Segment review
ThyssenKrupp is an integrated materials and technology group. We have operations around the globe and hold excellent technology and market positions at international level. In the past fiscal year, our five segments – Steel, Stainless, Technologies, Elevator and Services – had to contend with a strong economic headwind. The measures introduced swiftly to counter this could not prevent earnings declines but did moderate them. Only Elevator achieved new record earnings.
Steel
| 2007/2008 | 2008/2009 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 14,199 | 8,414 | |||
| Sales | million € | 14,358 | 9,945 | |||
| Corporate | million € | 58 | 55 | |||
| Steelmaking | million € | 1,531 | 1,056 | |||
| Industry | million € | 6,976 | 4,684 | |||
| Auto | million € | 5,106 | 3,684 | |||
| Processing | million € | 2,906 | 2,332 | |||
| Consolidation | million € | (2,219) | (1,866) | |||
| Earnings before taxes (EBT) | million € | 1,540 | (486) | |||
| Investments | million € | 2,596 | 2,593 | |||
| Employees (Sept. 30) | 41,311 | 39,156 |
Our Steel business is focused on premium carbon steel flat products and holds a strong position in its core EU market. In recent years its range has been systematically concentrated on products with high value-added.
Drastic fall in orders and shipments
The drastic fall in demand for flat carbon steel resulted in an unprecedented drop in orders and shipments at the Steel segment. The slight recovery in volumes towards the end of the reporting year improved the overall picture only very slightly.
Order intake was down 41% year-on-year at €8.4 billion. Sales decreased by 31% to €9.9 billion. In both cases, the declines were mainly due to lower volumes. As market prices fell, our selling prices slipped over the course of the reporting year, albeit to a lesser extent than on the steel spot market. This was attributable to the high share of long-term contracts in our overall business. However, average selling prices over the full year were slightly higher than a year earlier.
As a result of the massive drop in demand, operating adjustments were necessary in all stages of production. Initially these were carried out through shut-downs for repairs and the running down of work time accounts, then from January 2009 increasingly through short-time working – including in administrative areas. Blast furnace 9 with a hot metal capacity of 4,500 metric tons per day was shut down in March 2009. Blast furnace A at investee company Hüttenwerke Krupp Mannesmann was also shut down temporarily in connection with a scheduled reline. The other three blast furnaces were operated at minimum levels through to the end of July. Utilization then improved as demand started to pick up. In September it was decided to prepare blast furnace 9 for restarting; it resumed production on November 01, 2009. The downstream processing lines responded with block shutdowns and adapted their daily output to the respective market situation. In the final weeks of the reporting year, capacity utilization increased on most units, but operating levels in the further processing stages were still inadequate.
Crude steel output at the Steel segment, including the share of our investee company Hüttenwerke Krupp Mannesmann, was down 35% year-on-year at 9.2 million tons. Rolled steel production for customers, including contract rolling, fell 37% to 10.0 million tons.
The segment reported a loss of €486 million for fiscal 2008/2009, compared with a profit of €1,540 million in the prior year. The main reason for this was the slump in shipments as well as inventory writedowns of €175 million at September 30, 2009. Earnings were further impacted by the costs for the strategic projects in Brazil and the USA (€214 million), restructuring expenses (€237 million) and impairment charges (€29 million). The restructurings mainly related to the adjustment program 20 /10, under which workforce numbers are to be reduced by up to 2,000, and the restructuring of the Metal Forming unit.
The cost-reduction measures introduced at short notice across the segment contributed to a significant improvement in earnings but were unable to offset the market-related declines. The price reductions recently achieved for key raw materials, primarily iron ore and coking coal, only slightly mitigated the difficult earnings situation as they were introduced at the end of the fiscal year and had only a very limited effect on costs. Average raw material costs increased slightly compared with the prior year.
At September 30, 2009, the companies of the Steel segment employed a total of 39,156 people, 2,155 fewer than a year earlier. Significant adjustments were required due to the dramatic fall in orders. Production shutdowns were initially compensated by running down working time accounts, taking residual leave and unworked shifts; in addition, the amount of paid overtime was significantly reduced. Starting in December 2008, the continued weak order situation also resulted in the introduction of short-time working throughout the Steel segment. At its peak this affected around 14,700 employees in Germany and abroad. At the end of the fiscal year, the improved order situation allowed the number of employees affected by short-time working to be reduced to 4,200.
Corporate
In the reporting year, the Corporate business unit comprised the administrative functions and was responsible for managing the construction projects in Brazil and the USA. The costs for these projects were slightly higher than a year earlier.
Steelmaking
The Steelmaking business unit comprised the metallurgical operations in Duisburg and all logistics activities. Sales decreased – mainly as a result of the sharp drop in outside business with pig iron, slabs and by-products as well as reduced transportation work. Crude steel production including slabs supplied by investee company Hüttenwerke Krupp Mannesmann was significantly down from the prior year. The business unit achieved almost break-even earnings.
Industry
The Industry business unit served all steel-using industries with the exception of the automotive sector. Sales to these customer groups decreased 33% year-on-year to €4.7 billion; the decline in orders was even greater. The dramatic fall in volumes and prices led to a slump in earnings, resulting in a heavy loss.
For much of the reporting year activity levels in practically all relevant user industries were low due to the recession and the inventory cycle. This had a massive impact on business in the Industry/ Distribution/Services profit center, which accounts for some two thirds of the business unit's sales. Shipments to external customers were down significantly, although our contract business was less affected by volume losses. In the final quarter of 2008/2009 there was a marked rise in inquiries in some sections of the market, albeit from a very low level, as many customers had by then sharply reduced their inventories. Despite this, full-year earnings fell dramatically.
Although business was relatively good at the start of the year, the Heavy Plate profit center recorded a huge drop in sales and profits in the second fiscal half. Business with shipbuilding customers ground almost to a halt, and demand from the construction machinery and truck sectors also declined sharply. Order volumes collapsed and prices fell substantially. At times, equipment was running at below 50% capacity. Towards the end of the year there were signs of a slight improvement due to restocking.
The Color/Construction competence center also reported a significant year-on-year drop in business and negative earnings. Demand from the appliance industry for coil-coated products was extremely low throughout the fiscal year; the substantial drop in volumes was accompanied by a sharp fall in selling prices.
The Construction Group was also hit by the crisis in the construction industry, although a number of project orders provided for a comparatively good workload. In Germany, where roughly half of sales are generated, the decline was still relatively moderate. By contrast the non-German companies, especially in Eastern Europe, had to make production cutbacks.
The European steel service business likewise recorded a substantial drop in sales due to declining volumes and a significant drop in average selling prices. The new company in Poland went against this negative trend, holding its sales steady. The business as a whole reported a loss.
Auto
The Auto business unit supplied steel products and services to global auto manufacturers. Against the background of the continuing crisis in the automotive sector, sales were down 28% year-on-year at €3.7 billion. After new contracts had been concluded with most customers at July 01, 2008 to take account of prior substantial increases in raw material costs, prices were adjusted from July 01, 2009 to reflect the expected decreases in raw material costs. Due mainly to the distinct fall in sales volumes, it was impossible to prevent a severe drop in earnings. Overall, however, we achieved a virtually break-even result.
Sales at Tailored Blanks were also down due to lower volumes, though less sharply than at the other businesses. One factor in this was the first full-year inclusion of the North American TWB group, in which a majority interest was acquired in the prior year. Tailored Blanks ended the reporting year with a slight profit.
Our steel service operations in North America recorded an almost 50 percent drop in shipments to the auto industry. The already difficult situation was exacerbated by unforeseeable production shutdowns by important customers.
Sales at Metal Forming were also lower in all units except in China. Despite extensive adjustment measures, operating earnings deteriorated further, compounded by expenditure for the further expanded restructuring program. As a result, the business posted another significant loss.
Processing
The Processing business unit combined our tinplate, narrow strip and grain-oriented electrical steel activities. Overall sales were down 20% to €2.3 billion, mainly due to falling volumes, although the picture differed greatly in the three units. Earnings were considerably lower, but we still achieved a good overall profit.
Tinplate held up comparatively well. Year-on-year sales fell only slightly, profits were down. Positive selling price effects were outweighed by cost increases and lower volumes. Competition on this market intensified appreciably in the reporting period as the more attractive prices and more stable demand compared with other steel products drew competitors back to the tinplate market. Despite this we were able to strengthen our position on the highly competitive European market.
The narrow strip business of Hoesch Hohenlimburg, serving mainly medium-size automotive suppliers and the cold rolling industry, suffered significant volume decreases especially in the first months of the fiscal year before stabilizing at a low level. Full-year sales were down by almost half compared with the prior year. Prices slipped significantly. The business posted a loss, compared with a profit a year earlier.
Global demand for grain-oriented electrical steel also slumped sharply, causing substantial declines in shipments and workloads. Although we managed to keep average selling prices at the same level and further increase the share of high-grade electrical steel, sales were down. The business returned a profit, albeit lower than a year earlier.
Significant events
At the start of 2009, the Steel segment intensified its cost-cutting efforts by launching the program 20 /10. The program, which is aimed at securing the company's global competitiveness beyond the economic crisis, consists of ten initiatives – all aimed at reducing costs. It also includes the subsidiaries. Under this program, sustainable savings of more than €400 million are to be achieved by fiscal 2010 /2011. Up to 2,000 jobs will also be cut.
Metal Forming pushed ahead with its restructuring program in 2008/2009. Workforce numbers were reduced by 28% to around 5,800. Personnel adjustments at the German sites were made on the basis of a social plan. Efficiency measures also helped significantly reduce costs.
As part of the restructuring and with a view to reducing investment requirements, two plants in France were closed and a third sold. Personnel adjustments were also carried out at Tallent in the UK.
The Brazilian iron ore producer Vale S.A. increased its share in ThyssenKrupp CSA Siderúrgica do Atlântico Ltda. from around 10% to just under 27%. This strengthens the basis for a long-term strategic partnership between Vale and ThyssenKrupp.
Capital expenditures
The capital expenditures of the Steel segment for property, plant and equipment and intangible assets amounted to €2,575 million in the reporting year, with depreciation at €612 million.
As in the previous year, the expenditures were dominated by the two major strategic projects in Brazil and the USA. The construction of the new steel mill in the Brazilian state of Rio de Janeiro accounted for investments of €1.5 billion. Around €0.6 billion was spent on the construction of the processing plant near Mobile in Alabama. Details of both projects are contained in the section "Business management – goals and strategy".
In light of the economic situation, all ongoing and planned investment measures were subjected to critical analysis and numerous investment projects were postponed with a view to reducing capital employed. The new investment projects launched in the fiscal year were mainly aimed at maintaining existing operations.
Following the startup of the new blast furnace 8 and the reline of blast furnace 1 in the prior year, ancillary and peripheral equipment at Steel's blast furnace plants in Duisburg was modernized in the reporting year. The extensive investments to improve efficiency and optimize the product range in the hot rolling operations are largely completed. The hot strip mill in Duisburg-Beeckerwerth put three new coilers into operation, extending its product spectrum to include high-quality skelp. A start was made on upgrading the automation systems on the finishing line. The rolling mill at our Bochum plant was fitted with a new edger and a modern rolling sequence control system. At our Dortmund site we extensively modernized the continuous annealing line to permit the cost-efficient production of innovative multi-phase steels. In addition, the investments to increase capacity on four hot-dip coating lines were concluded with the successful ramp-up of the units.
Major spending was also carried out in the electrical steel, narrow strip and European steel service center operations and at the transportation companies. In electrical steel, we further expanded capacity for promising, higher-quality grades at the plants in Gelsenkirchen and Isbergues, France. In narrow strip, the investments to increase production capacities were continued. Steel Service Europe pressed ahead with the construction of a new service center in Krefeld to concentrate the smaller production sites in North Rhine-Westphalia. At the Rotterdam port, a new ship unloader for raw material supplies was put into operation.
Stainless
| 2007/2008 | 2008/2009 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 7,460 | 4,147 | |||
| Sales | million € | 7,420 | 4,486 | |||
| ThyssenKrupp Nirosta | million € | 3,234 | 1,807 | |||
| ThyssenKrupp Acciai Speciali Terni | million € | 2,688 | 1,679 | |||
| ThyssenKrupp Mexinox | million € | 591 | 322 | |||
| Shanghai Krupp Stainless | million € | 284 | 122 | |||
| ThyssenKrupp Stainless International | million € | 1,187 | 649 | |||
| ThyssenKrupp VDM | million € | 1,177 | 743 | |||
| Corporate/Consolidation | million € | (1,741) | (836) | |||
| Earnings before taxes (EBT) | million € | 126 | (946) | |||
| Investments | million € | 387 | 343 | |||
| Employees (Sept. 30) | 12,212 | 11,755 |
Stainless combines our activities in stainless steel flat products and high-performance materials, i.e. nickel alloys and titanium. The materials produced meet the most exacting requirements in terms of properties, quality and precision.
Slump in demand and earnings
Against the background of the global fall in demand, the segment's business situation deteriorated severely in 2008/2009. Order volumes decreased by 16% to 1.9 million metric tons. With selling prices also lower, the value of orders slipped by as much as 44% to €4.1 billion. Order volumes were down 20% for cold-rolled stainless steel but rose by 27% for hot-rolled. Order volumes for nickel alloys and titanium decreased by 42% and 74% respectively.
Overall deliveries by Stainless reached 1.8 million tons, 20% lower than a year earlier. Shipments of cold-rolled and hot-rolled stainless steel were particularly affected, but deliveries of titanium and nickel alloys were also down year-on-year. As a result of the reduced shipments as well as lower base prices and alloy surcharges, sales decreased by 40% to €4.5 billion.
The segment's earnings fell drastically by €1,072 million to €(946) million, with all business units reporting losses. This was triggered by an unprecedented slump in demand on the stainless steel market, resulting in extreme underutilization of production capacities. Stainless responded with massive production cutbacks and inventory reductions. In this recessive market environment base prices slipped sharply, which further exacerbated the loss situation. Earnings were also impacted by impairment charges of €118 million and restructuring expense of €60 million.
Stainless responded immediately to the worsening earnings situation. In addition to the Groupwide ThyssenKrupp PLuS cost-reduction program, further measures were initiated. This moderated the slump in earnings. To improve the liquidity situation we postponed the ongoing investment program, including the construction of the stainless steel mill in the USA. In addition Stainless implemented a performance enhancement program to sustainably secure its competitiveness, improve earnings and flexibilize its cost basis.
At the end of the reporting year ThyssenKrupp Stainless had 11,755 employees, 457 fewer than a year earlier. With the plants working below capacity, short-time working had to be introduced in wide areas of the segment once working time accounts had been run down. It was not until July 2009 that a gradual reduction in short-time working was introduced at the European plants as the situation slowly improved.
ThyssenKrupp Nirosta
The ThyssenKrupp Nirosta business unit reported weak demand from distributors and end customers, especially in the first fiscal half. Orders and production only picked up slightly at a low level towards the end of the reporting year. Overall, the decline in shipments and lower selling prices led to a sharp drop in sales to €1.8 billion.
ThyssenKrupp Nirosta suffered a drastic slump in earnings, caused by the sharp fall in base prices for austenitic and ferritic cold-rolled products and massive underutilization of capacity. The restructuring expense made necessary by the difficult earnings situation added to the losses. The measures introduced to cut costs only partly cushioned the earnings decrease.
ThyssenKrupp Acciai Speciali Terni
ThyssenKrupp Acciai Speciali Terni's performance was likewise impacted by the sharp fall in demand for stainless steel products. Production had to be scaled back significantly and prices slipped. In the titanium business, too, plant capacities were not fully utilized due to weak demand from the aerospace and plant construction sectors. Full warehouses and low consumption by distributors and end users further exacerbated the demand situation. The business unit's sales slumped to €1.7 billion.
In this difficult market environment, the earnings situation at ThyssenKrupp Acciai Speciali Terni deteriorated severely. Weaker activity on the Italian stainless steel market had a particular impact. Stable earnings at the forging operations and the cost-cutting programs introduced only slightly eased the loss situation.
ThyssenKrupp Mexinox
As a result of declining demand on the US and Mexican markets, order intake at ThyssenKrupp Mexinox fell significantly. Capacities were underutilized, and sales decreased to €322 million.
Massive drops in base prices and shipments led to a dramatic decrease in earnings, which was only slightly moderated by the cost-cutting measures introduced.
Shanghai Krupp Stainless
In a difficult Chinese market characterized by overcapacities, Shanghai Krupp Stainless reported an extreme drop in orders. Sales were down by more than half year-on-year at €122 million.
Extremely low shipments in conjunction with weak prices and impairment charges caused earnings to collapse. The cost-cutting measures implemented only mitigated the earnings situation.
ThyssenKrupp Stainless International
As a result of weak global demand, this business unit also reported significantly lower orders. Sales decreased for volume and price reasons to €649 million.
In 2008/2009 ThyssenKrupp Stainless International generated a higher loss than a year earlier.
ThyssenKrupp VDM
Order postponements and cancellations from the aerospace industry, a severe downturn on the automotive market and increasing deferrals of major plant construction projects caused a sharp decrease in demand for nickel alloys. As a result, ThyssenKrupp VDM's sales of €743 million were well down year-on-year.
The business unit was unable to maintain its prior-year earnings and despite the introduction of cost-cutting measures posted a loss.
Capital expenditures
Stainless invested €343 million in property, plant and equipment and intangible assets in the reporting year, with depreciation amounting to €157 million. Capital spending focused on the construction of the fully integrated ThyssenKrupp Stainless site in the USA, and on the systematic expansion of the ThyssenKrupp Acciai Speciali Terni site in Italy into an integrated stainless steel mill.
With the markets impacted by the worldwide crisis, investments for the stainless steel mill in Alabama have been delayed. Under the revised mid-term plan, the plant will start operation in the 4th quarter 2010 with an initial cold-rolled capacity of around 100,000 metric tons per year. The equipment required for this is to a large extent already on site or in the process of delivery. The start of installation of the other production lines is on schedule but can be delayed flexibly by up to 24 months. The necessary building complexes will be finally completed in the coming months. The supply of starting material will be secured initially from the European mills. The scale of the overall project will remain unchanged, as we continue to believe there is demand for an optimized stainless steel production site on the North American market. This approach will permit a rapid market entry with products made in the USA and a flexible response to market developments.
ThyssenKrupp Acciai Speciali Terni is being gradually expanded into one of the most modern and efficient production sites in the world. The investment program in the past fiscal year mainly involved replacing the thin-slab caster with a conventional continuous caster to increase hot-rolled quality and capacity and better utilize existing steelmaking capacity. The installation of roll stands in the entry zone of the new hot strip line allowed us to expand our cold-rolled capacity and extend the product mix. These measures were largely completed in the reporting year. The investment package also includes further capacity adjustments in the annealing/pickling area, the construction of a further cold rolling stand and the expansion of the finishing department in Terni, which will further increase the company's processing capacities. These measures are now being implemented, though the period for completion has been extended. In addition, work was continued on the modernization and expansion of the dedusting unit at the Terni mill and the implementation of the fire protection program.
A key investment at ThyssenKrupp Nirosta was the construction of an acid regeneration system at the Krefeld site. Following startup in May 2009, this system now further reduces the nitrate content in waste water. It has been integrated into the production cycle to ensure high-tech environmental protection and high cost-efficiency. In addition, the extensive modernization of the AOD (Argon Oxygen Decarburization) furnace was completed on schedule in April 2009. The upgraded equipment will enhance the production process and reduce emissions at the Krefeld steel mill. Further capital expenditure related to the extension of the fire protection program as well as various measures to maintain existing operations and modernize individual equipment units.
ThyssenKrupp Mexinox implemented various individual maintenance projects and completed the modernization of Sendzimir mill 1. As this increased production capacity, the existing water treatment plant also had to be expanded. In addition, the existing wet grinding line was modernized to improve surface quality and capacity.
Capital spending at the Shanghai Krupp Stainless cold rolling mill in 2008/2009 related mainly to replacement investment and the improved implementation of the fire protection program.
ThyssenKrupp Stainless International further expanded its distribution and service center network. The service center in the greater Istanbul area reflects the growing importance of the Turkish market.
The expansion of remelting capacities at ThyssenKrupp VDM's Unna site was largely completed. As a result, the majority of the investment program started in 2006 to strengthen and expand business in the aerospace, oil and gas sectors has now been realized.
Technologies
| 2007/2008 | 2008/2009 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 13,490 | 8,580 | |||
| Sales | million € | 12,412 | 10,640 | |||
| Plant Technology | million € | 3,217 | 3,715 | |||
| Marine Systems | million € | 2,007 | 1,594 | |||
| Mechanical Components | million € | 3,924 | 2,751 | |||
| Automotive Solutions | million € | 3,247 | 2,553 | |||
| Transrapid | million € | 41 | 35 | |||
| Corporate/Consolidation | million € | (24) | (8) | |||
| Earnings before taxes (EBT) | million € | 741 | (868) | |||
| Investments | million € | 763 | 814 | |||
| Employees (Sept. 30) | 54,043 | 49,056 |
Our Technologies companies are high-tech engineering contractors and component manufacturers who also offer tailored services. Innovativeness and recognized system and engineering capabilities form the basis for their leading world market positions.
Declining business
The volume of business in the Technologies segment also declined as a result of the global financial and economic crisis. Order intake at €8.6 billion was significantly lower than a year earlier. The plant engineering business was affected by uncertainty and delays at customers, due among other things to financing bottlenecks in the banking sector, falling raw material prices and general market uncertainty. In this difficult market environment, the booking of a major order for a low-density polyethylene plant at Plant Technology and the initialing of a major submarine order for six material packages for the Turkish navy at Marine Systems were all the more pleasing. Following previous dramatic falls in orders, business in the automotive and construction machinery units bottomed out somewhat towards the end of the fiscal year; but there was no significant recovery in demand. Despite this, orders in hand – down to €13.8 billion at September 30, 2009 – continue to secure more than a year's sales. As orders declined, sales also fell in 2008/2009, slipping 14% to €10.6 billion despite positive influences from the US dollar exchange rate.
Earnings deteriorated significantly in 2008/2009. Following record profits of €741 million a year earlier, Technologies reported a loss of €868 million. While Plant Technology returned a profit just below the prior-year level in a more difficult environment, the other business units slipped deeply into the red. In addition to lower sales and inventory writedowns of €70 million, earnings were impacted particularly by negative nonrecurring items. These included extensive restructuring expense of €431 million and associated impairment charges of €370 million. Earnings at Marine Systems were additionally impacted by the effects of order cancellations, possible liability risks in civil shipbuilding and higher project costs for yachts.
At the end of the reporting year Technologies had 49,056 employees, 4,987 fewer than a year earlier. Most of the workforce changes related to the European subsidiaries of the Mechanical Components and Automotive Solutions business units, but there were also job cuts at Marine Systems and Plant Technology. In addition, the number of outside contractor employees was reduced by more than 2,400.
Plant Technology
Order intake at Plant Technology weakened increasingly during the past fiscal year due to the postponement of investment decisions by customers. This affected all areas of the business unit. One encouraging aspect in the chemical plant sector was the acquisition of a major order to build a 300,000 ton-per-year low-density polyethylene plant in Qatar; Plant Technology also received three orders to build aromatics plants in China.
Thanks to the high level of orders in hand in the chemical and cement plant sectors at the beginning of the fiscal year, Plant Technology achieved a year-on-year increase in sales to €3.7 billion. Profits were slightly lower due to higher project costs and lower interest income.
Marine Systems
Thanks to major orders for six material packages to build class 214 submarines for South Korea and two material packages for class 212A submarines for Italy, Marine Systems matched its prior-year order intake for naval shipbuilding. In addition, an agreement was initialed in July 2009 for six material packages to build export class 214 submarines for the Turkish navy; the order is expected in fiscal 2009/2010. The submarines, which will feature fuel cell technology, will be built at a Turkish shipyard. Running counter to this was the cancellation of Greek naval shipbuilding orders at the end of the fiscal year. The civil shipbuilding operations were hit by further substantial order cancellations for container ships and yachts as a result of the severe drop in freight rates and financing problems at customers. Declining volumes in the global ocean freight trade also resulted in weaker repair and service business.
Sales at Marine Systems were significantly down from the previous year at €1.6 billion. The business unit reported a substantial loss, compared with a profit a year earlier. Orders for container ships and yachts were cancelled. Given the weak order situation – especially for container ship construction – it was necessary to reduce overcapacities, resulting in substantial restructuring expense for workforce adjustments. There were further negative effects from impairment charges, inventory writedowns, possible liability risks from civil shipbuilding as well as higher project costs for yachts.
Mechanical Components
The sharp drop in demand in the automotive and construction machinery businesses and in the engineering sector in general resulted in a substantial decrease in orders for the high-tech components of the Mechanical Components business unit. This affected all areas, but in particular the production of construction machinery components and forged crankshafts. Good sales were once again achieved in business with slewing bearings and rings, enabling us to maintain our leading position on promising markets, such as the wind turbine sector.
Sales of Mechanical Components fell to €2.8 billion. Due to declining workloads, cost-cutting measures were introduced, such as reductions in the number of temporary workers, an increase in short-time working, savings on the healthcare program at the North American foundries and personnel cutbacks at foreign locations. Despite these measures the business unit returned a heavy loss, compared with a high profit in the prior year. Alongside the sharp drop in sales, other major factors in this included substantial restructuring expense, impairment charges and the absence of income from the disposal of a company in the prior year.
Automotive Solutions
The Automotive Solutions business unit supplies innovative system solutions for the automotive industry in the areas of steering systems, dampers, body-in-white lines, body and chassis components as well as assembly systems for engines, transmissions and axles. Declining demand from the auto industry led to a decrease in orders and sales in all areas.
A wide variety of measures were implemented to reduce costs and adjust to the lower workloads. Despite this, the business unit reported a heavy loss as a result of falling demand, high provisions for onerous contacts, impairment of current and non-current assets and restructuring expense.
Transrapid
Transrapid generated sales of €35 million, mainly due to billings under the Chinese license agreement. Earnings were impacted by restructuring expense and impairment charges.
Significant events
The segment continued its concentration on core business in 2008/2009.
Technologies acquired the 25% share in ThyssenKrupp Marine Systems AG held by One Equity Partners (OEP) and is thus the sole owner of the European shipyards group. Also in the Marine Systems unit, Atlas Elektronik – a joint venture between ThyssenKrupp Technologies (51%) and EADS (49%) – acquired the business operations of Underwater Systems (UWS) from the QinetiQ Group.
As a result of the global recession and the associated slumps in world trade, the international shipbuilding market has substantial overcapacities and is currently in a phase of consolidation. We do not expect any major change in this situation in the medium term, especially in commercial shipbuilding. For this reason, ThyssenKrupp Marine Systems and SIAG Schaaf Industrie are planning to jointly expand the Emden site of Blohm + Voss Nordseewerke into a viable high-tech location for offshore technology and thus secure and sustain jobs. A corresponding sales contract was signed in October 2009. SIAG, a leading manufacturer of components for wind turbines, plans to produce components for offshore installations at the Emden site. ThyssenKrupp Marine Systems will maintain a presence there and focus on demanding engineering and repair activities for naval shipbuilding.
In October 2009, ThyssenKrupp Marine Systems and the Abu Dhabi MAR Group, a shipbuilding group based in Abu Dhabi, signed a memorandum of understanding to enter into a close strategic partnership. The aim of the planned collaboration is to boost marketing opportunities for Blohm + Voss's naval service vessels – frigates and corvettes – while securing shipbuilding employment in Germany.
Mechanical Components expanded its strong world market position in assembled camshafts with the acquisition by ThyssenKrupp Presta Danville LLC of the remaining 55% interest in Systrand Presta Engineering Systems in the USA.
Capital expenditures
Technologies invested €616 million in property, plant and equipment and intangible assets in the reporting year, with depreciation totaling €361 million. Capital spending was mainly aimed at maintaining existing operations and continuing with projects already started. The greater part of the investments were made in Germany, China, North and South America and India.
Plant Technology further expanded its low-cost engineering strategy and set up a pilot plant to produce polylactic acid (PLA). PLA is derived from biodegradable renewable resources and thus offers an alternative to PET plastics in the film and packaging industry. We will use the plant to validate process capability for industrial-scale production and advance the marketing of PLA technology. We also expanded production capacities in China and invested in the development of China as an attractive procurement market.
Marine Systems initiated the construction of a new service center in Hamburg to allow ship repairs to be carried out locally while docked. In the future spare parts sales, engine service, industrial service and port repair operations will be combined in this center.
As demand from the wind energy sector remained strong, Mechanical Components continued the special investment program it launched in the prior year. The slewing bearing production operations in Germany were adapted to secure our competitive position.
In the automotive supply business we prepared the launch of a new generation of electric steering systems. Following successful product development, the first production capacities were installed.
Elevator
| 2007/2008 | 2008/2009 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 5,535 | 5,038 | |||
| Sales | million € | 4,930 | 5,308 | |||
| Central/Eastern/Northern Europe | million € | 1,482 | 1,521 | |||
| Southern Europe/Africa/Middle East | million € | 827 | 819 | |||
| Americas | million € | 1,892 | 2,122 | |||
| Asia/Pacific | million € | 495 | 634 | |||
| Escalators/Passenger Boarding Bridges | million € | 332 | 329 | |||
| Accessibility | million € | 215 | 227 | |||
| Corporate/Consolidation | million € | (313) | (344) | |||
| Earnings before taxes (EBT) | million € | 434 | 558 | |||
| Investments | million € | 136 | 135 | |||
| Employees (Sept. 30) | 42,992 | 42,698 |
With its customized elevators, escalators, moving walks, passenger boarding bridges, stair and platform lifts, ThyssenKrupp Elevator remained one of the world's leading suppliers of intelligent passenger transportation systems in 2008/2009. Our continuing strong market position is founded on our innovative capabilities, service quality, closeness to customers and excellently trained employees.
Record earnings again
The segment continued its positive performance in 2008/2009. In times of the global economic crisis, order intake fell short of the high prior-year level, slipping 9% to €5.0 billion. However, sales and earnings improved significantly and reached new record levels.
Thanks to the high level of orders received for new installations in the prior year and the strong performance of the service and modernization business, sales were up 8% to €5.3 billion. Despite restructuring expense of €32 million, profits climbed by 29% to a record €558 million. This success was driven by volume increases and operating improvements, especially at the US operations.
At the end of the fiscal year the segment had a total of 42,698 employees, 1% fewer than a year earlier. The picture varied in the individual business units depending on the order situation and the overall economic situation on the respective markets. In growth regions such as China and the Middle East, new employees were recruited in line with our successful expansion strategy. In many other regions the workforce remained stable, while in the USA, the United Kingdom and Spain the number of employees decreased as a consequence of the economic crisis.
Central/Eastern/Northern Europe
Orders at the Central/Eastern/Northern Europe business unit were lower than a year earlier due to the decline in the new installations business. The UK and Russian activities reported particular decreases. In France, too, it was not possible to match the high prior-year order intake. However, thanks to the high level of orders in the previous year, the business unit's sales were slightly higher at €1.5 billion. The French, Russian, German and Dutch operations achieved notable growth. By contrast, sales in the UK were significantly lower.
As a consequence of the higher sales, the business unit's profit also improved slightly. The main earnings growth was generated in Germany and the Netherlands; by contrast, the UK operations reported declining profits.
Southern Europe/Africa/Middle East
Order intake at the Southern Europe/Africa/Middle East business unit was down slightly. However, at €819 million sales were almost level with the prior year. At the Spanish operations, growth in service and modernization business was unable to fully offset the sharp decline in new installations. Most other regions achieved higher orders and sales – in particular the Gulf States, Egypt and Portugal.
The business unit recorded a slight year-on-year increase in profits. The Spanish operations in particular achieved further good earnings through their strong service and modernization business.
Americas
Despite positive exchange-rate effects, the Americas business unit failed to match its high prior-year order intake. This was due to the sharp decline in the North American market for new installations. By contrast, sales benefited from the high prior-year order intake and at €2.1 billion showed a substantial year-on-year improvement. Both the new installations and service business contributed to this, especially in North America. There was also a very pleasing expansion of business in South America, above all Brazil.
The business unit's profit was significantly higher than a year earlier, due mainly to further volume and efficiency increases in North America and Brazil and slightly positive effects from the US dollar exchange rate.
Asia/Pacific
Order intake in the Asia/Pacific business unit was up year-on-year. Sales climbed to €634 million. This improvement was driven mainly by the Chinese and Korean operations. A significant decline in the Australian market for new installations resulted in lower orders there, though sales profited from the high prior-year order intake.
Following a loss a year earlier, the business unit reported a profit in the year under review. The main contribution was made by the Korean operations, where the completed restructuring measures started to reap rewards. The other regions also improved or maintained their earnings.
Escalators/Passenger Boarding Bridges
Order intake at the Escalators/Passenger Boarding Bridges business unit was slightly lower than a year earlier. Sales at €329 million were level with the prior year. The German escalator plant in particular showed weaknesses.
Despite a marked earnings improvement in passenger boarding bridges, the business unit again returned a loss. This was due to restructurings at the German escalator plant made necessary by the significant decline in business volume. At operating level, the escalator operations overall achieved higher earnings than a year earlier. The lower income from the German operations was offset by substantial improvements in earnings at the Spanish and Chinese plants.
Accessibility
The Accessibility business unit remained on growth track and achieved both higher orders and sales, driven by the European operations. However, the distinct decline in the US housing market impacted negatively on the volume of business there.
As a consequence of the weak US business, the business unit's profits were down year-on-year. The higher earnings of the European operations had a positive effect.
Significant events
Elevator further expanded its international sales and service business and acquired several companies in 2008/2009. In Italy, for example, we acquired two service companies to further consolidate our strong market position.
Capital expenditures
In the reporting year, the segment invested €116 million in property, plant and equipment and intangible assets, with depreciation at €66 million.
The capital spending related mainly to replacement investment. In addition, Elevator invested in developing automation technology at its plant in Middleton, Tennessee/USA. The segment acquired several smaller maintenance companies, with the focus on further developing the Italian market.
Services
| 2007/2008 | 2008/2009 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 17,453 | 11,166 | |||
| Sales | million € | 17,336 | 11,896 | |||
| Materials Services International | million € | 8,539 | 5,511 | |||
| Materials Services North America | million € | 1,746 | 1,100 | |||
| Industrial Services | million € | 1,671 | 1,544 | |||
| Special Products | million € | 5,430 | 3,804 | |||
| Discontinued operations/Consolidation | million € | (50) | (63) | |||
| Earnings before taxes (EBT) | million € | 750 | (271) | |||
| Investments | million € | 369 | 210 | |||
| Employees (Sept. 30) | 46,486 | 43,235 |
With some 800 locations in 50 countries, Services is focused on the global distribution of materials and the provision of services. Its range includes carbon and stainless steel, tubes and pipes, nonferrous metals, plastics, alloying metals, minerals, coal and coke. Services include processing, warehousing/logistics, supply chain management, infrastructure solutions in railway and construction equipment as well as plant and steel mill services.
Earnings impacted significantly by materials business
Services achieved sales of €11.9 billion in fiscal 2008/2009, 31% lower than a year earlier. Compared with the record year 2007 /2008, the reporting period was characterized by sharp declines in volumes and prices. It was not until the end of the fiscal year that the situation showed signs of stabilizing at a low level.
The substantial earnings fall in the materials business was only slightly offset by profits in other areas. As a result the segment made a loss of €271 million, its worst ever result. Writedowns on inventory totaling €40 million had to be recorded at September 30, 2009. Further adjustment measures were initiated to supplement the cost-cutting measures introduced at the start of the fiscal year; this resulted in restructuring expense of €95 million.
At the end of the fiscal year the segment had 43,235 employees, 3,251 fewer than a year earlier. Due to low workloads, job cuts had to be introduced above all in the auto-related service business in Germany and in the materials services business outside Germany. On the other hand, new employees joined the segment as a result in particular of strong orders for services in Brazil, North America and Egypt.
Materials Services International
The poor economic conditions impacted virtually all product areas of the Materials Services International business unit. This applied in equal measure to Germany, Western and Eastern Europe, South America and Asia. As a result, sales volumes declined significantly. Revenues fell to €5.5 billion. Due to the economic uncertainty, many customers placed orders at increasingly shorter intervals and for smaller volumes. The extremely weak demand was accompanied in the course of the year by a massive fall in prices, which only started to stabilize at a low level towards the end of the year. This affected rolled steel, stainless steel, nonferrous metals and tubes. The plastics business was also weak as a result of the noticeable decrease in orders from industry and the construction sector.
Due in particular to the massive drop in prices, the business unit reported a significant loss in the warehousing business in 2008/2009. Massive writedowns on inventory also had to be absorbed.
Materials Services North America
The recession in the USA and the associated fall in demand and prices for carbon and stainless steel and nonferrous metals intensified further in the reporting period. As a result, sales at Materials Services North America fell sharply to €1.1 billion.
Competition and margin pressure increased on all customer markets. The earnings situation deteriorated rapidly and the business unit ended the fiscal year with a loss.
Industrial Services
Industrial Services recorded sales of €1.5 billion in the reporting year, just short of the year-earlier figure. The global financial and economic crisis left its mark, albeit with a time lag. While the scaffold business in North America performed very well, business with the auto industry in particular declined sharply. Service business with the energy and petrochemical sectors also slowed in the course of the fiscal year.
As a result of the continued weak level of service activities for the automotive industry and the associated restructuring measures, earnings at Industrial Services were lower year-on-year, but the business unit still returned a pleasing profit.
Special Products
The Special Products business unit, which by tradition has always been very successful, also felt the effects of the global crisis in 2008/2009. As a result of the sharp decline in demand and falling raw material prices, sales decreased to €3.8 billion. It was not until the second half of the fiscal year that prices for alloying metals recovered slightly at a low level. Due to high export duties, most of the business with coke was transacted within China only. The rolled steel and tube businesses and the technical trading operations recorded a significant drop in orders in the final months of the reporting year but held up well overall compared with the excellent prior year. Despite some weakening towards the end of the year, the contractors' plant and railway equipment operations remained stable. The steel mill service and technical service operations allocated to the business unit at the start of the reporting year performed pleasingly, especially in Brazil.
The business unit failed to match its very good prior-year profit but still made the biggest contribution to the segment's earnings.
Significant events
At the start of October 2009 the segment initiated the sale of ThyssenKrupp Industrieservice GmbH to WISAG, a leading German services group. The process of selling the North American scaffolding specialists Safway was also initiated.
Capital expenditures
Investments in property, plant and equipment and intangible assets amounted to €205 million, with depreciation of €157 million.
Capital spending in the Materials Services International business unit related mainly to the expansion of materials services. Warehouse and processing capacities were modernized and expanded at various locations in Central and Eastern Europe, France and Germany. Materials Services North America invested in the further expansion of its aluminum and stainless steel service centers. Industrial Services required several smaller investments to secure long-term orders. Expenditure at Special Products focused on building up specialized services for the steel mill under construction in Brazil; the package of services on offer includes classic steel mill services, slab finishing and slab transportation as a single-source solution.
Corporate at ThyssenKrupp AG
Corporate comprises the Group's head office including corporate services 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. Sales reached €127 million compared with €124 million a year earlier.
Earnings amounted to €(344) million, an improvement of €73 million from the prior year. This was mainly the result of reductions in administrative costs and positive effects from the fair-value hedging of interest/currency derivatives. Net interest deteriorated, mainly because of measures to secure the Group's liquidity.