Financial position
Our financial position improved again in the reporting year. ThyssenKrupp's total equity increased, and our business success is reflected in our cash flow and balance sheet. This good performance was also due to the central financing system we use to optimize capital procurement and investment.
Central financing and maintenance of liquidity
The aim of our financing policy is to ensure that we have sufficient liquidity reserves at all times to meet the Group's payment commitments.
The financing of the Group is managed centrally by ThyssenKrupp AG, which maintains the liquidity of the Group subsidiaries mainly by making available funds within the Group financing system, negotiating and guaranteeing loans or providing financing support in the form of letters of comfort. Liquidity is maintained on the basis of a multi-year financial planning system and a liquidity planning system on a rolling monthly basis, each with a planning period of five months. All consolidated Group subsidiaries are included in this planning.
The operating activities of our Group subsidiaries and the resultant cash inflows are the Group's main source of liquidity. Our cash management systems take advantage of the surplus funds of individual Group subsidiaries to cover the financial requirements of others. By settling intercompany sales via intercompany financial accounts, we can reduce cost-incurring bank account transactions and external financing requirements. This also has a positive effect on our net interest.
Any external financing required is covered by committed credit facilities. These funds can be obtained in various currencies and over various terms. In addition, money and equity market instruments are used as well as other selected off-balance financing instruments such as factoring programs and operating leases. Information on the available credit facilities is provided in Note 25.
Our centralized financing system strengthens the Group's negotiating position vis-à-vis banks and other market participants and enables us to procure and invest capital on optimum terms.
Issuer ratings since 2001
Issuer ratings facilitate access to international capital markets. ThyssenKrupp has been rated by Moody's and Standard & Poor's (S&P) since 2001 and by Fitch since 2003. ThyssenKrupp is currently rated by the agencies as follows:
| Long-term rating |
Short-term rating |
Outlook | ||||
|---|---|---|---|---|---|---|
| Standard & Poor’s | BBB | A2 | stable | |||
| Moody’s | Baa2 | Prime–2 | positive | |||
| Fitch | BBB+ | F2 | stable |
Ratings upgrades would lead to lower refinancing costs. Conversely, downgrades would have a negative effect on the Group's capital costs.
Analysis of statements of cash flows
The amounts taken into consideration in the statements of cash flows correspond to the balance sheet item "Cash and cash equivalents".
Operating activities provided €3,679 million in the reporting year compared with €2,220 million in the previous year. The significant improvement in operating cash flows by €1,459 million mainly resulted from the greatly reduced increase in working capital and here in particular the strong improvement in net working capital in the Stainless segment due to a reduction in inventories in fiscal year 2007/2008 compared with a considerable increase the year before.
Cash flows from investing activities increased by €1,547 million to €3,898 million. This was mainly the result of cash outflows for the purchase of property, plant and equipment, which increased by €1,074 million to €3,774 million, mostly in connection with the construction of the steelmaking and processing plants in Brazil and the USA, and the €122 million increase in cash outflows for the purchase of consolidated companies. At the same time cash inflows from the sale of property, plant and equipment and intangible assets decreased by altogether €298 million. This was mainly due to the sale in the previous year of real estate in connection with the concentration of ThyssenKrupp's administrative locations in Germany.
As in the previous year, the free cash flow, i.e. the sum of operating cash flows and cash flows from investing activities, was negative. Compared with the year before it decreased by €115 million to €(219) million. The significant rise in operating cash flows was therefore not enough to offset the cash outflows from investing activities, which were likewise considerably higher.
At €705 million, cash flows from financing activities were €35 million up from the year before. Compared with the previous year, higher cash inflows from net borrowings in the amount of €987 million were set against a €1,049 million rise in cash outflows for the purchase of treasury stock and for dividends.
Analysis of balance sheet structure
Compared with September 30, 2007, the balance sheet total increased by €3,568 million to €41,642 million. Included in this increase is an exchange-rate-related reduction in the amount of €225 million.
Non-current assets increased by €2,923 million to €18,308 million. Currency translation-related reductions of €54 million were set against significant additions in particular to property, plant and equipment mainly in the Steel and Stainless segments as a result of progress made in the construction of the steelmaking and processing facilities in Brazil and the USA.
Taking into account an exchange-rate-related reduction of €41 million, inventories increased by a total of €630 million to €9,494 million. In the Stainless segment inventories were €477 million lower, mainly due to a price- and volume-related decline in nickel. As a result of the positive business performance, inventories increased in the Steel (€380 million), Technologies (€240 million), Elevator (€53 million) and Services (€450 million) segments. The rise in inventories in the Services segment also reflects the first-time consolidation of the Apollo group.
At €7,885 million after an exchange-rate-related reduction of €77 million, trade accounts receivable were €308 million up from September 30, 2007. Increases resulting from the business expansion mainly in the Steel (€109 million), Elevator (€145 million) and Services (€270 million) segments were set against a €177 million rise in payments from customers in the Technologies segments in connection with production orders for plant construction and shipbuilding. Trade accounts payable increased by €771 million. The Services segment reported an increase of €396 million, mainly relating to the Materials Services International (€251 million) and Special Products (€132 million) business units as a result of the above-mentioned business expansion. In addition, trade accounts payable were affected by changed maturity structures. Of the rise in other current non-financial assets by €434 million to €1,953 million, €293 million related to increased advance payments, mainly for the procurement of starting materials.
Cash and cash equivalents decreased by a total of €933 million to €2,725 million. This reduction reflects the cash outflows for dividends (€690 million), the purchase of treasury stock (€880 million), and a negative free cash flow due to high cash outflows for investing activities (€219 million). These outflows were set against inflows from net borrowings of €837 million.
At the end of the fiscal year, total equity was €1,042 million up from a year earlier at €11,489 million. An increase in the amount of the net income achieved during the fiscal year of €2,276 million plus actuarial gains associated with the valuation of pensions recognized directly in equity of €394 million was set against dividend payments of €690 million, cash outflows for the purchase of treasury stock of €880 million and pre-tax expenditures recognized directly in equity in connection with currency translation (€80 million). Further changes in total equity related to the direct recognition of unrealized losses from derivative financial instruments, tax effects, and changes in minority interests.
The €589 million reduction in accrued pension and similar obligations resulted in the amount of €804 million from the increase in the discount rate and other changed assumptions. Running counter to this was a downward adjustment in the value of the pension plan assets. The €196 million rise in other non-current financial liabilities related to agreements under company law at a Brazilian subsidiary. Current and non-current financial debt increased by a total of €778 million in connection with the financing of the negative free cash flow, the dividend payments in the reporting year and the purchase of treasury stock. Other current financial liabilities were €698 million higher, mainly due to a €315 million rise in liabilities under existing payment terms in connection with the purchase of property, plant and equipment, in particular for the construction of the steel mill in Brazil, and a €212 million increase in liabilities in connection with the recognition of derivatives owing to a higher level of negative fair values. The rise in other current non-financial liabilities by €397 million to €7,501 million was mainly attributable to increased customer advance payments (€239 million) and higher liabilities in connection with manufacturing orders (€144 million).
Assets not recognized and off-balance financing instruments
Various major assets of the Group are not recognized in the balance sheet. These mainly concern specific leased or rented assets (operating leases). More details on this are presented under Note 29.
The main off-balance financing instruments we use are factoring programs. More details can be found under Note 18.
A major intangible asset is the ThyssenKrupp brand. It was continually further developed in the reporting year. Our new corporate film, TV commercials, press advertisements, publications and outdoor advertising, for example at Düsseldorf Airport, strengthened our brand and its recognition value. This advertising presence supports the business activities of our subsidiaries and their position in the markets.
Our long and well-established relations with suppliers and customers are also of significant value. They bring stability to our business activities and make us less sensitive to sudden market fluctuations. Our trusting cooperation with partners – often over periods of many years – provides us with a concrete advantage over competitors. These intensive collaborations facilitate numerous joint research and development projects which benefit from the expertise and development capacities of the companies involved. Together with our customers and suppliers we can develop future-oriented products and services which set new standards in economic and technical efficiency.
One example of our cross-segment network of capabilities is our cooperation with the automotive industry. Our engineers work together with the vehicle designers to develop new materials, high-performance tailored blanks, and optimized components.
In plant construction we develop industrial solutions throughout the world to meet our customers' need for cost-efficiency and at the same time protect the environment. With numerous reference facilities we have earned a reputation for outstanding projects. Here, too, the focus is on cooperation with customers, many of whom have been our partners for many years.
Long-term customer relations also lie behind the strength of our elevator business. When it comes to servicing our systems, reliability, delivery performance and technical competence are the key to success. For many of our partners, this was their reason for choosing products and services from ThyssenKrupp.