Subsequent events, opportunities and outlook

Subsequent events

Subsequent events between the end of the 1st half reporting period (March 31, 2008) and the date of authorization for issue (May 08, 2008) are presented in Note 12 to the interim financial statements.

World economy slowing

The global economy will slow overall in 2008. At just under 4%, world GDP growth will be weaker than in 2007. The risks of a more severe slowdown have increased as a result of the continuing financial market crisis and further increases in raw material and oil prices.

In the USA, the economic stagnation could come to an end in the course of the 2nd half of 2008, aided by monetary and fiscal measures to support consumer and business spending. The economy in the euro zone and in Germany will continue to expand initially, thanks to a solid trend in the industrial sector, but with slowing momentum. As the year progresses, slower global growth is expected to dampen economic output. In Germany, private consumption is expected to increase in 2008 due to the labor market situation, whereas export growth will likely slow due to currency factors and the world economic situation. In the emerging countries in Asia and Central and Eastern Europe the high pace of growth will slow only slightly.

We expect the following developments and opportunities for ThyssenKrupp on the major markets:

• The world steel market will remain favorable. We continue to forecast an increase in global steel consumption by almost 7%. The growth will continue to be driven to a large degree by China and other emerging countries, but most other regions should also remain positive. For the current fiscal year we expect world crude steel production to increase to 1.43 billion metric tons. In our core European market, which remains relatively robust, all the signs indicate a further rise in steel consumption, albeit below the high growth rates of the previous two years. Steel prices will continue to be determined to a large degree by high raw material and energy costs. In supply year 2008/2009 European producers will have to contend with price increases of 65% for fine ore and almost 87% for pellets. Prices for high-quality Australian coking coal will increase by as much as 200%.
• Worldwide demand for stainless steel flat products remains at a high level; global consumption of stainless flat products is expected to rise by around 8% in 2008 following a slight decline in 2007. In Europe consumption is forecast to increase by over 3% following a decrease last year. Consumption in the NAFTA region will grow by up to 2%. Demand for high-performance materials such as nickel alloys and titanium will slow temporarily due to delayed deliveries of the Airbus A380 and Boeing B787 super jumbos.
• Vehicle production will continue to expand worldwide in 2008. The growth will come mainly from the emerging countries of Asia and from Central and Eastern Europe. In the USA, the weak demand will continue this year, causing a marked fall in output. Japan and Western Europe should come close to their 2007 production levels. German auto manufacturers will produce around 6 million cars and trucks this year, almost equaling their record output in 2007.
• In the mechanical engineering sector, global production growth will weaken in 2008 in the wake of the overall economic slowdown. A decline is expected in the USA due to lower domestic demand. German engineering companies should enjoy continued growth, aided by high order backlogs, but the growth rates will be smaller than last year. The situation for the mechanical engineering industry in China remains positive.
• In the construction sector, the emerging markets in Asia and Central and Eastern Europe will continue to provide growth impetus in 2008. In the USA, by contrast, a slight decrease in construction output is expected due to weak demand in the private housing sector. A moderate upturn is likely for the German construction industry, driven by commercial construction and public-sector building.

Stable outlook

Earnings and sales: Some areas of individual business units in the USA – Mechanical Components, Materials Services North America – are currently feeling the first effects of the economic downturn. At the same time, increased raw material prices are having a stronger impact than expected. Despite this we can confirm our expectations for fiscal 2007/2008. We continue to forecast earnings - before taxes nonrecurring items including pre-operating expense for the steel mills in Brazil and the USA – of over €3 billion. Based on the current situation we expect to achieve sales of €53 billion.

Our earnings expectations take into account the fact that our Steel segment will not be able to pass on the sharp rises in raw material prices – in particular for iron ore and coking coal – in full to customers in the current fiscal year due to our contract structure. Demand for our steel products is very pleasing, as reflected in correspondingly higher prices for shorter-term contracts, and this confirms our expectations of another good steel year.

In the Stainless segment, base prices continue to stabilize. Demand from end customers is good, while service centers are being slightly more cautious. We now expect the segment to deliver a positive earnings contribution in the 2nd half of the reporting year. Due to the weakness of the US dollar there are first signs of imports from the US dollar zone, which could slow the further recovery of prices in the 2nd half of the year.

Technologies is profiting in particular from infrastructure development and urbanization in the world's growth regions. Our high order backlog, stretching several years into the future with increasing earnings quality, gives us a high degree of planning certainty.

Thanks to its high service share, our Elevator segment continues to deliver a very stable earnings contribution.

The Services segment is profiting from rising demand for materials in the growth regions. With material prices continuing to rise sharply, we expect a disproportionately high contribution to earnings from Services in the 2nd half of the current fiscal year.

We expect sales to continue to grow in 2008/2009 provided no unforeseen economic downturns impact our business. Growing sales will also be reflected in earnings.

The mid-term sales target for ThyssenKrupp is €60 billion, while our mid-term goal for sustainable earnings before taxes and nonrecurring items is €4 billion. In the longer term, especially after the startup of the steel mills of Steel and Stainless in North America and the investments of the other segments in other regions, we expect to achieve sales of around €65 billion and earnings before taxes and nonrecurring items of €4.5 to 5.0 billion.

Employees: We expect the number of our employees to increase to more than 198,000 by the end of the fiscal year. Given the further internationalization of the Group, the growth will take place primarily in our foreign operations, increasing the non-German proportion of our workforce.

Innovations: We expect to spend more than €800 million on innovations in the reporting year. The focus will be on developing products and production processes in the areas of new materials and capital goods. We are also constantly expanding our range of services. To further increase the innovativeness of the Group we intend to recruit more scientists and engineers.

Procurement: Our supplies of raw materials and other products and services are secure, even though rising prices for raw materials will be reflected in higher materials expense. Substantial price increases will have to be accepted for ore and coking coal as well as for certain alloy metals. We again expect materials expense to amount to more than half of sales in 2007/2008. We have proven, long-term relations with numerous international suppliers allowing us to source goods and services on time and in line with market requirements.

Energy: We expect prices for oil, natural gas and electricity to rise further in the current fiscal year. The cost increases will be held in check by more efficient use of energy, improvements in the sourcing mix and long-term supply agreements.