• Start
  • Interim management report
  • Interim financial statements
  • Further information

Subsequent events, opportunities and outlook

No reportable events occured

Economic conditions at the start of 2009 were worse than predicted just a few months ago. Almost all sentiment and early indicators have fallen sharply, indicating a worsening of the economic downturn. The world economy is expected to fall into a pronounced recession this year, with growth of less than half a percent. In the industrialized countries, economic output in 2009 is set to contract for the first time since the post-war period. Growth in the emerging countries is expected to be at the lowest level since the early 1990s. In 2010 it is hoped that the global economy will come out of recession and return to moderate growth.

The US economy will shrink significantly in 2009. Private consumption in particular will remain weak for structural reasons. Consumer confidence reached new all-time lows in recent months, and investment activity will remain very weak against the background of falling orders and industrial output. Hope remains that the impetus generated by monetary and fiscal policy and slowing prices will start to have an effect in the course of the year. Despite this, US GDP is expected to fall by over 1.5% in 2009.

Growth in the emerging markets will slow significantly. Russia and the countries of Latin America will be negatively impacted by weaker demand and lower prices for energy and other raw materials. In China, too, the pace of growth will fall to around 6.5% as a result of the cooling in foreign demand.

The outlook for the euro zone and Germany is gloomy. Investment activity in particular is expected to decline sharply. It is hoped that the approved economic stimulus packages will be able to mitigate the impact of the recession somewhat. Despite this, GDP is expected to fall sharply in 2009. Due to its high dependency on exports, Germany will be disproportionately affected by this and record negative growth of almost 3%.

We anticipate the following developments on the markets of importance for ThyssenKrupp:

  • We expect the world steel market to decline in 2009 due to falling demand. Given the worsening outlook for the economy as a whole, steel demand is expected to drop significantly in Europe, North America and Japan in particular. Excessive inventories, mainly in Europe, will further dampen demand. But the previously high growth in the emerging markets will also slow. Raw material prices have eased somewhat recently, but it remains to be seen whether this will be an enduring trend. Under these conditions there will be substantial price and volume risks in 2009.
  • In view of the global recession, there will be no significant easing of the difficult situation on the markets for stainless steel and high-performance materials in the near future. However, the anticipated drawdown of distributor inventories – in particular of stainless steel products – over the next few months is expected to cause replenishment demand from distributors to return to normal levels. This is also indicated by the fact that consumption by stainless fabricators, although weakened as a result of the economic downturn, has not collapsed entirely and thus still needs to be covered. While we do not expect to see any fundamental recovery in demand for stainless steel in 2009, in the medium term we anticipate a return to the longstanding annual growth path of around 5% to 6% worldwide. There remains the risk of export pressure from excess Asian capacities.
  • Demand and output in the auto industry will fall further in 2009. Slight growth is only expected in some of the emerging markets of Asia and Central and Eastern Europe as a result of production relocations. By contrast, the NAFTA region and Western Europe will suffer heavy declines. In the USA and Germany, vehicle output is expected to fall by more than 10%.
  • The current weak level of investment worldwide will continue in 2009 and result in decreasing mechanical engineering output in all important industrialized nations. The decline is expected to be particularly sharp in the USA. German production will also shrink. In China, the previous high growth rates are expected to fall by at least half.
  • In 2009 the global crisis will also start to affect the construction industry in the emerging countries of Asia and Central and Eastern Europe. The previously high pace of growth will fall in these regions. In the USA, the recession is expected to continue initially due to the weak state of the private housing market. The German construction sector will stagnate at best in 2009. High order backlogs, in particular for commercial construction, will prevent output from falling at least in the 1st half of 2009; but the recession will also make itself felt in the construction industry in the 2nd half.

Outlook

We expect a significant drop in sales in fiscal 2008 / 2009. This will be reflected in earnings. Price and volume risks will only be partly offset by declining input material prices and an extensive additional action program to increase efficiency. In addition, measures are being taken to significantly reduce net working capital.

We expect the 2nd quarter to be more difficult than the 1st. Our expectations for the individual segments in the 2nd quarter are as follows:

  • Steel – further production cuts and underutilization of core units, stabilization of shipments, largely unchanged costs for raw materials and declining prices for shorter-term deals.
  • Stainless – continued production cuts and underutilization, continuing weak sales markets; further inventory writedowns cannot be ruled out.
  • Technologies – high level of planning confidence for revenues and earnings in project business due to high order backlog with good earnings quality. Only the automotive business will be impacted by production cuts by OEMs.
  • Elevator – enduring effect of performance programs with earnings higher year-on-year.
  • Services – predominantly weak demand and continued price falls in materials business at Materials Services and Special Products; the same applies to metallurgical raw materials and coke; Industrial Services predominantly stable, construction and rail equipment activities will profit from high infrastructure spending.

Once the destocking at distributors and end customers is over and the inventory writedowns have been absorbed we expect business and earnings to be at the level of a normal recession in the 2nd half of the fiscal year. As this happens, the earnings contributions from the materials-related businesses in the Stainless and Services segments are expected to improve. Steel faces continuing price pressure and inadequate volumes but expects lower raw material costs and positive effects from ongoing cost-reduction measures. Technologies plans to maintain its strong earnings despite a continuing difficult market environment. For the Elevator segment we expect the good earnings picture to continue.

We expect ThyssenKrupp's sales and earnings to stabilize again in 2009 / 2010. In the longer term, particularly after completion of the major investments of Steel and Stainless in North and South America and those of the other segments in other regions, we forecast earnings before taxes and major nonrecurring items of €4.0 to 5.0 billion and sales of around €65 billion.

Intensive cost-cutting program launched

In the reporting quarter we launched the Groupwide program ThyssenKrupp PLUS to respond swiftly and firmly to the changed parameters. The program is managed by a special officer who reports directly to the Executive Board. This centralized coordination allows us to make quick and effective decisions.

It includes measures aimed at achieving savings of well over €1 billion in the current fiscal year. We will restrict all non-essential expenditure in production and administration, critically analyze all external service contracts and implement further savings in procurement and sales.

It also concentrates on measures to improve our cash position and reduce net working capital; for example, we will improve inventory management in the Group and optimize receivables management. As things stand, this will allow us to cut our capital requirements by more than €2.3 billion compared with the last fiscal year.

We are also reviewing our investment projects to identify those which may be better realized at a later date. Economic developments in sectors of importance to us make it possible to postpone projects in some areas without losing sight of our long-term objectives.