Segment review

Steel: Order intake halved

Steel in figures
		1st half ended March 31, 2008	1st half ended March 31, 2009	2nd quarter ended March 31, 2008	2nd quarter ended March 31, 2009
Order intake	million €	7,174	3,687	3,986	1,651
Sales	million €	6,853	5,330	3,639	2,405
Earnings before taxes (EBT)	million €	749	307	396	56
Employees (March 31)		40,636	40,071	40,636	40,071

The Steel segment is feeling the full force of the global economic crisis. Following an already weak start to the fiscal year, business deteriorated further in the 2nd quarter. Over the full reporting period the value of orders received decreased year-on-year by 49% to €3.7 billion, mainly due to a 63% slump in order volumes. In addition to a sharp fall in new business, order cancellations and reductions also played a part in this.

Sales decreased by 22% to €5.3 billion. A 34% slump in shipments played a major role in this, whereas the high proportion of contract deals in total business had a stabilizing effect on revenues.

Despite the initiation of additional cost-reduction programs, earnings before taxes decreased year-on-year by €442 million to €307 million. The main reason for this was a sharp fall in shipments in all business units, compounded by inventory writedowns in the amount of €20 million.

Steel had to make operating adjustments in almost all stages of production. In March, blast furnace 9 in Duisburg with a daily hot metal capacity of 4,500 metric tons was shut down in response to worsening underutilization. The three other blast furnaces are operating at minimum levels. At investee company Hüttenwerke Krupp Mannesmann, blast furnace A was shut down in December 2008. In the downstream processing lines for hot-rolled coil, cold-rolled and coated flat products, the number of shifts was reduced from November. Major operating adjustments were also necessary at several subsidiaries.

The number of employees in the Steel segment decreased as a result of the large reduction of personnel in the Metal Forming unit, which was only partly offset by further implementation of the growth strategy in Brazil and the USA. At the end of the 1st half the segment had 565 employees fewer than a year earlier. Short-time working began in the Steel segment in January 2009, since when it has been significantly expanded, including the administrative areas.

Corporate

The Corporate business unit comprises the administrative functions of ThyssenKrupp Steel AG and manages the construction projects in Brazil and the USA. Whereas pre-operating costs for the steel mill in Brazil and the processing plant in Alabama increased, positive effects in connection with currency derivatives led to a lower loss overall for the business unit.

Steelmaking

Due to its low level of external business, the Steelmaking business unit, comprising the entire metallurgical operations in Duisburg as well as the transportation companies, reported a small drop in sales and a significantly lower profit. Crude steel production including supplies from Hüttenwerke Krupp Mannesmann decreased year-on-year by 28% to 5.1 million tons.

Industry

Sales of the Industry business unit decreased significantly due to a sharp fall in shipments. The in some cases catastrophic market situation in important customer sectors such as rerolling, appliances, construction and steel service centers had a massive impact on the Industry/Services profit center. Prices slipped over the course of the reporting period, and profits were considerably lower yearon- year. The short-term cost-reduction measures introduced had a stabilizing effect on earnings. Sales of the Heavy Plate unit and the Color/Construction competence center were still comparatively good in the 1st fiscal quarter, but since then heavy plate sales have been impacted by poor activity in sectors such as construction equipment, cranes, shipbuilding and truck manufacture – with the consequence of a drop in profits. In the Color/Construction competence center, a large drop in demand from the appliance and construction sectors and very aggressive pricing behavior by competitors had an increasingly negative effect. The European steel service centers recorded massive falls in sales, caused primarily by declining volumes but also by lower prices. Steel Service Europe therefore posted a loss.

Auto

Against the background of the continuing crisis in the automobile industry, sales of the Auto business unit also fell sharply. Despite higher prices, profits decreased significantly due to the drastic slump in volumes; the cost-cutting measures already implemented were not enough to offset this. The Auto division of ThyssenKrupp Steel AG, which accounts for more than 80% of the sales of the Auto business unit, was hit particularly hard by the drop in customer orders. Tailored Blanks also suffered from the recession in the auto industry. Sales were down substantially due to the fall in volumes, but the business still reported a small profit. Our steel service activities in North America achieved an improvement in profits. However, volumes declined noticeably; higher prices only offset this trend in part, and as a result sales were also lower. Metal Forming's performance was also severely impacted by production cuts and stoppages in the automobile sector: Sales fell sharply, in particular at our foreign companies. The deterioration in sales and ongoing restructuring expenditure were the reasons for the significantly higher loss.

Processing

The Processing business unit comprises our tinplate, medium-wide strip and grain-oriented electrical steel operations. Sales were down overall, although performance varied greatly in the individual businesses. Sales of tinplate were higher than a year earlier despite a slight fall in volumes. In January it was also possible to push through higher prices on the market. As a result, the tinplate operations achieved higher earnings year-on-year. However, competition intensified as the relatively attractive prices and more stable demand drew competitors back to the tinplate market. The situation was much more difficult in the medium-wide strip business, which suffered a massive slump in volumes due to its strong dependency on the automotive supply and cold rolling industries. Sales were down significantly from the prior year and the business unit reported a small loss. The GO electrical steel business also reported lower volumes in the past few months, resulting in decreased sales and earnings. Here again, the cost reductions realized only partly offset the market-related drop in income.

Stainless: Drastic collapse in demand and earnings

Stainless in figures
		1st half ended March 31, 2008	1st half ended March 31, 2009	2nd quarter ended March 31, 2008	2nd quarter ended March 31, 2009
Order intake	million €	4,151	1,785	2,001	819
Sales	million €	3,793	2,161	1,955	988
Earnings before taxes (EBT)	million €	(7)	(622)	38	(373)
Employees (March 31)		12,042	12,079	12,042	12,079

ThyssenKrupp Stainless reported a 603,000 metric ton or 46% drop in orders in the 1st half 2008/2009 owing to the dramatic deterioration in the market environment. The decline in prices caused the value of orders received to decrease by as much as €2.4 billion or 57%. The fall in demand for stainless steel was particularly sharp. The volume of orders received for cold-rolled was down by 47% and for hotrolled by 42%. Orders for nickel alloys fell by 35% and for titanium by 23%.

Overall deliveries by ThyssenKrupp Stainless in the reporting period were down 34% year-on-year at 793,000 metric tons. The decline particularly affected cold-rolled and hot-rolled stainless steel. By contrast, titanium shipments increased slightly from the prior-year level, while deliveries of nickel-base alloys fell. As a result of the reduced shipments as well as lower base prices and alloy surcharges, the segment's sales in the 1st half 2008/2009 were 43% lower at €2.2 billion.

Compared with the prior-year period, earnings at Stainless in the 1st half 2008/2009 fell by €615 million to €(622) million; all business units reported a loss. The main reason for this earnings crash was an unprecedented drop in demand in all customer segments of importance for stainless steel – triggered by the decline in raw material prices and intensified by the impact of the financial and economic crisis. This led to increasing underutilization of capacity at all manufacturers of stainless steel flat-rolled products, resulting in drastic production cutbacks. In this generally recessive market environment, base prices slipped further and increasingly exacerbated the loss situation. Earnings were additionally impacted to a high degree by the €160 million of inventory writedowns necessary due to the severe decline in prices for the alloy materials used to produce stainless steel such as nickel, chromium, molybdenum and scrap. Income was also negatively affected by asset impairment charges of €60 million.

Stainless reacted promptly to the tight income situation by introducing programs of measures to improve earnings and liquidity. They include a significant reduction in costs and a further flexibilization of costs using all available personnel measures, optimized inventory management and the postponement of investments. In addition we launched a performance enhancement program (SPRINT = Stainless Performance Improvement) to sustainably secure our competitiveness.

At the end of the 1st half 2008/2009, Stainless employed 37 more people than a year earlier. The underutilization of capacity at the plants caused by the drop in demand made it necessary to introduce short-time working in many parts of the segment after working time accounts had been run down.

ThyssenKrupp Nirosta

In the reporting period, the situation at ThyssenKrupp Nirosta – as at the other stainless companies in the group – was characterized by increasingly weak demand from distributors and reduced end customer business. This generally negative situation was reflected in a significant drop in order intake. The resultant decline in shipments and lower prices led to a severe downturn in sales and earnings. Necessary inventory writedowns further increased the 1st half losses. The measures taken to adapt production and costs only succeeded in cushioning this earnings collapse. Short-time working was introduced in the business unit.

ThyssenKrupp Acciai Speciali Terni

The Italian business unit ThyssenKrupp Acciai Speciali Terni was likewise increasingly impacted by the declining demand for stainless products in the 1st half. In response, production was cut back in the cold rolling mill and short-time working agreed in the steelmaking shop. The production shutdowns at the plants are reflected in lower sales of the business unit. At ThyssenKrupp Titanium, capacities were not fully utilized due to weak demand from the aerospace and plant construction sectors. Sales were down as a result of the sharp fall in prices for titanium mill products. Owing to the dire situation on the stainless markets, ThyssenKrupp Acciai Speciali Terni returned a substantial loss. In addition to the need for inventory writedowns, earnings were also impacted by the decline in the titanium business. The robust profits generated by the forging operations and the cost-cutting programs introduced were unable to cushion the collapse in earnings.

ThyssenKrupp Mexinox

At ThyssenKrupp Mexinox, 1st half order volumes and sales were down sharply from the prior year. Significant production cutbacks were introduced. With the US and Mexican markets still in recession and inventory writedowns necessary due to the fall in raw material prices, Mexinox reported a severe drop in earnings.

Shanghai Krupp Stainless

In a difficult Chinese market characterized by overcapacities, Shanghai Krupp Stainless reported substantially lower order volumes. Production output was adapted to the extremely low demand. Sales also fell sharply compared with the prior-year period. Underutilization of the plant's capacity and significantly lower shipments combined with low prices on the domestic market and necessary inventory writedowns caused earnings to collapse.

ThyssenKrupp Stainless International

As a result of weak global demand, the ThyssenKrupp Stainless International business unit reported sharp declines in both order intake and sales. The weak market and the need to write down inventories at the service centers due to the fall in raw material prices led to a drastic drop in earnings.

ThyssenKrupp VDM

In the nickel alloy business of ThyssenKrupp VDM, order intake and sales were also lower year-onyear. Customers from the plant construction, oil, gas, chemical, aerospace and automotive sectors were reluctant to place orders; short-time working had to be agreed in several areas of the business unit. As a result, earnings collapsed; the cost-cutting measures introduced could only cushion the loss situation.

Technologies: Plant construction with stable earnings

Technologies in figures
		1st half ended March 31, 2008	1st half ended March 31, 2009	2nd quarter ended March 31, 2008	2nd quarter ended March 31, 2009
Order intake	million €	6,320	6,620	3,108	1,723
Sales	million €	5,851	5,577	3,029	2,656
Earnings before taxes (EBT)	million €	365	59	186	(105)
Employees (March 31)		53,637	50,978	53,637	50,978

In the 1st half of fiscal 2008/2009 Technologies achieved a 5% increase in orders thanks to the strong 1st quarter order intake at Plant Technology and the major orders secured at Marine Systems. In the 2nd quarter, however, there were also signs of uncertainty in plant construction and customers delayed decisions on investments, due among other things to the tight financial situation in the banking sector, the fall in raw material prices and the general uncertainty on the market. 2nd quarter demand in the automotive supply and construction machinery businesses slid by more than 40% compared with the prior-year period. The orders in hand of around €17 billion at March 31, 2009 are mainly from longerterm project business and will secure future sales in this area.

As Plant Technology realized significantly higher sales on orders in hand, the segment's 1st half sales at €5.6 billion were only slightly lower than a year earlier despite sharp declines in the automotive supply and construction machinery businesses and portfolio changes.

Technologies achieved 1st half profits of €59 million, significantly lower than the year before due to substantial charges in the 2nd quarter at Marine Systems, including order cancellations for container ships, possible risks from extended liability periods in civil shipbuilding and higher project costs for yachts. This was compounded by sharply declining sales in the automotive supply and construction machinery businesses, substantial restructuring expense and the absence of a prior year gain on the sale of a business. Plant Technology made the biggest contribution to earnings.

The number of employees decreased by around 2,700, mainly due to low workloads but also as a result of portfolio changes. Most changes related to foreign subsidiaries of the Mechanical Components and Automotive Solutions business units. In addition, the employment of around 1,700 people from outside contractors was terminated from the beginning of the fiscal year. Up to March 2009, more than 15,000 employees were on short-time work in line with the declining workloads.

Plant Technology

Order intake at Plant Technology was pleasing overall in the 1st half of 2008/2009 despite a weaker 2nd quarter. While order intake for cement plant and mining and materials handling equipment was higher than a year earlier due to strong orders in the 1st quarter, orders for chemical plant were down. This was due on the one hand to the booking of major orders in the prior-year period and on the other hand to the postponement of investment decisions by customers. Thanks to the sharp rise in orders in hand, sales showed a significant improvement on the already high prior-year figure. We also achieved a substantial year-on-year increase in profits.

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, 1st half order intake at Marine Systems was significantly higher than in the comparable prior-year period. By contrast, orders for civil shipbuilding fell short of the year-earlier level. This was due to lower orders for yachts, declining repair and service business in the 2nd quarter as well as the cancellation of orders for container ships owing to the severe drop in freight rates and financing problems at customers. Sales at Marine Systems were almost level with the prior year. Higher sales in the naval shipbuilding business were unable to fully offset the declines in civil shipbuilding. Marine Systems reported a substantial loss in the 1st half of the fiscal year. This was due to substantial charges in the 2nd quarter, including order cancellations for container ships and associated inventory writedowns of €13 million, possible risks from extended liability periods in civil shipbuilding as well as higher project costs for yachts.

Mechanical Components

The Mechanical Components business unit is a manufacturer of high-tech components for the automotive and construction machinery sectors as well as for general engineering applications. Order intake in the 1st half fell short of the prior-year level due to the sharp fall in demand in the automotive and construction machinery business. This impacted all operating groups, but in particular the business with construction machinery components and forged crankshafts. The disposal of a company in the 2nd half of the last fiscal year was a further basic structural effect. Sales were also significantly lower than a year earlier. Mechanical Components returned a profit, but owing to sharply falling sales, restructuring expense and the absence of a prior year gain on the sale of a business, earnings were well down from the prior year. With workloads declining, the cost-cutting measures already introduced were extended further, including cuts in the number of temporary workers, an increase in short-time working, savings on the healthcare program at the North American foundries and major personnel cutbacks at foreign locations.

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. The global slump in demand in the auto industry, particularly in the 2nd fiscal quarter, resulted in a year-on-year fall in orders and sales. The sales decrease was particularly pronounced in the business with steering systems, dampers and springs. By contrast System Engineering, as a supplier of equipment to the auto industry, realized higher sales on orders in hand in the 1st half. Due to the decline in demand, the business unit closed the 1st half of the fiscal year with a clear loss. Here again, a variety of measures were introduced aimed at reducing costs and adapting to the lower workloads.

Transrapid

Transrapid generated a lower level of sales. Restructuring expenditures to adjust capacity resulted in a break-even result in the 2nd quarter and a slight loss for the 1st half 2008/2009.

Elevator: Significant growth

Elevator in figures
		1st half ended March 31, 2008	1st half ended March 31, 2009	2nd quarter ended March 31, 2008	2nd quarter ended March 31, 2009
Order intake	million €	2,930	2,751	1,464	1,189
Sales	million €	2,348	2,636	1,164	1,293
Earnings before taxes (EBT)	million €	209	302	90	146
Employees (March 31)		40,873	43,306	40,873	43,306

Elevator continued its positive performance in the 1st half of the reporting year. Order intake fell just short of the high prior-year level as a consequence of the economic and financial crisis and the associated decline in the market for new installations; orders were down by 6% to €2.8 billion. However, sales profited from the high order intake of the prior year and climbed 12% to €2.6 billion.

A substantial year-on-year increase was also achieved in earnings, which were €93 million higher at €302 million.

The 2,400 increase in the number of employees was mainly due to the further expansion of our service activities and the high personnel requirements in the growth markets of China, India and the Middle East.

Central/Eastern/Northern Europe

The Central/Eastern/Northern Europe business unit reported lower orders than a year earlier. This was due to the difficult market environment for new installations, especially at the British operations. In France it was not possible to repeat the high level of modernization orders. The business unit's sales profited from the high order intake of the prior year and increased strongly, thanks above all to the French, German and Dutch operations. Profits showed a slight improvement on the previous year, with earnings up in almost all regions. Only Austria/Switzerland and the Eastern European operations reported a slight decline.

Southern Europe/Africa/Middle East

The Southern Europe/Africa/Middle East business unit achieved a slight improvement in 1st half order intake compared with the prior-year period. There were positive performances in almost all regions. Operations in the Gulf states and Portugal in particular reported significant growth. The business unit's sales fell slightly short of the previous year's figure, due in particular to a distinct decline in the Spanish new installations market. The main sales growth was achieved in the Gulf region. Thanks largely to stable earnings by the Spanish and Portuguese operations, the business unit achieved a slight year-on-year improvement in profit.

Americas

Order intake at the Americas business unit was down from the high prior-year figure despite positive exchange-rate effects. In North America especially, the marked decline was a negative consequence of the economic and financial crisis; the positive performance by the South American operations was unable to offset this. By contrast, sales at the business unit were substantially higher than a year earlier. The US operations made a major contribution to this increase, with both the new installations and service business profiting from the strong order backlog of the previous year. The other operations also achieved higher sales. The business unit's profit was once again significantly higher than a year earlier, with contributions from all regions, in particular the US operations. Alongside exchange-rate effects, the expansion of service business had a positive effect.

Asia/Pacific

The Asia/Pacific business unit achieved a slight year-on-year improvement in 1st half order intake and a significant increase in sales. The rise in orders was mainly attributable to the Korean and Chinese operations, while the other regions fell short of their prior-year levels, in some cases significantly. The strong sales growth was driven in particular by the Chinese and Australian operations, which profited from very high orders in hand. The sales performance was weaker in Korea, impacted by a further decline in the market for new installations. By contrast with the previous year, the business unit recorded a small profit in the 1st half of this fiscal year; this earnings increase was achieved by improvements in all regions.

Escalators/Passenger Boarding Bridges

The Escalators/Passenger Boarding Bridges business unit significantly expanded its business volume compared with a year earlier. In both escalators and passenger boarding bridges we achieved a considerable increase in orders and sales. The passenger boarding bridges business profited from the major "Doha Airport (Qatar)" order. The escalators business in particular reported strong sales growth thanks to the expansion of its Chinese operations. After recording a loss the year before, the business unit returned a profit in the 1st half of the current fiscal year. Both the escalators and passenger boarding bridges businesses contributed to this.

Accessibility

The Accessibility business unit successfully continued its steady growth. Both the European and US operations grew their business volume significantly. In the USA, however, this expansion was due to the additional business of the National Wheel-O-Vator company which was acquired in the middle of last year; the market situation for American single-family houses remained difficult. As a result of the sales increase, the business unit's earnings also developed very positively, and significantly higher profits were reported than a year earlier. This positive performance was achieved by the European operations alone; the American activities recorded negative earnings.

Services: Inventory writedowns necessary

Services in figures
		1st half ended March 31, 2008	1st half ended March 31, 2009	2nd quarter ended March 31, 2008	2nd quarter ended March 31, 2009
Order intake	million €	8,273	6,260	4,322	2,514
Sales	million €	8,099	6,629	4,232	2,903
Earnings before taxes (EBT)	million €	267	(48)	135	(78)
Employees (March 31)		46,318	44,512	46,318	44,512

The Services segment achieved sales of €6.6 billion in the 1st half 2008/2009, 18% lower than in the comparable prior-year period. Demand for materials continued to fall sharply in the course of the fiscal year. Prices for virtually all products also dropped further. The total writedowns on inventory amounted to €45 million at March 31, 2009.

The huge earnings losses in the materials business were not offset by the profits in the other areas, and as a result the segment's earnings decreased by €315 million to a loss of €48 million. Cost-cutting measures were continued and intensified in all business units and at all levels of the segment.

On March 31, 2009 the headcount at Services was around 1,800 lower than the same date a year earlier. The strong order situation in Brazil resulted in an increase of around 1,200 people; by contrast, some 3,000 jobs were cut at Materials Services and Industrial Services due to the low workloads. While in the materials business this mainly impacted the foreign operations in North America and Europe, employee numbers at Industrial Services were mainly reduced in the auto-related service business in Germany and in scaffold services in the USA.

Materials Services International

Production cutbacks, short-time working, plant shutdowns, extended vacation periods and a further systematic reduction of inventories characterized the market situation worldwide at almost all the business unit's customers. With the exception of the Aerospace group, Materials Services International reported a sharp year-on-year fall in sales. This applied in equal measure to Germany and to Western and Eastern Europe; the losses in South America and Asia were even more severe. The decline in demand was accompanied by a further massive fall in prices for rolled steel, stainless steel and increasingly also nonferrous metals and tubes. The plastics business also remained weak as there was a noticeable decrease in orders from industry and the construction sector. Prices across the product range continued to be totally unsatisfactory and necessitated massive writedowns on inventories at end of the 1st half. As a result, Materials Services International reported a significant loss for the reporting period.

Materials Services North America

The recession in North America and the associated fall in demand and prices for carbon and stainless steel and nonferrous metals continued. Overall, despite the more favorable euro/US dollar exchange rate the sales decrease at the Materials Services North America business unit was more pronounced than in the rest of the world. The earnings situation also deteriorated; the business unit reported a considerable loss.

Industrial Services

The Industrial Services business unit achieved a slight improvement in 1st half sales compared with a year earlier. While business with the auto industry in particular declined sharply, scaffold services in North America were expanded, thanks mainly to a major energy generation project in Canada. The other service business with the power generation and petrochemical industries also performed well. As a result of the massive decrease in service activities for the automotive industry, Industrial Services failed to match its prior-year earnings but still reported a significant profit.

As already explained in the 1st quarter report, the Industrial Services business unit is to be sold. The businesses not up for sale – steel mill services and industrial services in Brazil – were therefore assigned to the Special Products business unit with effect from the beginning of fiscal 2008/2009.

Special Products

Having achieved higher year-on-year sales in the 1st quarter, in the further course of the 1st half the business unit was impacted by the collapse of the raw materials business and the drastic fall in prices. As a result sales fell short of the prior-year figure. In the rolled steel and tubes business it was possible to bill several major projects, and sales here were slightly higher than a year earlier. This was also the case in the contractors' plant and railway equipment operations. The service activities newly assigned to this business unit roughly matched their prior-year level. The fall in sales of the steel mill services in Germany were largely offset by the Brazilian operations. The business unit delivered the segment's biggest earnings contribution; however, the other activities were unable to compensate for the decline in earnings in the raw materials business.

Corporate at ThyssenKrupp AG

Corporate includes the Group's head office and internal service providers 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 in the 1st half 2008/2009 were level with the prior year at €60 million.

Corporate reported a loss of €211 million in the 1st half 2008/2009, a year-on-year increase of €30 million. This is mainly the result of higher net interest expense due to increased borrowing. Running counter to this were effects from cross-currency swaps and a reduction in administrative costs.

Consolidation mainly includes the results of intercompany profit elimination.