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Subsequent events, opportunities and outlook

There were no reportable events.

The global economic upturn that began in the 2nd half 2009 will continue in the further course of 2010 – albeit at a slower pace. After declining sharply last year, global GDP is expected to grow by around 4% in 2010. However, major uncertainties lie in the debt crisis, the continuing high need for write-downs in the banking sector and the price situation for raw materials. The prospects for world trade have improved, with growth of around 10% expected in 2010. Due to the ending of numerous stimulus programs and the need to consolidate government budgets, world economic growth in 2011 is expected to be slightly weaker.

The euro zone will perform below average in 2010 with GDP growth of around 1%. The main growth drivers are exports, which are profiting from strong global demand and the weaker euro. However the debt crisis of some euro countries will impact consumer and government spending and thus significantly slow the pace of growth. Slightly higher economic growth of around 2% is expected for Germany due to rising exports, buoyant industrial activity and a surprisingly strong job market.

The US economy will recover moderately in 2010 with GDP growth of around 3%. Consumer spending will exert only moderate growth impetus due to high unemployment, low income growth, falling house prices and difficult borrowing conditions.

The high pace of growth in China and India will continue in 2010 with GDP increases of around 10% and 8% respectively; however there is a risk of overheating in China, particularly in the property sector. Thanks to increased raw material prices Brazil and Russia will also achieve higher economic growth.

Future developments on the raw material markets are a source of major uncertainty. In the 1st half of the year the three big iron ore producers succeeded in switching their contracts with steel companies from annual to quarterly deals, with the ore price recalculated each quarter based on the volatile spot market. As spot prices were much higher than the annual prices due to demand in China, the switch caused price increases of over 100% in some cases at the beginning of April 2010. The increasing power of the raw materials producers, rising demand and also speculative elements mean there could be major price swings in the coming quarters, detached from the general economic and sector trends.

We expect the following developments on the sales markets of importance to ThyssenKrupp:

  • On the steel markets in Europe, the NAFTA region and Japan, demand this year will be higher than in 2009, mainly due to restocking, but will remain far below the levels of previous years, especially as the markets have calmed considerably in the summer months. A significant increase in real consumption cannot be expected in 2010, especially not in Europe. A further expansion in capacities worldwide means there is also a risk of rising European imports from third countries, especially China, where domestic demand growth has slowed in recent weeks. Steel consumption in the emerging countries is expected to grow further. According to the spring forecast of the World Steel Association, global steel demand will increase by 11% this year; that corresponds to a crude steel output of around 1.4 billion metric tons. The significant cost increases for raw materials that have occurred to date will have to be reflected in higher steel prices.
  • Despite the current weakness, demand for stainless flat products is expected to recover in all regions in 2010, with worldwide growth of 18% forecast for this year. The markets of Western Europe and North America are expected to expand by 22% and 28% respectively. In China the pace of growth is expected to slow to 12%, while an increase of 22% is forecast for the rest of Asia.
  • The upturn on the global auto market will continue in 2010. Worldwide, production this year is forecast to grow by 11% to just under 66 million cars and light trucks. After sharp dips in previous years the USA and Japan are expected to post gains of up to 20%, albeit without reaching pre-crisis levels. At 28%, Chinese vehicle production will grow slightly faster than previously expected. In Western Europe, production growth will be slower at 5%, with the ending of incentive programs in many countries having a negative effect. German auto manufacturers could exceed their prior-year production levels thanks to higher exports.
  • The machinery sector in the industrialized countries is showing signs of a slight recovery after the drastic slumps of last year. Because of low capacity utilization and cautious production expectations capital investment will remain slow. Only a moderate production increase of 3% is expected for Germany and the USA; a sharper rise is forecast for China and Japan. The prospects for the German plant engineering industry have improved with recovering economic activity in many emerging countries.
  • Construction activity will remain weak in most industrialized countries in 2010. Construction output is expected to decline sharply again in the USA and slip further in Western Europe. In Germany public-sector construction should grow this year thanks to the government stimulus packages. However, this increase will not be enough to offset the decline in commercial construction. Construction activity in China and India will remain strong.

Opportunities through economic improvement and rationalization

Improved economic prospects and above all our high-quality products and services and the successful measures we have taken to reduce costs and enhance value offer the Group promising opportunities for the future. The strategic and operating opportunities described in detail on pages 168-171 of our 2008/2009 Annual Report remain valid. Our corporate initiatives ThyssenKrupp PLuS and ThyssenKrupp best will help in further increasing productivity, profitability and market success.

Outlook

We are cautiously optimistic that the current economic recovery will prove sustainable.

Based on the positive business trend in the first 9 months of the fiscal year our outlook for full-year sales and earnings has improved.

We expect a slight increase in sales in fiscal 2009/2010. Earnings are expected to improve significantly and return to profit, thanks in part to the cost reduction programs we have initiated. Adjusted earnings before interest and taxes (excluding nonrecurring items) will probably exceed one billion euros. Adjusted earnings before taxes (excluding nonrecurring items) are expected to be in the mid to higher three-digit million euro range. Adjusted EBT will be significantly impacted by startup losses in the Steel Americas business area in the mid three-digit million euro range.

Our expectations for the individual business areas in the 4th fiscal quarter are as follows:

  • Steel Europe – Good capacity utilization, higher average selling prices and significantly higher raw material costs
  • Steel Americas – Negative EBT contribution due to startup losses for the steel and processing plants in Brazil and the USA
  • Stainless Global – Slipping volumes, mainly due to seasonal factors, stable end-customer business and slow demand from distributors due to nickel price
  • Materials Services – Slipping volumes, mainly due to seasonal factors, higher flat steel prices and continuing strong demand from the auto and machinery sectors
  • Elevator Technology – Continuing high earnings contributions thanks to high orders in hand and steady maintenance business
  • Plant Technology – Continuing good revenue and earnings visibility in project business due to order backlog with good earnings quality
  • Components Technology – Recovery in demand for construction equipment, mainly positive earnings from automotive suppliers and continuing positive earnings contribution from slewing bearings for the wind energy sector
  • Marine Systems – Continuing losses due to underutilization in civil shipbuilding until completion of consolidation of shipyard sites

In 2010/2011 we expect an improvement in the overall economic environment and further positive effects from our cost reduction programs. This will have a corresponding impact on sales and earnings.

Personnel changes on the Executive Board

In its meeting on May 12, 2010 the Supervisory Board of ThyssenKrupp AG, at the proposal of the Personnel Committee, appointed Dr. Heinrich Hiesinger, currently member of the Managing Board of Siemens AG, Munich, to succeed Dr. Ekkehard Schulz as Chairman of the Executive Board of ThyssenKrupp AG with effect from the close of the General Stockholders' Meeting of ThyssenKrupp AG on January 21, 2011. Dr. Hiesinger will join the Executive Board of ThyssenKrupp AG as Vice Chairman at October 01, 2010. As Chairman of the Executive Board, Dr. Hiesinger will be responsible for Corporate Strategy & Technology, Corporate Executives, Corporate Communications, Corporate Information Technology and Internal Auditing.

In addition, the Supervisory Board appointed Dr. Jürgen Claassen, currently Executive Vice President of ThyssenKrupp AG, as member of the Executive Board with effect from the close of the General Stockholders' Meeting of ThyssenKrupp AG on January 21, 2011. As Chief Officer Corporate Development and Compliance, Dr. Claassen will be responsible for Corporate Development, Legal & Compliance, Corporate Programs and Corporate Sustainability.