Opportunities and risks

Opportunities

With our innovative and resource-friendly products and processes and our leading engineering expertise, the markets of the future present good opportunities for ThyssenKrupp as a global, diversified industrial group. For our elevator and project businesses in particular, the emerging economies offer significant growth opportunities. The systematic continuation of our corporate program “impact 2015” will also contribute to value growth in all areas of the Group and improve productivity on a sustainable basis. The strategic, operating and performance-related opportunities presented in detail on pages 98-100 of our 2011/2012 Annual Report remain valid.

Risks

With the current global economic environment and the markets of relevance for ThyssenKrupp currently offering little in the way of positive support, our activities are affected by economic risks. A slower pace of growth in the emerging economies and a continuation of the unresolved debt crises in particular in the euro zone may further limit our market prospects. We continuously monitor and assess the economic situation to enable us to respond quickly to new developments. We use our risk management system to ensure that there are no risks that could threaten the Group’s ability to continue as a going concern.

ThyssenKrupp manages its liquidity and credit risks proactively. The Group’s financing and liquidity remain on a secure foundation in fiscal 2012/2013.

Credit risks (default risks) arise from the fact that the Group is exposed to possible default by a contractual party in relation to financial instruments, e.g. money investments. In times of crisis default risks take on additional significance; we manage them with particular care as part of our business policy. Financial instruments used for financing are traded with specified risk limits only with counterparties who have very good credit standing and/or are members of a deposit guarantee scheme.

Further financial risks such as currency, interest rate and commodity price risks are reduced by the use of derivative financial instruments. Restrictive principles regarding the choice of counterparties also apply to the use of these financial instruments.

ThyssenKrupp AG has agreements with banks which contain certain conditions in the event that the ratio of net financial debt to total equity (gearing) in the consolidated financial statements exceeds 150% at the closing date (September 30).

At June 30, 2013 ThyssenKrupp AG’s gearing was 185.7% and thus exceeded the gearing limit of 150% by 35.7 percentage points. There is a risk that the gearing limit will also be exceeded at September 30, 2013. Should this be the case, we will begin negotiations with the banks involved to request a waiver of the gearing covenant. A waiver would temporarily release ThyssenKrupp AG from the gearing covenant. The following agreements are covered by the gearing covenant:

  • The Company has entered into an agreement with a banking consortium on a committed credit facility, currently unused, in the amount of €2.5 billion, which expires on July 01, 2014. This agreement can be terminated with immediate effect if the gearing limit is exceeded and this is requested by a group of banks representing more than 50% of the credit facility.
  • ThyssenKrupp AG has entered into an agreement with the European Investment Bank, Luxembourg, for a development loan in the amount of €207 million with a term until May 28, 2014. This agreement can be terminated with immediate effect at the request of the creditor if the gearing limit is exceeded. The outstanding loan would then have to be repaid immediately.
  • The Company has issued a guarantee in respect of a loan of originally around 2 billion Brazilian reals for its subsidiary ThyssenKrupp Companhia Siderúrgica do Atlântico. At June 30, 2013 the loan was still outstanding in the equivalent amount of €630 million and will be repaid continuously until February 2021. If the gearing limit is exceeded, BNDES – the Brazilian development bank – can demand that the Company’s guarantee be replaced by a bank guarantee.

At June 30 2013, the Group had available liquidity of €7.2 billion, comprising €3.7 billion in cash and cash equivalents and €3.5 billion in undrawn credit facilities. Even if the gearing ratio is exceeded at September 30, 2013, the available liquidity offers sufficient scope to cover debt maturities in the unlikely event that gearing-dependent instruments should be terminated. Gross financial liabilities repayable up to the end of the next fiscal year 2013/2014 amount to €2.1 billion.

In addition to the economic uncertainties, our European steel operations are faced with a difficult market and competitive environment, in particular as a result of significantly lower consumption, high raw material and energy prices, CO2 allowance trading, and Russia’s accession to the WTO. The “Best in Class – reloaded” integrated optimization program helps counter the volume and price risks and makes a major contribution towards achieving the earnings, cash flow, value added and competitive profile required of all Group businesses under the strategic development program.

ThyssenKrupp’s position as a diversified industrial group with leading global engineering competencies and its good, longstanding relationships with existing customers reduce sales risks from dependency on individual markets and sectors. We complement this with the active strategic development of customers and markets, in particular in the fast-growing emerging economies.

With regard to the sale process for the Steel Americas business area (discontinued operation) we remain focused on signing a deal promptly. Until the disposal of Steel Americas is completed, the Group continues to take into account risks in particular on the sales and procurement markets, from exchange rate fluctuations, and in connection with the ramp-up and operation of facilities and production stages.

Following the disposal of Stainless Global, ThyssenKrupp remains exposed to risks from its 29.9% shareholding in Outokumpu and the vendor loans granted in the transaction. In addition to the usual stainless steel market risks and fluctuating raw material prices, these are mainly risks associated with the existing overcapacities in Europe as well as import and price pressure from Asia.

Political events, especially in the world’s crisis regions, can result in country-specific risks for individual business activities. We monitor and assess current developments continuously so that if required we can respond quickly to any deterioration in conditions.

New laws and other changes in the legal framework at national or international level could entail risks for our business activities if they lead to higher costs or other disadvantages for ThyssenKrupp compared with our competitors. For example, the exploding costs of the surcharge payable under Germany’s Renewable Energy Act are already placing a significant burden on German production sites which is jeopardizing our international competitiveness. We support the discussion process on further regulation efforts through close working contacts with the relevant institutions and thus reduce the corresponding risks.

Acting on an anonymous tip-off, the German Cartel Office is investigating ThyssenKrupp Steel Europe AG and other companies based on an initial suspicion of price fixing for specific steel supplies to the German automotive industry and its suppliers in a period dating back to 1998. ThyssenKrupp launched its own investigation into the allegations with the support of external lawyers. The amnesty program carried out by the Group from April 15 to June 15, 2013 produced no new findings in connection with the current investigations. Our internal investigation and the investigations by the Federal Cartel Office are still ongoing. Significant risks for the Group’s asset, financial and earnings situation cannot be ruled out at present.

Beyond this, the detailed information contained in the risk report on pages 100-112 of our 2011/2012 Annual Report is still valid. We report on pending lawsuits, claims for damages and other risks
in Note 06