Financial position
Against the background of the global financial and economic crisis, our efforts in the reporting year focused on securing a solid financial position.
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 monthly rolling liquidity planning system covering 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. Our intercompany cash management system reduces external financing requirements with a positive effect on our interest expense.
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. Our credit standing is rated by the agencies as follows:
| Long-term rating |
Short-term rating |
Outlook | ||||
|---|---|---|---|---|---|---|
| Standard & Poor's | BBB- | A3 | Watch negative | |||
| Moody's | Baa3 | Prime-3 | negative | |||
| Fitch | BBB- | F3 | negative |
Experience shows that ratings upgrades lead to lower refinancing costs, while downgrades have a negative effect.
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 cash flows in 2008/2009 amounted to €3,699 million, virtually unchanged from the prior year. This was the result of two opposing developments: Net income before impairment losses/reversals in connection with non-current assets and before deferred taxes and income from investments accounted for using the equity method decreased by €4,155 million. At the same time, however, there was an almost equal improvement in capital employed in operating assets and liabilities including accrued pension and similar obligations. The improvement in the capital employed situation was mainly the result of a significant reduction in inventories and trade accounts receivable totalling €6,162 million which was set against an increase in trade accounts payable of €2,261 million.
Cash outflow from investing activities increased year-on-year by €139 million to €4,037 million due mainly to the reduction in proceeds from disposals of previously consolidated companies by €165 million to €6 million.
As in the prior year, free cash flow, i.e. the sum of operating cash flows and cash flows from investing activities, was negative. Compared with the prior year, free cash flow deteriorated by €119 million to €(338) million.
There was a cash inflow from financing activities of €2,983 million in 2008/2009, compared with cash outflows of €705 million in the prior year. The total €3,688 million change was the result of the following developments: A cash inflow resulted from the €2,468 million rise in gross financial debt and the €465 million payments received in connection with the increase in Vale S.A.'s share in ThyssenKrupp CSA Siderúrgica do Atlântico Ltda. The rest of the change related mostly to the €880 million cash outflow in the prior year for the purchase of treasury stock.
Change in cash and cash equalents in million €
Analysis of balance sheet structure
Compared with September 30, 2008, the balance sheet total decreased by €275 million to €41,367 million.
Non-current assets increased by €2,135 million, mainly as a result of the increase in property, plant and equipment (€2,527 million) caused in particular by progress on construction of the two major projects in Brazil and the USA. Set against this was a reduction in advance payments on property, plant and equipment (€431 million) reported under other non-current non-financial assets, which likewise related mainly to the major projects in Brazil and the USA. Overall in 2008/2009 intangible assets in the amount of €103 million and property, plant and equipment in the amount of €173 million were reclassified as assets held for sale.
Current assets decreased by a total of €2,410 million. The decline was mainly the result of significantly lower inventories and trade accounts receivable; against this, cash and cash equivalents increased.
Inventories decreased by €2,759 million to €6,735 million. The decrease related mainly to the Steel (€839 million) and Stainless (€768 million) segments and resulted in particular from production cutbacks and inventory reductions as a consequence of the drastic slump in demand on the steel and stainless markets and price-related writedowns. The additional significant decline in the Services segment (€1,029 million) was also the result of a reduction in inventory volumes in conjunction with significant price-related writedowns. The reclassification of items as assets held for sale was responsible for a €21 million reduction.
Trade accounts receivable decreased by €2,765 million. The overall reduction stemmed in particular from the Steel (€598 million), Stainless (€249 million) and Services (€960 million) segments and was due to the significant weakening of business activity. The reduction in the Technologies segment (€532 million) was attributable above all to the sharp decline in automotive and construction machinery business and to increased writedowns, due mainly to order cancellations in merchant and naval shipbuilding. The reclassification of items as assets held for sale led to a €152 million decrease.
Cash and cash equivalents increased by €2,624 million to €5,349 million mainly as a result of the issue of bonds (€2,986 million) and payments of €465 million received in connection with the increase in Vale's share in ThyssenKrupp CSA Siderúrgica do Atlântico Ltda.; this was counteracted in particular by the negative free cash flow (€(338) million) due to weaker business activity and high capital expenditure, and dividend payments (€650 million). In addition, the reclassification of items as assets held for sale resulted in a €26 million reduction.
Other financial assets reported under current assets increased by €372 million, in particular as a result of a claim for cash payments from Vale in connection with the increase in its share in ThyssenKrupp CSA Siderúrgica do Atlântico. The €229 million reduction in other current non-financial assets related mainly to a fall in advance payments.
Assets held for sale increased by €476 million. This rise resulted from the reclassification of assets in connection with the disposals initiated in 2008/2009 of the ThyssenKrupp Industrieservice business unit and the American scaffolding service provider Safway in the Services segment. In 2008/2009 non-current assets in the total amount of €282 million and current assets totalling €209 million were reclassified.
The €1,793 million reduction in total equity to €9,696 million related in the amount of €1,873 million to the net loss incurred in the reporting year. On top of this came dividend payments in fiscal 2008/2009 in the amount of €650 million and net pre-tax expense recognized directly in equity in the amount of €1,119 million. The net expense recognized directly in equity related mainly to actuarial losses from the valuation of accrued pension and similar obligations (€1,073 million). Running counter to this were unrealized gains from derivative financial instruments in the amount of €222 million before taxes, and tax effects recognized directly in equity of €284 million. In addition, there were other changes in minority interests of €1,361 million, mainly resulting from the increase in Vale's share in ThyssenKrupp CSA Siderúrgica do Atlântico.
Non-current liabilities increased by a total of €4,106 million. €4,092 million of this increase was due to the rise in non-current financial debt, €2,986 million of which related to the issue of bonds. The €975 million rise in accrued pension and similar obligations was mainly the result of the actuarial losses recognized in 2008/2009. The €151 million increase in other non-current provisions chiefly reflected provisions for restructuring measures; running counter to this were reclassifications of €29 million to liabilities associated with assets held for sale. Net deferred taxes increased by €992 million, €821 million of which reflects the decrease in deferred tax liabilities and €171 million the rise in deferred tax assets. The increase in the net position is mainly attributable to higher deferred tax assets in connection with loss carryforwards as well as higher temporary differences in pension and inventory valuation.
The €317 million decrease in other non-current financial liabilities was in connection with the increase in Vale's share in ThyssenKrupp CSA Siderúrgica do Atlântico.
Current liabilities decreased by €2,588 million, due mainly to the significant reduction in trade accounts payable by €1,562 million. This related principally to the Steel (€373 million), Stainless (€294 million) and Services (€714 million) segments as a result of the sharp downturn in business. Furthermore, current financial debt decreased by €1,043 million; €500 million of this related to the redemption of a bond and €139 million to reclassifications to liabilities associated with assets held for sale. The €294 million rise in other current provisions related in the amount of €359 million to provisions for restructuring measures; running counter to this was the reclassification of €35 million to liabilities associated with assets held for sale. The €845 million reduction in other current non-financial liabilities was chiefly the result of a decrease in liabilities under construction orders in the Technologies segment and the exercise of a put option by One Equity Partner (OEP) in connection with the acquisition of the remaining 25% share in ThyssenKrupp Marine Systems AG. Liabilities associated with assets held for sale increased by €288 million due to the reclassification of liabilities in connection with the disposal of activities in the Services segment initiated in the reporting year. In 2008/2009 non-current liabilities totaling €69 million and current liabilities totaling €219 million were reclassified.
Net financial debt in million €
Assets not recognized and off-balance financing instruments
In addition to the assets recognized in the consolidated balance sheet, the Group also uses assets which cannot be recognized. These mainly concern 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 is continuously further developed by us and strengthens the image of our Group companies on their markets. More information on our new corporate design and our communications activities can be found in the section "New Group structure" and in the section "Group Review".
Our long and trusting relations with suppliers and customers are also of high value to us. Especially in difficult economic times they bring stability to our business activities and make us impervious to sudden market fluctuations. For example, our specialized technical cooperation with our business partners permits the timely use of our input in development projects which lead to new forward-looking products at our customers. This often gives us a competitive edge over newcomers on our markets. In particular in the automotive industry, our customer relationships are characterized by technical collaborations and joint development ideas. Extensive materials expertise, a knowledge of innovative process technology and reliable supply chain management provide key competitive advantages on this market. Major innovation projects are presented in detail in the section Innovations.
In plant construction, too, the good reputation of successful ThyssenKrupp projects pays dividends. When industrial and infrastructure projects are planned – especially in the Middle and Far East – our reference facilities open doors.
Added to this is the consistent commitment of our managers and employees, many of whom have worked for our company since the start of their careers. Their personal dedication, their knowledge of markets and operating processes, and their constant eagerness to come up with innovative ideas contribute to the value of our enterprise.