Subsequent events, opportunities and outlook

At present, the impact of the international financial crisis on the real economy cannot be adequately forecast. A substantial economic downturn is expected in 2009 which will also affect the previous growth markets and our customer sectors. Our systematic portfolio optimization strategy is designed for the long term, enabling us to overcome periods of economic weakness and maintain our long-term goals.

Subsequent events

There were no events requiring disclosure.

Economic outlook

Global economy in recession

The markets for goods and services will be hit hard by the international financial crisis in 2009. Following growth of 3.7% in 2008, world GDP is expected to expand by less than 3% in 2009, resulting in a recession in the global economy. At present it is not possible to assess the extent to which the bail-out packages introduced by the US and European governments in October 2008 will shore up the financial markets. Global GDP growth could accelerate again modestly in 2010.

In the USA, domestic demand is expected to remain weak in 2009. The financial and real estate crisis and the slowing labor market will impact private consumption. Exports, to date a mainstay of the economy, will also slow as a result of the global economic situation and the stronger US dollar. As a consequence, companies will reduce their spending.

In the euro zone, the economic outlook for 2009 has deteriorated significantly. The financial crisis is having a negative effect on consumer and business spending. Consumer uncertainty and a slower labor market are impacting private consumption. Growth in exports will be moderate at best in 2009. In Germany, capital expenditure will fall against the background of weaker industrial activity.

The emerging markets of Asia and Central and Eastern Europe will also be unable to escape the consequences of the financial crisis, and growth there will be significantly weaker in 2009. In China and India, the pace of growth in private consumption and capital expenditure will slow perceptibly.

Demand will also soften in most countries of Central and Eastern Europe. In Russia, the reluctance of banks to grant loans is increasingly affecting businesses.

Prospects on important sales markets

As a result of the international financial crisis, the prospects for business on important sales markets have become much more uncertain. The problems in the financial sector are having a noticeable impact on the real economy.

We expect the following developments for ThyssenKrupp on the relevant customer markets:

The previous strong growth of the global steel market will slow. Given the worsening prospects for the economy as a whole in the coming year, demand for steel will drop particularly in Europe, North America and Japan. Raw material prices started to ease recently, but it is not yet possible to say whether this will be a lasting development. In Europe, the recent significant increases in third-country imports pose a further risk.

In the stainless steel market, the high inventories at distributors and service centers are being gradually reduced at the start of the 2008/2009 fiscal year. As prices for alloying metals fall, especially nickel, and the fear of a recession grows, customers are holding back on orders. The sharp rise in imports from Asia is exacerbating the situation. Against this background, falling raw material prices will have a negative impact.

At present it is not possible to predict developments on the international vehicle market. Any production growth will only take place in the emerging markets of Asia and Central and Eastern Europe, while output will fall again in Western Europe and the NAFTA region. China is expected to produce almost 10 million vehicles and replace the USA as the world's second-biggest producer after Japan. In 2009, output from Western European auto manufacturers will fall short of the prior-year figure; in Germany, production is expected to drop by at least 2% to less than 6 million cars and trucks.

The global weakening of demand for capital goods will impact the mechanical engineering sector in many countries in 2009. With no impetus from the domestic markets, activity in the USA and Japan is expected to stagnate. In Germany, demand is expected to decline after years of boom. China is likely to report further high growth rates, though here again the pace of growth has slowed significantly.

Global construction output in 2009 will be driven only by the emerging markets of Asia and Central and Eastern Europe. In the USA, building activity will decline further due to falling real estate prices and weak housing demand. In the euro zone and in Germany, stagnation is the best that can be hoped for.

Opportunities: Quality as a success factor

ThyssenKrupp's strategy of positioning itself as a premium supplier on the world market means that once the economic slump is over, the Group will once again have opportunities to achieve long-term, solid and profitable growth. Through high productivity, product quality and innovation, we intend to further improve our earning strength. Rising customer requirements could provide us with additional orders, as we are rated highly in terms of quality. Our products meet very high standards in all areas – from low-noise submarines to high performance materials such as stainless steel alloys to low-pollution industrial facilities.

Detailed opportunity management system

We operate a comprehensive management system at all levels of the Group to identify and exploit the opportunities that present themselves to ThyssenKrupp. Central to this system are the segments, whose operating business units observe trends on their markets and analyze them for possible opportunities. When lucrative projects emerge, and the potential reward justifies the associated risks, the segments decide whether and how best to proceed. They have recourse to the Group's strategic framework, which secures financing and liquidity as well as offering key services for the operating companies.

Opportunity management means teamwork at ThyssenKrupp: Project officers and management boards decide how best to utilize strategic opportunities. In the event of cross-segment projects or projects of outstanding importance for ThyssenKrupp as a whole, the Group's Executive Board takes responsibility.

More information on our business planning, expected development lines and goals are provided in Business management - Goals and strategy. Details about risks for the Group are presented in the Risk Report.

Opportunities in the segments

Steel: Our Steel segment is focused on the market for premium flat-rolled carbon steel and holds a strong position in its European core market. Intelligent materials solutions, product-specific processing and extensive services through to finished parts shape our market opportunities. Continuous advancements in our steel materials give us an important competitive advantage. Our transatlantic growth strategy will strengthen our position in the major steel consuming markets of Europe and North America. We are undertaking intensive marketing activities, including direct contact with many existing and new customers, to ensure that our extended and improved capacities are taken up by the market.

By changing the terms of contracts with our customers, we aim to pass on increases in raw material and energy prices more quickly in the future. In the past we had a large share of annual contracts which were mostly based on the calendar year. This meant that if raw material costs rose dramatically, there was a time lag before the effect of higher steel prices was reflected in average revenues. Following discussions with our customers, however, in the final quarter of 2007/2008 we were able to conclude annual contracts with changed terms and higher prices which took account of the increases in raw material costs. The terms of these contracts have been matched to the terms of the contracts we conclude with raw material suppliers, which will allow us to respond more quickly to changes in raw material prices in the future.

Stainless: The Stainless segment has established a reputation as a specialist for high-performance materials. With its stainless steel, nickel alloy and titanium products, it exploits opportunities on the market for high-quality materials. In conjunction with the existing cold rolling mill in Mexico, the construction of a new plant complex in the US state of Alabama will strengthen the segment's position on the North American stainless market.

Ever greater importance is being attached to services which permit customers to concentrate on their core business and outsource other functions to Stainless. To this end we are expanding our range of global services and tightening our network of sales and service centers. Delivering customized solutions, offering product-related services and maintaining a presence close to customers should generate significant opportunities. This service offensive will increase our added value.

Technologies: There are major opportunities for the Technologies segment in the megatrends raw materials, environment, energy, security, infrastructure, food and in the growing regions of the emerging markets. In these areas the segment can leverage its strengths in technology, design and innovation. We aim to assume market leadership in high-performance business areas through efficient, cost-optimized products, play a key role in defining technological progress and develop innovative products offering high customer benefit.

In geographical terms, we see opportunities in the entire Asia/Pacific region. To this end Technologies is expanding its capacities in India and China. One particular focus is the Middle East including North Africa. Thanks to its major oil and gas reserves, this region can afford to invest heavily in industry and is using the expertise of our plant engineers for this. To serve this market more intensively, we have opened the ThyssenKrupp Technologies TechCenter Middle East in Dubai. More than five billion people can be reached within a five-hour flight radius from this location.

Our specialized service business also holds long-term opportunities. Technologies is looking to increase sales in this area by around 30%.

Elevator: Our Elevator segment is one of the world's leading manufacturers and service providers for elevators, escalators, moving walks, passenger boarding bridges, and stair and platform lifts. We have a wide range of high-performance products – from standard systems to customized solutions to service, maintenance and modernization packages. In particular, new product developments such as the TWIN elevator create good opportunities for the segment in the field of mobility. The TurboTrack is an innovative product developed by Elevator for horizontal passenger transportation. This high-speed system has three speed zones and moves people significantly more quickly than conventional walkways. Elevator anticipates strategic opportunities from the further optimization of its worldwide branch and service network and through additional maintenance orders for existing passenger transportation systems. We also intend to strengthen our activities in the international growth regions. Through effective marketing and the provision of detailed information to clients and architects, we aim to highlight the specific strengths of our products in terms of cost-efficiency, technology and design.

Services: The Services segment is pursuing a focused strategy aimed at strengthening its core material services business. Its target group are international customers who wish to utilize the specialized skills of our experts. Our offering ranges from straightforward material supplies to complex supply chain management, where we take responsibility for all aspects from ordering and quality control to logistics and just-in-time delivery to the customer's production lines. For our Special Products unit we see particular growth opportunities in Asia and Eastern Europe. The strength of our product range lies in its diversity, taking in construction products for flood protection, metallurgical products, nonferrous metals, minerals and industrial gases.

Important performance-related opportunities

We see important opportunities in procurement, production and improved marketing to profitably expand ThyssenKrupp's business. New electronic procurement platforms make handling purchases easier both for us and our suppliers. Methods such as online requests for bids, auctions or catalog ordering have already proven successful. Now we need to convince as many business partners as possible worldwide of the benefits they offer.

In production, the process improvements introduced in recent years will increase product quality while maintaining or lowering costs. New processes added in the area of steel processing include innovative hot-dip galvanizing methods for multiphase steels and the joining of stainless and carbon steels in tailored products.

In the area of plant engineering, our new technology for the production of polylactic acid should open new market opportunities. Polylactic acid is the starting material for a biodegradable plastic which is of such high quality that it can be used for packaging and bottles.

For our elevators, escalators and moving walks we are aiming to achieve greater standardization of individual technical components. At the same time we want to design our products more closely in line with the specific wishes of our customers. Today's elevators and escalators should both accentuate the architectural character of the building and offer extremely cost-efficient operation. That's why many customers are turning to high-tech products such as our TWIN elevator, or are deciding in favor of our energy-saving lighting concept.

At Services, particular performance-related opportunities can be achieved by taking our marketing activities for materials services even closer to customers. For offshore applications, our engineers have expanded the range of construction services to include a highly efficient vibratory pile driving technology which could result in additional orders.

Opportunities from young talent

Given the expected shortage of skilled and managerial employees in the future, we take every opportunity to inform qualified school and university graduates of the career opportunities available in the Group. One proven method is inviting students of various disciplines to trade shows at which ThyssenKrupp is exhibiting its products and processes. In addition to providing a good introduction to our range, students can also gain a personal insight into the daily working life of, for example, an engineer.

We also give well-qualified and motivated university graduates the chance to contact skilled and managerial employees as well as numerous trainees in the Group to find out about career opportunities. For example, more than 270 university graduates applied for one of the 24 places available at the 1st ThyssenKrupp Career Day, which was held last fiscal year. We will be continuing with these events.

Equally promising was "do-camp-ing", a one-week vacation program for senior high school students aimed at providing an introduction to engineering studies. It involved active project work as well as discussions and Q&A sessions with students and professional engineers, including some from ThyssenKrupp, with the objective of getting the young participants interested in technical issues. A total of 80 students from all over Germany attended. We believe that in the long term measures such as these will attract qualified and motivated young talents to the area of technology and our Group.

Tax opportunities from tax legislation

The 2008 corporate tax reform had a positive impact on ThyssenKrupp AG's taxation in the reporting period. In conjunction with changes to the structure of trade tax, the reduction of the corporate tax rate lowered the nominal tax burden in the corporate and trade tax group of ThyssenKrupp AG from 39.4% to around 31% of domestic profits. The newly introduced limitation of interest deduction did not apply owing to the good level of earnings achieved in Germany in 2007/2008. Tax rate reductions have also been resolved in other European and non-European countries in which the Group generates pleasing levels of income, including Spain, Italy and Canada.

Value-enhancement potential through new initiative

The Groupwide value-enhancement program ThyssenKrupp best offers additional opportunities. The start of the 2008/2009 fiscal year sees the launch of the new Net Working Capital initiative, which will support the positive performance of the projects running under ThyssenKrupp best. Whereas in the past the focus was on earnings, the aim now is to optimize the working capital tied up in accounts receivable, accounts payable and inventories. As with previous initiatives we are providing methodological tools and training employees in their use. ThyssenKrupp best will also be expanded in the subsequent fiscal year.

Expected earnings situation

In the 2008/ 2009 fiscal year we expect the international financial crisis to impact heavily on economic performance. According to our estimates, world GDP will grow by less than 3%. As a result, the global economy will go through a phase of recession. At present, it is difficult to estimate what effect the distortions caused by the financial crisis will have. Our planning for the coming fiscal year takes account of these restrictions. Despite the high level of uncertainty and the reduced predictability of the situation, we believe that with our business portfolio we are well positioned even in times of economic downturn.

Sales and earnings: We anticipate a substantial decrease in sales in fiscal 2008/2009. This will have a corresponding effect on earnings. The increasing uncertainties on the financial and real markets make it impossible to provide a quantifiable forecast at this time. We will supply more concrete information on the current fiscal year in our quarterly reporting. Price and volume risks will be limited by declining material prices and an additional wide-ranging package of measures to increase efficiency. This will also significantly reduce working capital requirements. The forecast for the individual segments is as follows:

• Steel – substantial price and volume risks, cushioned by long-term contract structures, the focus on numerous premium segments and declining material prices.
• Stainless – lower demand, revenues stabilizing.
• Technologies – relatively high level of planning certainty for revenues and earnings from project business due to high order backlog with good earnings quality.
• Elevator – comparatively immune to fluctuations in revenues and earnings due to high service share and high order backlog.
• Services – price and volume risks cushioned by broad product portfolio with high service share, global presence and further optimization of logistics.

In 2009/2010 we expect the global economy to come out of recession and growth to accelerate moderately. Assuming our business is not impacted by lasting economic weakness, in 2009/2010 we aim to return to our long-term growth path and expect a renewed improvement in sales and earnings.

In the longer term, particularly after the completion of the major investment projects by Steel and Stainless in North and South America and by the other segments in other regions, we expect earnings before taxes and major nonrecurring items of €4.5 to 5.0 billion and sales in the region of €65 billion.

Dividend: In line with our policy of dividend continuity, we will once again pay an appropriate dividend.

Employees: Based on our planning, on September 30, 2009 we will have over 200,000 employees. The headcount could rise further in the following year. The increase in the workforce is mainly due to the major investment projects in Brazil and the USA. Our planned figures do not take into account any future portfolio measures.

Apprenticeship training remains very important to us. In the coming years we therefore intend to intensify our apprenticeship programs where possible and continue to train beyond our own requirements.

Research and development: Innovation and technology are of central importance to ThyssenKrupp, which is why we are continuously strengthening our efforts in this area. In fiscal 2008/2009 we will spend in the region of €800 million on innovations, and a similar amount is planned for the year after.

In order to further expand and strengthen our innovative capabilities, the Groupwide innovation program launched in the reporting period will be continued in 2008/2009. The best practices emerging from this program will be implemented in our day-to-day work to further boost our innovativeness. We aim to provide a framework for research and development that enables our employees to translate their talents and creative ideas even more quickly into innovative products and processes. In 2008/2009 we will again recruit new scientists and engineers to work in our research and development activities.

Procurement: Against a background of weak global growth, falling raw material prices and an expected drop in sales, materials expense in fiscal 2008/2009 will be significantly lower than a year earlier. But it will continue to amount to more than half our sales, and that will also be the case in fiscal 2009/2010. In view of our long-term, international supply relationships, we do not anticipate any bottlenecks in supplies of raw materials, components, operating materials or services in 2008/2009 and 2009/2010. Security of supplies will also be enhanced by our successful purchasing initiative, which will be expanded further in the coming years.

Energy: Due to the weakness of the economy, we expect oil and gas prices to fall temporarily. We will respond to changes in demand by adjusting volumes and will continue in the future to pursue a long-term, flexible energy procurement policy in order to exploit favorable market situations and, for example, keep electricity prices as low as possible.

At the same time, ThyssenKrupp as an intensive energy consumer must expect to have to purchase more CO₂ emission allowances than in the past. In the event of bottlenecks in power plant capacities – a so-called "power plant gap" – electricity prices will be driven even higher, as expensive, inefficient fossil-fueled power plants will have to remain in use longer.

Environmental protection: On the basis of our current planning, spending on ongoing environmental protection will be in the region €500 million in both fiscal 2008/2009 and 2009/2010. The greater part of our future pollution control investments will be accounted for by our new plant projects in Brazil and the USA. Increasing resource and energy efficiency and reducing greenhouse gas emissions will remain priorities.

Expected financial and liquidity situation

In 2005, ThyssenKrupp launched a program of sustainable and profitable growth. Investments of up to €20 billion are planned for this over a five-year period, of which roughly half has been spent so far. Due to major projects such as the new steel mill in Brazil, the new production and sales location in the USA and capacity optimization at the Duisburg site, capital expenditure is currently significantly higher than the average of the previous years. Despite the more difficult conditions resulting from the global financial crisis, our financing is on a solid basis.