Results of operations of the business areas

The Group’s operations are organized in eight business areas. As at September 30, 2011 Stainless Global is classified as a discontinued operation. All business areas contributed to the rise in orders and sales in the reporting year, and apart from Steel Americas all continuing operations generated a positive EBIT contribution.

Steel Europe

The Steel Europe business area combines the Group’s flat carbon steel activities, mainly in the European market. Its high-quality flat products are supplied to customers in the auto industry and other steel-using sectors. The range also includes products for attractive specialist markets such as the packaging industry.

Higher volumes and selling prices

Steel Europe profited from a robust steel market over large parts of 2010/2011. Order volumes at 12.5 million tons were 2% up from the already high prior-year level. However the extremely strong demand in the 1st half of the reporting year weakened from the spring, partly due to the stock cycle. With prices higher due to increased costs, the value of orders received rose by 12% to €12.3 billion.

Sales of the business area increased by 19% to €12.8 billion. Shipments were 8% higher than the prior year at 13.0 million tons, and selling prices were increased step by step as further rises in raw material costs were passed through to customers with a time lag. Thanks to strong auto sector activity, shipments to automotive customers expanded significantly. Prices under new contracts were adapted in line with raw material costs. The business area likewise achieved higher volumes and prices with a large portion of other industrial customers and steel service centers. Sales of medium-wide strip, heavy plate and tailored blanks also grew strongly. Sales of tinplate also increased. This was due to higher selling prices; shipments have deteriorated recently. Selling prices for oriented electrical steel came under considerable pressure, but business in non-oriented electrical steel was more positive.

Good capacity utilization

Steel Europe’s crude steel production including the share in investee company Hüttenwerke Krupp Mannesmann reached 13.2 million tons, level with the prior year. In addition, the new Brazilian mill of Steel Americas began supplying slabs to Germany from December 2010. Including contract rolling, we increased rolled steel production for customers by 4% to 14.1 million tons.

The capacities of the core units were fully utilized up to mid-year 2011. The market slowdown due mainly to the inventory cycle led to lower operating levels in the steelmaking and hot rolling operations in the final fiscal quarter.

Strong increase in EBIT

The business area again significantly improved its earnings before interest and taxes (EBIT) in 2010/2011. Overall, EBIT rose from €731 million to €1,133 million. EBIT margin reached 8.8% compared with 6.8% in the prior year. Higher raw material costs were offset by positive price and volume effects. The ongoing programs to increase efficiency and reduce costs also contributed to the improved earnings.

Steel Americas

With its steelmaking and processing plants in Brazil and the USA the Steel Americas business area is tapping into the North American market for premium flat steel products.

Operations begun

The Steel Americas business area ramped up its plants and began operations in the past fiscal year. Almost all of the facilities are in operation. As the ramp-up progressed we continuously expanded and optimized the spectrum of premium flat steel products. The quality of our premium steel grades is meeting with a strong response from our North American customers. The customer base currently mainly comprises steel service centers, the appliance industry and the tube sector.

Due to the ramp-up of production, orders and sales increased strongly in the course of 2010/2011. Order intake reached €1,293 million, sales €1,139 million. In total, 1.2 million tons of flat steel were sold on the North American market and first sales of hot dip galvanized sheet were also made.

Adjusted EBIT negative but lower quarter by quarter

Adjusted EBIT came to €(1,071) million. This was mainly due to startup costs from the completion of the projects, the ramp-up of the facilities and the entry into the NAFTA market. In addition there were higher expenses for dealing with operating disruptions at the Brazilian steel mill, which mainly affected the coke plant. Increased raw material prices likewise impacted earnings.

EBIT impacted by high impairment charges

The persistent, higher-than-expected startup losses gave us cause to test the assets of Steel Americas for impairment. This test showed that impairment charges of €2,075 million had to be recorded. They mainly related to property, plant and equipment and construction in progress, and to a lesser extent to transfer taxes and inventories. The impairment charges amounted to roughly 25% of the relevant carrying amounts. This resulted in an income tax reduction of €233 million.

The main reasons for the impairment charges were cost overruns in the construction of the mill in Brazil, which resulted in higher acquisition costs, and the delayed ramp-up, which led to significant and persistent startup losses. On top of this came the current and expected near-term relative strength of the Brazilian currency, which is weighing on the competitiveness of the Brazilian mill. In addition, the continued weakness of the sales markets in the USA and Europe had an effect, hampering market entry for Steel Americas’ products. The increase in the weighted average cost of capital also had an impact.

Steel mill in Brazil

The new integrated iron and steel mill near Rio de Janeiro produced around 2.8 million tons of slabs for the US processing plant and Steel Europe in 2010/2011. The second blast furnace was fired up successfully; however, work on the coke plant is progressing with delays. The final coke oven battery is scheduled to go into operation in spring 2012. Total crude steel capacity is more than 5 million tons a year.

In December 2010 the dumping of hot metal resulted in graphite dust emissions. We took measures to reduce the escape of free graphites into the air and capture them as far as possible. At no time was there any danger to the health of employees or residents. All emissions since the startup of the new steel mill have been well below the limits set by the Brazilian environmental authorities.

During the ramp-up the mill is operating initially under a provisional license. Following the ramp-up we are confident of meeting all statutory requirements and obtaining a permanent operating license.

Processing plant in the USA

After a three-year construction period the new processing plant of Steel Americas in Calvert, Alabama, was officially opened on December 10, 2010. It will have a total hot-rolled capacity of over 5 million tons per year. Construction work for the hot and cold rolling mills was completed with the startup of the pickling line in November 2010. Three of the four hot dip galvanizing lines were also put into operation in the reporting year; the fourth and final line is expected to follow at the beginning of 2012.

Materials Services

With 500 locations in over 40 countries the Materials Services business area specializes in materials distribution including technical services.

Generally high demand – significant sales growth

Materials Services increased its order intake by 15% to €14.8 billion in 2010/2011. Sales came to €14.8 billion, an increase of €2.0 billion or 16% from the prior year.

The metals warehousing and service business in particular showed significant growth. Shipments increased year-on-year by 18% to 5.6 million tons, reflecting high demand from the engineering, automotive and other manufacturing sectors. This was true of Germany, Eastern Europe and several Western European countries, whereas demand in the countries of Southern Europe was much more subdued. The construction industry provided hardly any stimulus. In North America the nonferrous metals business in particular profited from the economic recovery. Despite generally good demand, prices and margins came under increasing pressure from the start of the 2nd fiscal half.

Sales to the aerospace industry remained pleasing, but international direct-to-customer and project sales were again characterized by very slow demand, extremely fierce competition and numerous order deferrals.

Raw materials sales of alloys, metals and coke/coal showed a mixed picture. Whereas the alloy business was largely steady, shipments and sales of metals decreased significantly. Demand and prices for coke and minerals were at a very high level over large parts of the fiscal year. Further large orders and new projects had a favorable impact on our steel mill services in Brazil, and capacity utilization in Germany was also significantly better than a year earlier.

Adjusted EBIT improved by 40%

The economic recovery and sustainable cost reductions in almost all areas are reflected in the business area’s earnings. Materials Services achieved EBIT of €478 million in 2010/2011, compared with €463 million in the prior year.

Whereas the prior-year earnings included disposal gains of €81 million from the sale of the Industrial Services companies, the sale of the Xervon group led to disposal losses of €55 million in the reporting year. Adjusted EBIT improved significantly from €382 million by €151 million or 40% to €533 million; the adjusted EBIT margin increased from 3.0% to 3.6%.

Elevator Technology

The Elevator Technology business area supplies passenger and freight elevators, escalators and moving walks, passenger boarding bridges, stair and platform lifts as well as service for the entire product range. Over 900 locations worldwide form a tight-knit sales and service network that keeps us close to customers.

Order intake and sales at high levels

Elevator Technology stood up well in 2010/2011 and continued its positive performance. Compared with the prior year we improved order intake by 4% to €5.3 billion and sales by 1% to likewise €5.3 billion.

The upward trend in elevators was felt in both the new installation and service businesses. Pleasing growth was achieved in the Asian region in particular. The main growth driver in China was the new installation business, which profited from numerous new infrastructure projects. The Indian and Brazilian markets also continued to grow at a strong pace, while volumes in North America improved only slightly under the influence of the general economic situation in the USA. The European operations were steady. Demand for new installations in the Iberian peninsula was weaker. Through market-oriented measures we further increased service volumes and the number of maintenance units under contract in all important regions. Order volumes for escalators and passenger boarding bridges were significantly higher; both businesses recorded increasing demand, particularly from Asia, mainly due to dynamic growth in China. Orders for stair lifts and home elevators were unchanged from the prior year.

Slight fall in earnings

The business area generated EBIT of €801 million. The figure includes special items of €160 million because a fine imposed by the EU Commission in 2007 for anticompetitive practices was paid back in part. Excluding this special item, adjusted EBIT came to €641 million, and was therefore steady year-on-year. We achieved improved earnings above all in Brazil and Asia. EBIT margin rose from 12.4% to 15.2%; adjusted for the special item it came to 12.2%, compared with 12.4% in the prior year.

Plant Technology

The product portfolio of Plant Technology includes chemical plants and refineries, equipment for the cement and minerals industries, equipment for the mining and extraction of raw materials, and production systems and assembly lines for the auto industry.

Continuing good order situation

The business area benefited from a favorable investment climate worldwide in the past fiscal year. Order intake increased by 16% to €4.5 billion. A major part in this pleasing performance was played by our plants for the cement, minerals and mining sectors and our production systems and assembly lines for the auto industry, where orders were in some cases more than 20% up from the prior year.

Plant Technology is active globally. In 2010/2011 the most important regions outside Europe were Asia with 28% of new orders, America with 22% and Africa with 16%. 22% of orders came from the European Union. Newly acquired projects include two coke plant orders for customers in South Korea and Germany. In addition we received orders for two coal handling plants in India and South Africa. Orders from customers in Mexico, China and Indonesia contributed to the pleasing performance in the cement, minerals and mining business. Some projects were delayed due to the political unrest in North Africa and the Middle East.

Sales in fiscal year 2010/2011 came to €4.0 billion, up 2% year-on-year. All sections of the business area had good utilization rates, in many cases operating at their capacity limit. Orders in hand of around €6.6 billion at September 30, 2011, mainly for long-term project business, secure both sales and capacity utilization for a period considerably in excess of one year.

Earnings improved

With EBIT of €506 million, Plant Technology exceeded its prior-year earnings by €105 million. This pleasing increase was mainly due to the billing of larger orders. EBIT margin at 12.6% was significantly higher than the prior-year 10.2%.

Components Technology

The Components Technology business area supplies a range of high-tech components for wind turbines, construction equipment and general engineering applications. In the auto sector our activities are focused on crankshafts, camshafts, steering systems and the assembly of axle modules.

Strong rise in orders and sales

Components Technology continued its good upward trend in 2010/2011. Order intake increased year-on-year by 22% to €6.9 billion. This was due partly to global growth in the auto industry, both for cars and trucks, and partly to a recovery in demand in general engineering and the wind energy sector. In the automotive sector the markets in China and Brazil in particular showed dynamic growth; the trend in the USA was also positive. The list of major orders received includes assembled camshafts and electromechanical steering systems, passive and active suspension systems, machined and forged crankshafts and brake components. All plants supplying the auto industry reported high capacity utilization. The construction equipment industry also continued to recover, with impetus coming mainly from China, India and Russia. Domestic business was likewise pleasing.

Sales followed the trend in orders and reached €6.9 billion, up 21% from the prior year. We thus achieved our highest-ever order intake and sales in the reporting year.

Profit doubled

Components Technology further strengthened its earnings in 2010/2011, achieving EBIT of €543 million, more than double the prior-year figure. The earnings include a €40 million impairment reversal at the US foundry group Waupaca. Due to the improved sales situation in the USA and numerous customer orders the Etowah plant in Tennessee, idled during the demand crisis, was reopened. Adjusted EBIT at €503 million also showed a significant increase from the prior year.

Key factors in the substantial improvement in earnings were our good operating performance as well as our restructuring measures. These structural measures sustainably reduced cost levels and improved profitability. Compared with the prior year, EBIT margin increased from 4.4% to 7.9%.

Marine Systems

After the restructuring of the shipyards the Marine Systems business area will focus exclusively on naval shipbuilding in the future as part of the Group’s strategic development. In the reporting year we continued the ship repair and component manufacturing operations, which are classified as held for sale, and worked through yacht orders to a limited extent.

Higher order intake and sales

Marine Systems increased its order intake significantly, from €531 million in the prior year to almost €3.0 billion in the reporting year. The biggest single project was the order placed by Turkey for six U 214 submarine material packages worth around €2.2 billion. The order intake also includes €295 million from the contractual agreement with Greece.

Sales increased year-on-year from €1.2 billion to €1.5 billion. At the beginning of the reporting year we handed over the second Class 209-PN submarine to the Portuguese Navy. In July 2011 this was followed by the first of two extensively modernized submarines for the Singapore Navy. The Hamburg shipyard began production of the Class F125 frigates for the German Navy. Technical difficulties with the propulsion systems have delayed the delivery of the Class K130 corvettes for the German Navy, which will now take place in mid-2012. The repair and components business, which is classified as held for sale, performed positively.

Earnings improved

EBIT improved from €145 million in the prior year to €213 million. The reasons for the pleasing increase were mainly positive one-time effects from the above-mentioned settlement with Greece and agreements with other customers. The lack of work in the civil shipbuilding operations had a negative impact. EBIT margin increased year-on-year from 12.0% to 14.3%. The adjusted EBIT of the prior year included non-operating expense of €58 million as well as the deconsolidation effect of Hellenic Shipyards in Greece.

Stainless Global (discontinued operation)

The Stainless Global business area supplies premium-quality stainless steel flat products and high-performance materials such as nickel alloys and titanium.

Orders and sales higher

At Stainless Global, business was up from the prior year in the first months of 2010/2011. The value of new orders increased by 18% to €6.0 billion due to alloy prices; order volumes were 3% down from the prior year at 2.0 million tons. Whereas volumes decreased slightly in the stainless flat products business, demand for nickel alloys and titanium increased, which also noticeably increased their selling prices. 2.3 million tons of stainless flat products and 37,500 tons of high-performance materials were produced. It should be noted that the prices of high-performance materials are many times higher than those of stainless products.

Overall shipments were 6% down from the prior year at 2.0 million tons. Market demand was noticeably weaker in the 2nd half of the year. Despite this, sales increased by 14% to around €6.7 billion due to higher alloy surcharges. Base prices were lower than a year earlier.

Adjusted EBIT positive

Adjusted EBIT improved from €(57) million to €15 million, adjusted EBIT margin from (1.0)% to 0.2%. A favorable market situation at the beginning of the reporting year and the optimization of the product mix led to positive effects, in particular from the nickel alloy business. In addition, we further reduced costs. The EBIT figure includes €98 million in startup costs for the new stainless steel mill in the USA.

Impairment charges weigh on EBIT

After goodwill impairment of €290 million and a further fair value adjustment of €510 million, EBIT of Stainless Global came to €(785) million, compared with €(57) million in the prior year. EBIT margin decreased from (1.0)% to (11.6)%. The write-down to fair value made necessary by the intention to sell takes into account in particular the valuation discounts applied to stainless steel producers due to the structural problems in the market. The discounts also reflect the current sovereign debt crisis and the high risk aversion of investors. In the current environment, the valuations placed on stainless steel companies are comparatively low and vary over a range. We determined the fair value on the basis of internal calculations and estimates of market participants, and our valuation lies in the middle of the range.

Stainless steel mill in the USA

At the US site in Calvert the productivity and product quality of the units in phase 1 of the cold rolling mill commissioned last fiscal year improved further. The newly installed phase 2 units in the hot-rolled annealing and pickling line, the second cold rolling mill and the finishing line are now going into operation. In addition, the third cold rolling mill and the remaining parts of the finishing line are currently being installed. Construction work on the 1 million ton per year capacity melt shop is proceeding on schedule; it is due to start operation in December 2012. Until then the location will continue to be supplied with hot band and slabs from the European mills.

Nirosta forward strategy

To strengthen the competitiveness of the European stainless steel operations, the locations within the Nirosta plant network are being optimized. The relocation of production from Düsseldorf-Benrath to Krefeld is to be completed by the beginning of 2016. The investment volume is €244 million. The implementation of the first phase of the project began at the start of 2011, mainly involving the construction of a new annealing and pickling line and cold rolling mill.

Business with external customers

The order intake and sales of the business area also include business with customers within the ThyssenKrupp Group. The following figures were generated with customers outside the Group; as a result of the separation of the stainless steel operations, the corresponding Group figures are reduced by these amounts:

Corporate at ThyssenKrupp AG

Corporate comprises the Group’s head office including management of the business areas. It also includes the business services activities in the areas of finance, communications, IT and human resources, as well as non-operating real estate and inactive companies. Sales of services by Corporate companies to Group companies in the reporting period came to €143 million, up from €131 million a year earlier.

Corporate’s earnings before interest and taxes came to €(377) million, a deterioration of €86 million from the prior year. The deterioration was mainly the result of higher administrative costs, particularly personnel and IT costs, and the valuation of mining provisions. Adjusted EBIT came to €(356) million; Corporate recognized a €21 million provision for litigation risks in connection with arbitration court proceeedings concerning a disposal carried out several years earlier.

Contents of this page

• Steel Europe
• Steel Americas
• Materials Services
• Elevator Technology
• Plant Technology
• Components Technology
• Marine Systems
• Stainless Global (discontinued operation)
• Corporate at ThyssenKrupp AG