Since the merger of Thyssen and Krupp this is my tenth letter to you reporting on our performance in the past fiscal year and our plans for the future. I am pleased to be able once again to present a positive report on your Company. We can look back on a successful period of growth since the merger: In its first year of existence ThyssenKrupp generated sales of €32 billion and earnings before taxes of €616 million with 185,000 employees, while in 2007/2008 almost 200,000 employees achieved sales of €53 billion and earnings before taxes of €3.1 billion.
Review of fiscal 2007/2008
2007/2008 was a good year for the Group. Our overall business performance was in line with our expectations and in some areas better, even though the market environment was increasingly difficult. Both order intake at €55.2 billion and sales at €53.4 billion were up slightly from the previous year, despite the economic slowdown. Before taxes and major nonrecurring items, earnings were as high as €3.5 billion, exceeding our raised forecast of August 2008 of over €3.2 billion.
The solid earnings situation allows us to continue our policy of dividend continuity in 2007/2008. In January 2009, the Executive Board and Supervisory Board will propose to the Annual General Meeting the payment of an unchanged dividend of €1.30 per share. We feel it is important to ensure that our stockholders share appropriately in the success of the Company and so make our stock an attractive long-term investment. Compared with the first dividend in 1998/1999 of DM1.40 – or €0.72 – the payout has now almost doubled.
This Annual Report contains detailed information on the business situation and the main events in the reporting period, our investment projects and successful innovations, and also our understanding of corporate responsibility. The magazine supplement in this year's Annual Report is devoted to the subject of employees – I will return to this later.
But first I would like to address some questions which are currently being asked not just by you as stockholders of ThyssenKrupp but also by our employees, our business partners and of course ourselves. What risks does the current financial crisis hold for the real economy worldwide and specifically for our Company? Will we be able to press on with our growth strategy and meet our long-term goals?
Risks from the financial crisis and economic downturn
The global financial crisis has rocked the international banking system to its core. The material damage cannot yet be fully estimated, but it will be enormous, and it is compounded by a major loss of trust and credibility. But as well as that, the financial crisis will also have serious consequences for the real economy because the markets for goods and services will be severely impacted. For 2009 the International Monetary Fund forecasts global growth of less than 3%, the first recession since 2002. In 2010 global growth is expected to pick up again – a hope we all share.
The currently fast-growing markets of Asia, Central and Eastern Europe and South America will not escape this trend. Growth in these regions will also slow noticeably in 2009. Our Group's key customer sectors are affected. The global steel market will be unable to maintain its high growth in 2009. In view of the current uncertainties, the World Steel Association, formerly the IISI, has decided against issuing a forecast for the coming year. The international auto industry also faces serious problems; only Asia is expected to show moderate growth in 2009. Some areas of the engineering sector are already feeling the effects of lower demand for capital goods. Global construction output is coming under increasing pressure, too; 2009 is expected to see a further decline in the USA and stagnation at best in the euro zone.
our goals: cyclically sensitive but solid over the long term
In this uncertain environment, ThyssenKrupp has reviewed its plans for fiscal year 2008/2009 and its mid-term and long-term targets. In 2008/2009 we face a significant fall in sales for cyclical reasons, but the extent of this fall cannot yet be reliably predicted. 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.
If – as currently predicted – the global economy emerges from the downturn and gathers momentum again in 2010, ThyssenKrupp will also return to its long-term growth track and achieve sales and earnings growth again in 2009/2010.
Over the longer term, especially after the startup of the Steel and Stainless segments' major investments in North and South America and those of the other segments in other regions, we are sticking to our targets: We aim to achieve sales of around €65 billion and earnings before taxes and major nonrecurring items of €4.5 – 5.0 billion.
Our confidence for the future, which these targets reflect, is founded on at least two simple and clear reasons.
opportunities from our long-term group strategy
Reason 1: We remain firmly convinced that the growth strategy we initiated in 2005 is right. Adverse effects, such as those caused by the current financial crisis, may create delays, but the long-term success of the Company will remain unaffected. We are pursuing a successful, long-term portfolio optimization program which we see as an ongoing process. The projects we have realized to date have all fulfilled their ambitious return targets.
Around half of our planned investment program totaling up to €20 billion has been completed. The biggest projects so far – the Steel segment's new steel mill in Brazil and the Steel and Stainless segments' new steelmaking and processing complex in the USA – are taking shape. 22,000 employees are now involved in the construction work in Brazil and more than 2,000 in the USA. The Technologies segment sees major growth impetus in the megatrends of climate, environment, mobility and infrastructure, areas in which we offer a wide range of innovative and highly efficient solutions. Technologies is establishing a TechCenter in Dubai to develop the particularly fast-growing regions of the Middle East and North Africa. In their joint EX East project, the Elevator and Services segments are working on identifying new business opportunities in Asia and expanding their market positions in the region.
our people, our future
Reason 2: ThyssenKrupp has a highly qualified, experienced and motivated workforce and management team. Our almost 200,000 employees are able and willing to give their best for the Company and our future. They have proved this time and again in the past.
In the magazine supplement to this year's Annual Report mentioned above, you can find out a lot about us. What is it like working at ThyssenKrupp? What moves, motivates and drives our employees? How do we take responsibility? What priority is given to commitment and creativity in the Group? These are all key aspects of our corporate culture which empower us to master challenging tasks and achieve ambitious targets even in difficult times.
As you can see, it is worth being with ThyssenKrupp as we move forwards into the future. I hope you will stay with us and thank you for your confidence.
Yours sincerely,
Dr.-Ing. Ekkehard D. Schulz
Chairman of the Executive Board
Düsseldorf, November 2008