steels was expanded. Sales were up significantly from the prior-year quarter.

In the nickel alloys business of ThyssenKrupp VDM, customers adopted a wait-and-see policy in a generally stable plant construction market owing to the high cost of alloying elements. Demand for titanium remained strong. The aerospace, oil, gas and chemical engineering sectors continued to show high demand. Order intake and sales were significantly higher than the year before. The relocation of wire production from Bärenstein to Werdohl is proceeding to schedule. The aim of this move is to secure modern and efficient production capacities which will remain competitive over the long term. Work on the building of the new forging line at the Unna location is likewise on schedule.

The ThyssenKrupp Stainless International business unit reported a strong increase in order intake and sales in the 3rd quarter 2006/2007. The newly built service centers for the United Kingdom and Central and Eastern Europe also contributed to this.

Income

The Stainless segment increased its profit by €170 million to €296 million. The growth in earnings in the reporting period reflects higher base prices compared with the prior-year quarter in conjunction with strong demand for stainless steel products from end consumers and the extremely positive effect of the nickel price.

As a result of the improved price levels and performance-enhancement programs, ThyssenKrupp Nirosta reported significantly higher profits. ThyssenKrupp Acciai Speciali Terni also achieved significant growth in earnings thanks to higher base prices and the effects of efficiency programs. Restructuring charges in Terni and in connection with the relocation of production from Turin to Terni impacted earnings in a two-digit million amount. Both the titanium business and the forging activities made significant contributions to earnings. In a generally stable NAFTA market, ThyssenKrupp Mexinox also reported appreciable growth in income at a high level. The growth in profits at Shanghai Krupp Stainless in a market environment which remains extremely difficult was mainly due to increased exports and hire work carried out for ThyssenKrupp Nirosta, together with cost advantages from the start-up of the hot-rolled annealing and pickling line. The price increases implemented by Chinese producers in the 3rd quarter are still not enough to offset the substantial increases in raw material prices.

ThyssenKrupp VDM achieved higher profits thanks to the positive situation on the oil, gas and chemical engineering markets.

The ThyssenKrupp Stainless International business unit equaled its good prior-year profit.

Continued high imports from Asia increased pressure on base prices in the reporting period. The fall in the nickel price from early June led to greater purchasing restraint and increased destocking at distributors. Demand, which had already been subdued, weakened further as a consequence. The resultant drop in order intake and associated production cutbacks will only start to impact earnings in the next quarter. In addition, inventory valuation adjustments are expected as a result of the sharp fall in nickel prices.

Technologies: Very good order situation

Order intake and sales

The order situation in the Technologies segment remained very encouraging. At €5.7 billion, order intake more than doubled from a year earlier. Plant Technology and Marine Systems in particular reported high order levels. Despite disposals and the impact of the depreciation of the US dollar, sales at €2.8 billion were virtually unchanged from the prior-year quarter. As a result of the high order intake, orders in hand increased to around €16 billion, sufficient to cover more than one year's sales.

The Plant Technology business unit again reported very strong orders. In the chemical plant sector they included a major order for a new fertilizer complex in Egypt. As a result, the business unit's order intake quadrupled against the prior-year quarter. The continued growth in orders also led to an increase in sales. High raw material and energy prices together with strong global demand for cement have created a very good investment climate for the business unit's products, resulting in a good project situation. A-C Equipment Services based in Milwaukee, USA was acquired to strengthen and expand the service business. The market leader in cement kiln servicing and repairs, the company represents an optimum strategic fit with the segment's cement plant activities.

With the booking of the F 125 frigate program for the German Navy and six further yachts in the 3rd quarter 2006/2007, the Marine Systems business unit made a significant contribution to the segment's order growth. Added to this, the repair and service business continued to perform well, reporting a significant increase in order volumes against the prior-year period. Sales were lower than the year before for processing reasons.

In the Mechanical Components business unit, the positive demand trend continued in the reporting quarter. Order intake matched the high year-earlier level. Sales slipped slightly. Significant sales increases for large-diameter bearings and rings were not quite enough to offset reductions resulting from the weaker US dollar, the sale of the Brazilian foundry and weaker demand in the USA.

The Automotive Solutions business unit reported a further improvement in order intake. In particular the steering systems, axle modules and assembly equipment activities contributed to this. Sales were also higher.

Transrapid achieved higher sales than a year earlier.

Income

The Technologies segment returned a profit of €155 million in the 3rd quarter 2006/2007, compared with €151 million in the prior-year quarter which included disposal gains. Significantly improved profits at Plant Technology, higher earnings at Marine Systems and a further profit at Transrapid outweighed the fall in income at Mechanical Components, which was caused mainly by weaker business in North America and the unfavorable effect of the US dollar/euro exchange rate.

Following on from the good income figures reported in the first two quarters, Plant Technology achieved a further significant increase in profits against the prior-year quarter. The main reasons were increased sales with high-margin orders, a good workload and improved earnings from orders.

Marine Systems reported a slight increase in profits. While the submarine and repair and service businesses achieved higher earnings, shipbuilding income was lower overall mainly due to higher costs for processing yacht orders.

Mechanical Components again made the biggest contribution to earnings but was not quite able to equal its prior-year profit. Positive impetus came in particular from continued high demand for large-diameter bearings and rings. However, earnings were dampened by weaker US demand for castings and crankshafts together with an unfavorable US dollar/euro exchange rate.

Automotive Solutions again achieved a two-digit million profit, though the year-earlier figure was not quite matched. Key factors were reduced sales in the body shop equipment and tooling activities and higher restructuring expenses for assembly systems.

Transrapid reported a small profit compared with virtually break-even earnings the year before. Income contributions from license billings had a positive effect.

Elevator: On growth track

Order intake and sales

Elevator expanded successfully in the 3rd quarter 2006/2007. Despite negative exchange rate effects, both order intake and sales improved significantly. Order intake climbed 12% to €1.3 billion. Sales were up by 10% to €1.2 billion. Strong business in North America and continued robust demand in China contributed substantially to the growth in new installations. In all regions, service business was further expanded by the global service strategy.

The Central/Eastern/Northern Europe business unit significantly exceeded its year-earlier order intake and sales. This growth was mainly attributable to modernization business in France which remains very pleasing. Business activities in Eastern Europe were expanded with the conclusion of a contract for an airport project in Russia.

The Southern Europe/Africa/Middle East business unit reported a considerable improvement in both order intake and sales. The growth in sales was mainly due to strong business with new installations and services in Spain.

In the Americas business unit, order intake increased slightly and sales significantly despite negative exchange-rate effects. In the USA, the sustained upswing in the non-residential areas of the construction sector boosted new installations business. In addition, the service business was systematically expanded. The business situation in Canada and Brazil was also very encouraging and easily compensated for the slight weakening of activities in Latin America.

The Asia/Pacific business unit significantly expanded order intake and sales despite negative exchange-rate effects. The growth in China is attributable to continued strong demand for new installations. Although the market environment in Korea remains difficult, order intake and sales improved thanks mainly to the expanding service business.

In the Escalators/Passenger Boarding Bridges business unit, order intake increased and sales were unchanged. While business with escalators was down from the year before on account of intensive price competition, business with passenger boarding bridges showed a distinct improvement as a result of the growth in air traffic.

The Accessibility business unit successfully continued its expansion. Strong growth in the main European markets outweighed the slight decline in business in the USA.

Income

Income in the Elevator segment increased by €8 million to €106 million in the 3rd quarter 2006/2007.

In the Central/Eastern/Northern Europe business unit, income fell significantly short of the year-earlier level. The reason for the deterioration was persistent price competition on the key markets of Central Europe and in Eastern Europe which could not be offset by efficiency improvements.

The Southern Europe/Africa/Middle East business unit increased its profit substantially. This was mainly due to the expansion of the Spanish business activities, above all in services. The Portuguese company contributed to the growth in profits in particular in the new installations business.

The Americas business unit reported significantly higher earnings thanks to increased sales, improved margins and enhanced service efficiency in North America. This more than offset the negative exchange-rate effects caused by the depreciation of the US dollar.

The Asia/Pacific business unit reduced its loss considerably. The activities in China returned significantly higher profits as a result of increased sales volumes and efficiency improvements. However, despite the absence of restructuring expenses, the Korean operation reported a loss as a result of the continuing difficult market situation.

The Escalators/Passenger Boarding Bridges business unit posted a lower profit than the year before. Not only was the prior-year figure boosted by positive nonrecurring effects from a disposal and the fair-value recognition of currency hedges, but earnings in the reporting quarter were negatively impacted by continued margin pressure in the escalator activities.

Income in the Accessibility business unit distinctly exceeded the prior-year level. The growth in profits is attributable to the European activities which benefited from the positive market environment.

Services: Sales at all-time high

Order intake and sales

The Services segment achieved sales of €4.3 billion in the 3rd quarter, matching the record level of the 2nd quarter and exceeding the comparable prior-year figure by almost €500 million or 13%. Sales were positively influenced once again by the stable situation on the raw and industrial materials markets. The same applies to the distribution activities, which were further expanded worldwide, and to the newly established and acquired companies.

Materials Services International, the segment's largest business unit, again recorded a very strong increase in sales. The positive trend of recent months continued, with demand and prices remaining at encouragingly high levels. Market conditions were favorable in almost all areas, both for our German and almost all our international activities.

Sales at the Materials Services North America business unit fell short of the very good prior-year quarter. The US dollar/euro exchange rate and the price level, which is now below that of other markets, severely hampered imports of flat steel products. By contrast, business with nonferrous metals remained at a pleasingly high level.

The Industrial Services business unit achieved further growth in almost all sectors and regions, including Germany. The new activities in South America made a significant contribution to the sales increase. In the future, Industrial Services will provide all steel mill services for the new ThyssenKrupp Steel plant in Brazil. In North America, the business unit achieved a further improvement in sales despite the unfavorable exchange rate effects.

The Special Products business unit once again recorded a substantial increase in sales. Alongside continuing strong demand and high prices for metallurgical raw materials, an important part was played by the technical systems business and the rolled steel, tube and technical trading activities, which achieved significant growth.

Income

In the 3rd quarter 2006/2007, the Services segment again reported a strong rise in income from €168 million in the prior-year quarter to €218 million. The highest earnings were returned by the Materials Services International business unit, which further increased its profits as a result of continuing high prices and strong demand as well as the sustainable effects of its performance-enhancement programs.

By contrast, earnings at Materials Services North America fell just short of the very good prior-year figure for sales and exchange-rate reasons and due to expense from the fair-value recognition of commodity futures.

The Industrial Services business unit achieved a slight increase in profits, resulting almost exclusively from domestic business.

Special Products reported a strong increase in earnings compared with the prior year. All areas of the business unit contributed to this improvement.

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 of Thyssenkrupp Budd were also assigned to Corporate. The disposal in the meantime of this company's operations is responsible for the decrease in Corporate's sales.

Corporate reported income of €21 million, an improvement of €140 million compared with the prior-year quarter. Of this amount, €115 million related to the gain on the disposal of real estate as part of ThyssenKrupp's plans to concentrate its head office locations in Germany. Earnings were also boosted by the absence of restructuring costs for the since sold North American automotive activities.

Consolidation mainly includes the results of intercompany profit elimination.