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Dynamic world economy

The global upswing gathered strength in 2004, although raw materials and energy became more expensive. Particularly in the first half of the year world economic growth increased strongly. According to current estimates, world GDP increased by 4.7% and world trade by 9.0% in 2004.

The improvement in the world economy was driven by the dynamic performance of North America and Asia. The high growth in the USA was due mainly to business spending, while private consumption grew at a more moderate rate partly as a result of slightly higher interest rates. The Japanese economy expanded more strongly than expected, profiting above all from high demand from the USA and Asia. The Asian emerging markets continued their expansion in 2004. The Chinese economy continues to grow at a high rate despite a now tighter economic policy.

Latin America overcame several years of stagnation and returned to the growth track in 2004, favored by currency depreciations and high exports. The countries of Central and Eastern Europe also showed above-average increases in economic output in 2004.

The euro zone is lagging behind the rest of the world economy. Although exports increased in the wake of the global economic recovery, there was a lack of impetus from domestic demand. According to initial estimates the economy of the euro zone grew by 2% in 2004. Similar growth is also forecast for Germany, where stagnating private consumption and slow business spending dampened the economy. The only bright point in 2004 were exports, which again rose strongly despite the appreciation of the euro.

Gross domestic product 2004*

  

Real change compared to previous year in %

Different trends on individual sales markets

In the sectors of importance to ThyssenKrupp – the graphic below shows an analysis of Group sales by major customer groups – the market situation was very mixed.

The international steel market experienced a major boom. According to initial estimates, world crude steel production grew by 8% to pass the billion ton mark for the first time in 2004. China, which increased its share of world steel production to 25%, played a major role in this with production growth of over 21%. Other countries also increased their output by a total of around 4%. China's expanding steel and starting material requirements led to supply bottlenecks worldwide and large price increases for raw materials, freight rates and steel products.

Scarce supplies and high order backlogs also dominated the picture on the Western European steel market. After declining in the previous year, steel consumption increased again in 2004. Crude steel production in the EU (15) rose by 5% to 169 million metric tons despite temporary bottlenecks in raw material supplies; nevertheless the volumes on offer were not enough in all cases to meet customers' rising requirements. The German steel industry, operating at high levels of capacity utilization, increased its output by just under 4% to around 46.5 million tons.

The carbon flat steel market in Western Europe was characterized by demand overhangs, even though shipments by European manufacturers increased significantly. Imports from non-EU countries were down from the previous year owing to higher steel prices and robust demand in other regions – above all in the first half of 2004 – and were therefore unable to close the supply gap. Starting from the fourth quarter 2003 steel prices were raised in stages at the beginning of each quarter. The price hikes were necessary to pass on drastic increases on the cost side, which were partially cushioned by the appreciation of the euro. Nevertheless, price levels in Europe remained much lower than on the North American flat steel market where extremely lively demand met with inadequate supply. In Asia, markets and prices weakened slightly beginning in the spring; this increased the regional price differences and resulted in steel trade flows being diverted first to the USA and, from mid-2004, increasingly also to Western Europe.

The stainless steel market also profited from the recovery of the world economy. According to estimates, production of stainless steel reached a record level of more than 24 million metric tons in 2004. The global market for cold rolled flat products also increased by 6% to a new record level of 13.1 million tons. In Western Europe, demand improved significantly at the beginning of the year, enabling an increase in base prices in the middle of the fiscal year. Starting May 2004, the massive price increases for unalloyed scrap were passed on to customers via a scrap surcharge. Despite weaker orders in the summer months and increasing imports from non-EU countries, the market remained largely robust due to steady demand from major end users. On the North American market, demand for stainless steel increased significantly. This, together with a number of consolidations on the supply side, allowed several base price increases to be made. In Asia and particularly China the market was much more difficult. Although demand grew at an above-average rate, destocking of excess inventories by producers and distributors had a dampening effect from spring 2004. Together with new cold-rolled capacities coming on stream, this resulted in pressure on the already lower prices on the Chinese market. The lack of alloy surcharges as a price component made the situation worse. Traditional stainless imports to China decreased significantly.

Sales by customer group 2003/2004

  

in %

The international auto market showed slight growth. According to current estimates, more than 63 million vehicles were produced in 2004, 4% more than in 2003. However, there were considerable regional differences between the traditional and new production centers.

After declining in 2003, auto production in the NAFTA region increased by 1.7% to 16.5 million vehicles in 2004. Lower passenger car volumes were more than offset by increased production of light trucks such as minivans and sport utility vehicles as well as heavy trucks. The auto market in South America also improved. According to estimates, vehicle production in the Mercosur countries increased by 10% to just under 2.2 million units in 2004.

There was also significant growth in Asia and in Central and Eastern Europe. While Japanese production was only slightly higher than a year earlier at 10.5 million vehicles, other Asian manufacturers expanded their output by 14% to 12 million vehicles. China built 5.2 million units in 2004, 14% more than a year earlier. The countries of Central and Eastern Europe including Russia also increased their volumes by over 15% to almost 3.2 million cars and trucks.

In Western Europe, auto production was slightly higher than in 2003 at an estimated 16.8 million vehicles. Manufacturers in Germany increased their output to just under 5.6 million units, but only thanks to higher exports; new registrations on the domestic market declined.

The improvement in the world economy also had a positive impact on the capital goods industry. German machinery manufacturers recorded high orders both from the domestic market and particularly from abroad, leading to a 5% increase in production in 2004. Engineering output also increased in the USA and other major countries. Machine tool production showed particularly high growth rates. Strong domestic demand resulted in a 10% increase in US production in 2004. German machine tool output expanded by 5%.

Construction activity in Germany remained weak. The depressed order situation resulted in another slight fall in construction output in 2004. In the USA, by contrast, construction activity increased despite high vacancy rates. The construction industry in many Central and Eastern European countries as well as in Asia remained favorable.

Strong rise in business for ThyssenKrupp

ThyssenKrupp in figures
All figures relate to continuing operations. * before taxes and minority interest
			2002/2003		2003/2004
Order intake	million €		35,105		41,017
Sales	million €		35,327		39,342
EBITDA	million €		2,455		3,258
Income*	million €		774		1,580
Employees (Sept. 30)			184,157		184,358

Sales by segment million €
			2002/2003		2003/2004
Steel			11,664		13,700
Automotive			6,295		7,312
Elevator			3,365		3,568
Technologies			5,382		5,092
Services			10,603		11,887
Real Estate			345		337
Corporate			26		28
Segment sales			37,680		41,924
Inter-segment sales			(2,353)		(2,582)
Sales of continuing operations			35,327		39,342

			2002/2003		2003/2004
Steel			352		426
Services			647		409
Segment sales			999		835
Inter-segment sales			(189)		(121)
Sales of discontinued operations			810		714

ThyssenKrupp performed successfully in fiscal 2003/2004. Key indicators improved significantly as shown by the tables above. Order intake and sales expanded considerably despite continuing negative exchange rate effects.

A number of significant operations were divested in fiscal 2003/2004 as part of the ongoing portfolio streamlining program. To allow comparability between the periods, the following statements regarding order intake, sales, earnings and employees apply only to continuing operations unless otherwise stated.

Order intake from continuing operations increased by 17% to €41.0 billion in 2003/2004. The Steel, Automotive and Technologies segments in particular recorded high growth rates. Excluding the effects of the rise in the euro against the US dollar, the Group's order intake would have increased by 20%. New orders at the discontinued operations reached €751 million in the reporting period.

Sales from continuing operations increased by 11% to €39.3 billion. The main growth was in the Steel, Automotive and Services segments. If the euro-US dollar exchange rate had remained unchanged, Group sales would have been 14% higher. The discontinued operations achieved sales of €714 million in 2003/2004.

The main sales regions besides the German market were the rest of the EU and the NAFTA region; the graphic below shows an overview. Sales to customers outside Germany reached €25.8 billion in the reporting the year, or 65% of total Group sales. One of the fastest-growing sales regions was China. Sales to customers in China reached over €1.1 billion in 2003/2004.

Sales by region 2003/2004

  

in %

Steel: Very good sales performance

Sales million €
All figures relate to continuing operations.
			2002/2003		2003/2004
Carbon Steel			7,161		8,301
Stainless Steel			3,957		4,990
Special Materials			1,150		962
Total			12,268		14,253
Consolidation			(604)		(553)
Steel			11,664		13,700

The Steel segment profited from extremely high demand growth on the world steel market in 2003/2004. Order intake increased by 24% to €14.3 billion. Sales rose by 17% to €13.7 billion. In both cases this was due to higher volumes and – to a lesser extent – improved revenues. The increased steel prices only showed up in average revenues with a time lag as we have longer-term agreements with most of our important customer groups. The discontinued operations achieved order intake of €509 million and sales of €426 million.

Crude steel production at ThyssenKrupp Steel was 17.2 million metric tons, 3% higher than a year earlier; both Carbon Steel and Stainless Steel increased their output. Although the core facilities were working at their capacity limits, over large periods this was not enough to fill customer requirements. To meet the high demand, we reduced our inventories of work in process and finished goods and purchased slabs from other steel companies.

The Carbon Steel business unit increased its sales by 16% to €8.3 billion. The rise was partly due to the inclusion of the non-grain-oriented electrical steel business and companies from the Services segment. Apart from that, the increase in sales at ThyssenKrupp Stahl was mainly due to higher volumes and also to higher revenues, the latter mainly in the second half of the reporting period. We were able to significantly increase prices in several steps for spot and quarterly deals. Given the high proportion of longer-term agreements, average revenues in the full fiscal year were ultimately around 6% higher than a year earlier. Shipments increased both inside and particularly outside Germany. Sales of our hot-dip coated products were again very positive. Sales of tinplate, medium-wide strip and tailored blanks were also encouraging, as was the performance of our European steel service centers. The only decrease in sales was at ThyssenKrupp Steel North America due to exchange rate factors and a shortage of starting materials.

Stainless Steel increased its sales by 26% to €5.0 billion. Although European production of stainless flat products was seriously disrupted by strikes in the second fiscal quarter, sales volumes were distinctly higher than a year earlier. Revenues were boosted by the huge rises in raw material prices. These caused increased costs, above all for nickel, chromium, molybdenum and scrap, which were passed on to the market with a time lag via the alloy surcharge and, from March in the NAFTA region and from May in Europe, an additional scrap surcharge. In addition, the high demand enabled us to push through base price increases on the European market. The favorable market environment in North America, which also permitted base price rises, mainly benefited our Mexican subsidiary ThyssenKrupp Mexinox. After declining sharply in previous years, demand for nickel-base alloys improved slightly, leading to an increase in sales.

The Special Materials business unit achieved sales of €1.0 billion, 16% down from a year earlier. The decline at the continuing operations was mainly structural: in the reporting year the non-grain-oriented electrical steel business was integrated into the Carbon Steel business unit and the remaining grain-oriented business suffered declining sales for market reasons. Sales of the tool steel specialist Edelstahl Witten-Krefeld increased significantly in a favorable market environment. In addition, foreign distribution companies from the Services segment were allocated to the business unit.

Automotive: Growth in systems business

Sales million €
			2002/2003		2003/2004
Chassis			2,764		3,049
Body			1,685		1,889
Powertrain			1,877		2,412
Total			6,326		7,350
Consolidation			(31)		(38)
Automotive			6,295		7,312

The international auto market improved slightly in the reporting period. Automotive increased its sales by 16% to €7.3 billion. This was mainly due to significant growth in the systems business, higher volumes at the North American foundries, the inclusion of new companies and the establishment of two joint ventures in China. The improvement in international demand for truck crankshafts and the growing proportion of diesels in the vehicle market also contributed to the increase in business volume. These positive factors outweighed the negative influences – declining sales volumes at the stamping plants and at Plastics in North America, disposals of operations and negative exchange rate effects. If the euro-US dollar exchange rate had remained unchanged, sales would have increased by 22% against the previous year.

In the Chassis business unit, sales were significantly higher than a year earlier. The main positive factor here was growth in the systems business. A new assembly plant for complete front and rear axles started operation in Leipzig and further new plants began production in Mexico and the USA. In addition, there was both volume and price growth at the North American foundries. Sales also benefited from the start of production of a new van model, components for which are supplied by six Automotive companies. Further contributory factors were higher leaf and coil spring volumes and expanded aftermarket business at ThyssenKrupp Bilstein. By contrast, the North American stamping plants reported lower sales for exchange-rate reasons.

The Body business unit also recorded a pleasing rise in sales in fiscal 2003/2004, part of which was due to the first full-year contribution of ThyssenKrupp Sofedit. Increased demand from Japanese transplants in the USA also had a positive impact. Sales of the European companies increased mainly due to strong demand in the truck sector and numerous new orders from German and Japanese car manufacturers. The North American stamping plants, on the other hand, reported lower orders in some cases. In addition, the discontinuation of prototype business at Milford, declining tooling sales and reduced demand for plastic products led to lower sales in the USA.

The largest increase in sales in the Automotive segment in fiscal 2003/2004 was reported by the Powertrain business unit, which included ThyssenKrupp Presta SteerTec as from December 01, 2003. The increase was due partly to the trend towards diesel vehicles and partly to business in crankshafts. Alongside continuing high demand for passenger car crankshafts, demand for truck crankshafts improved significantly both in Europe and the NAFTA region. Other positive factors were a strong improvement in Brazilian export products, the start of production of steering systems for a new model platform, increased demand for camshafts, and various new program launches and ramp-ups for example in the transmission and axle components and aluminum castings businesses.

Elevator: Market position in Asia strengthened

Sales million €
			2002/2003		2003/2004
Germany/Austria/Switzerland			603		613
France/Benelux			394		416
Spain/Portugal/Latin America			529		550
North America/Australia			1,438		1,295
Other Countries			361		641
Passenger Boarding Bridges			77		82
Accessibility			108		119
Total			3,510		3,716
Consolidation			(145)		(148)
Elevator			3,365		3,568

In the Elevator segment, demand for new installations remained weak and new orders were subject to strong price competition. In the service and modernization businesses, on the other hand, we continued our growth course. Significant factors in this were intensified marketing efforts and acquisitions on the Triad markets. The largest new acquisition was ThyssenKrupp Dongyang Elevator in Korea which significantly strengthens our market position in Asia. Despite substantial negative exchange-rate effects, the segment's order intake and sales were higher than a year earlier. Order intake increased by 12% to €3.8 billion, while sales rose by 6% to €3.6 billion. If the euro had remained unchanged against the US dollar, order intake and sales would have been 16% and 10% higher than a year earlier.

The Germany/Austria/Switzerland business unit achieved growth in both order intake and sales. The Austrian and Swiss companies in particular significantly increased their volume of business. In Germany, we solidified our market position despite stiff price competition.

In the France/Benelux business unit, order intake and sales showed pleasing growth. Although the French service and sales network was impacted by the ongoing restructuring process, business in France was positive, as it was in the Netherlands. In particular exports of new installations were increased.

Orders received by the Spain/Portugal/Latin America business unit were significantly up from the already high prior-year level. The largest increases were achieved in Latin America. Sales also performed positively. Both order intake and sales benefited from the receipt/billing of major orders and infrastructure projects.

Due to the negative exchange-rate trend order intake and sales decreased in the North America/Australia business unit. In the North American market, vacancy rates for office and commercial buildings and residential buildings continued to rise, resulting in considerably weaker new installation business. This was only partially offset by the positive trend in the modernization and service areas.

In the Other Countries business unit, order intake and sales increased despite negative exchange-rate effects. The acquisition of ThyssenKrupp Dongyang enabled Elevator to increase its business in Asia significantly, boosted by the continuingly positive Chinese market. Business in Eastern Europe also progressed well. By contrast, there was a slight fall in sales on the Northern European markets. In the next four years we will supply and install a total of 658 elevators, escalators and moving walks worth US$100 million for the expansion of Dubai Airport.

Order intake and sales of the Passenger Boarding Bridges business unit improved significantly in the reporting period. This was mainly due to two factors: firstly the part-billing of major orders and secondly the winning of a second major contract for Dubai Airport. We will be supplying a total of 123 passenger boarding bridges for the airport expansion, including 25 capable of servicing the A380 superjumbo.

In the Accessibility business unit, order intake and sales were very encouraging. The growth was made possible by significant efforts to increase market penetration and by the widening of our sales territories.

Technologies: Strong order situation

Sales million €
			2002/2003		2003/2004
Production Systems			1,250		1,154
Plant Technology			1,452		1,673
Marine			884		773
Mechanical Engineering			1,711		1,363
Transrapid			65		82
Total			5,362		5,045
Consolidation			20		47
Technologies			5,382		5,092

The market environment for Technologies in the reporting period was significantly better than a year earlier. Demand for mechanical engineering products, particularly machine tools, improved significantly in 2004 both in the USA and in Western Europe. Construction equipment experienced growth in the USA, Europe and Asia, and the trend in specialized and large-scale plant engineering was also largely encouraging. Against this background, Technologies increased its order intake by 16% to €5.8 billion despite a number of disposals. Sales declined by 5% to €5.1 billion. Excluding the disposals, order intake increased by 29% and sales by 4%.

The order intake of the Production Systems business unit was unchanged from the previous year. MetalCutting recorded a pleasing increase, due not only to improved demand for machine tools but also to the market success of innovative new products. Orders at Autobody Manufacturing Systems, on the other hand, were down from the previous year, while Assembly Plant reported a slight improvement. Overall, sales of Production Systems declined.

Order intake at Plant Technology was significantly up from the already high prior-year level. Chemical and cement plant business played a major role in this. Uhde won a third contract for a fertilizer complex in Egypt, and Polysius landed a major contract for a cement factory in Saudi Arabia. The order backlog of Plant Technology increased by more than €0.8 billion to €2.8 billion. In line with the very good order situation the business unit achieved a large increase in sales.

At Marine several new contracts for container ships resulted in another rise in order intake. At the end of the reporting period the shipyards had an order backlog of €1.7 billion, level with the previous year. In July 2004, work began on production of the first Corvette 130 for the German Navy. At Blohm + Voss, the implementation of the restructuring program proceeded swiftly. Nordseewerke has a good workload. Marine suffered a fall in sales mainly due to project deferrals at Blohm + Voss.

Mechanical Engineering reported a decline in order intake and sales, but only because of the disposals of Novoferm, Polymer and Henschel. Excluding the disposals, the business situation improved significantly in almost all areas.

The Transrapid business unit reported a reduced order intake. Sales were higher than a year earlier due to the billing of the Shanghai contract.

Services: Successful start

Sales million €
All figures relate to continuing operations.
			2002/2003		2003/2004
Materials Services Europe			4,682		5,258
Materials Services North America			1,411		1,499
Industrial Services			1,312		1,280
Special Products			3,149		3,885
Construction Services			131		0
Total			10,685		11,922
Consolidation			(82)		(35)
Services			10,603		11,887

In the reporting period, the newly formed Services segment achieved sales of €11.9 billion. This 12% improvement resulted mainly from the exceptionally high level of demand on the international raw and processed material markets. Sales of €409 million were generated by discontinued operations.

Sales at the Materials Services Europe business unit increased significantly thanks to higher prices for rolled and stainless steel. Our stockholding companies in Central and Eastern Europe, in particular Poland and Hungary but also the Czech Republic, performed extremely well and recorded substantial growth compared with the prior year. Activities in Poland were augmented by a new central warehouse; we also established a company in Russia. Our service activities in several Western European countries were restructured and refocused with positive results. Our warehousing and service business advanced beyond classic processing to include warehouse, material and supply chain management for customers.

Despite the appreciation of the euro against the US dollar and the transfer of companies to the Steel segment, the Materials Services North America business unit recorded higher sales than a year earlier. The US material market recovered, particularly in the second half of the fiscal year. Demand for nonferrous metals grew, while the lifting of Section 201 tariffs and the raising of prices to world market level improved import opportunities for carbon steel. Our supply chain management services were further improved and new customers acquired.

Sales at the Industrial Services business unit declined slightly. Compared with the prior year, our international activities returned a satisfactory performance as the economic environment in our global target markets remained stable. Business was particularly positive in the US market. In Germany, demand for the classic industrial services of plant maintenance and cleaning fell as several customers have relocated their production capacities abroad. German customers were slow to award service orders due to the sluggish economy. The picture was more positive for services to the booming steel industry and for new insulation activities. Overall, however, maintenance and modernization spending was restrained.

The Special Products business unit achieved further significant sales growth. The technical units offering system solutions operated at full capacity. The joint venture with Salzgitter in the area of contractors' plant allowed us to make great progress on the foreign markets. Our steel trading activities profited from the strong demand from China. The raw materials units performed very encouragingly thanks to rising prices. Our business with metals, in particular nickel, continued at a very high level.

Real Estate

Sales at Real Estate were down 2% to €337 million. The Residential Real Estate business unit, which manages some 48,000 housing units belonging to the Group and third parties, recorded a slight drop in sales. Sales of Real Estate Management, which focuses on optimizing the Group's commercial properties, declined; the Development and Consulting activities were discontinued at the end of the reporting year.

Core business expanded through systematic portfolio management

As in previous years, ThyssenKrupp once again pursued its strategy of active portfolio management in the reporting period with numerous acquisitions and disposals.

• The Steel segment made a number of acquisitions and disposals with a view to focusing more closely on its core business. The Carbon Steel business unit withdrew from the Brazilian joint venture GalvaSud and will now concentrate its downstream activities for the international automotive industry on the growth market China. Stainless Steel acquired the remaining 30% interest in the stainless steel service center C.i.pro.s and is now the sole proprietor of this company. This has significantly strengthened our sales and distribution organization in Italy, Europe's second-largest stainless steel market. Berkenhoff, no longer a core business, was sold at September 30, 2004, and Krupp Edelstahlprofile was divested effective October 01, 2004. Several further marginal activities were also sold.
• In December 2003, the Automotive segment acquired a 60% interest in Mercedes-Benz Lenkungen GmbH. Together with the new company, now trading as ThyssenKrupp Presta SteerTec, ThyssenKrupp Automotive is now in a position to offer complete steering systems for cars and trucks. The acquisition of a stake in Bertrandt AG, one of Europe's leading engineering service providers, will strengthen the international market position of both companies. With the Chinese automotive market growing rapidly, ThyssenKrupp Automotive intensified its cooperation with Asian partners. We established two joint ventures – ThyssenKrupp Presta Fawer (Changchun) to produce steering systems and ThyssenKrupp Zhong-Ren Chassis for body and chassis parts – and expanded our sales offices in Tokyo and Hiroshima. ThyssenKrupp Automotive is thus responding to the wishes of the auto manufacturers for their top suppliers to have a global presence. ThyssenKrupp Automotive disposed of several marginal activities in fiscal 2003/2004.
• Several acquisitions in the Elevator segment allowed us to once again strengthen our position on the international markets. The acquisition of a majority interest in the Dongyang group gave us control of one of the market leaders in Korea, which is Asia's third biggest market for elevators and escalators. Further acquisitions in Southeast Asia, Australia and New Zealand enabled us to also boost our local presence on these important growth markets. Acquisitions in the established markets of Europe and North America were aimed at strengthening our position in particular in the service and stair lift businesses.
• In the Technologies segment, Uhde made targeted strategic acquisitions to expand its technology portfolio in the areas of polyester/polyamide production plant and pharmaceuticals/life sciences. As part of our active portfolio management strategy, we completed the sale of the Novoferm group at the start of the fiscal year and disposed of the Measuring Machines operating group as a further step in the restructuring of our MetalCutting business. The signing of the contracts to form a German shipyards alliance in early October 2004 represented a milestone for the future development of the segment. ThyssenKrupp Werften and Howaldtswerke-Deutsche Werft (HDW) are to be combined in a new group under the management of ThyssenKrupp Marine Systems AG.
• In conjunction with a local partner, Services established a company in Russia which will broaden the base for the segment's materials warehousing and service business in Eastern Europe. The segment also acquired an interest in a Chinese coking plant, an investment which delivers three advantages: a long-term supply source, a substantial fixed annual tonnage of coke, and cost-free export licenses. The sale of the Information Services unit was an important step in streamlining the activities of the newly combined Services segment; the IT service provider Triaton was acquired by Hewlett-Packard. Effective October 01, 2004, ThyssenKrupp HiServ's facility management activities were sold to Wisag and Bilfinger Berger. We also disposed of a number of smaller marginal activities.

In fiscal 2003/2004, ThyssenKrupp acquired activities with total sales of €0.6 billion and disposed of activities with sales of €1.5 billion. Since the merger of Thyssen and Krupp in 1999, companies with sales of €4.8 billion have been sold and businesses with sales of €5.6 billion have been acquired. Under our portfolio optimization strategy, we plan to carry out further disposals of non-strategic investments as well as selective strategic acquisitions.

Workforce slightly increased

Employees by segment
			Sept. 30, 2003		Sept. 30, 2004
Steel			47,199		46,630
Automotive			41,414		43,491
Elevator			29,689		31,658
Technologies			29,871		27,803
Services			34,629		33,469
Real Estate			638		575
Corporate			717		732
Employees of continuing operations			184,157		184,358

 

			Sept. 30, 2003		Sept. 30, 2004
Steel			2,087		1,359
Services			3,858		1,319
Employees of discontinued operations			5,945		2,678

Our workforce increased slightly in fiscal 2003/2004. On September 30, 2004, ThyssenKrupp had 184,358 employees worldwide, 201 or 0.1% more than a year earlier. There were a further 2,678 working at discontinued operations at the end of the reporting period.

In Germany, the number of employees at continuing operations decreased 2,530 to 91,331. There was a 2,731 increase in employees outside Germany to 93,027. The proportion of employees working at foreign subsidiaries thus rose to just over 50%. Apart from Germany, the largest workforces are in the USA, France, Brazil, Italy, the United Kingdom and Spain.

Personnel expense increased 1% to €9.2 billion in the reporting year.

ThyssenKrupp employees by region

  

Sept. 30, 2004 in %

Higher raw material prices

The sharp growth in demand for steel products and raw materials in the People's Republic of China resulted in higher purchase prices for numerous raw materials, steel, steel products and castings. But despite shortages on the primary material markets, our supplies were secured. Prices for other goods were kept stable or even lowered as a result of intensive purchasing efforts and the use of e-procurement. Purchasing volumes were pooled Groupwide, and greater use was made of foreign procurement markets. Materials expense in 2003/2004 amounted to €23.2 billion, 16% more than the year before.

Alongside higher production output, another reason for the increase in our materials expense were the price rises on the international raw material markets, cushioned only to a certain extent by the weakness of the US dollar against the euro. Calculated on a dollar basis, FOB prices for ore rose by around 20% and for coking coal by 20 – 40%. Coke prices almost trebled in comparison with the prior fiscal year. However, the impact on ThyssenKrupp was limited as only just over 10% of our requirements were bought on the spot market.

Nickel prices fluctuated sharply. Following highs in January 2004, the price initially fell before climbing again to US$15,000 per ton toward the end of the reporting period, though remaining highly volatile. Chromium prices rose steadily and significantly, while strong demand pushed molybdenum prices to record levels.

Prices for alloyed scrap mirrored those of the respective primary materials in the reporting period and on average were 44% higher than the year before. The price of unalloyed scrap rose 48%, reaching an all-time high in August 2004.

Our international trading activities in long and flat steel products were also faced with higher procurement prices as a result of developments on the raw material markets. It was a different picture for operating materials, capital goods and in particular services, as well as for purchased electrical, pneumatic and hydraulic parts insofar as they were relatively independent of metal prices. Individual price rises in some areas were compensated by lower prices in others, with the result that material costs remained largely unchanged.

Prices for purchased production parts also stabilized. With the exception of parts with a high steel content, we managed to agree slightly lower prices with our suppliers. Concentrating procurement more in areas where the Group produces and sells its products was a major contributing factor in this. In the future we plan to purchase more from low-cost countries, e.g. in Eastern Europe.

In the logistics area, the conclusion of Groupwide agreements with local and global suppliers and the continued development of the freight exchange in the Steel segment enabled us to significantly lower our freight costs. Intensive regional coordination delivered further savings for overland transportation in the USA. By contrast, capacity shortages in ocean shipping led to a worldwide increase in freight rates.

Increasing use is being made of the Group's e-procurement platform. The Catalog Ordering module allows online catalog orders to be made directly from the workplace. Over 190 suppliers with more than 1.6 million items are now integrated in the catalog. In the reporting year, the platform was extended to include a tool for requests for quotes and auctions. All these systems are networked with the relevant local subsystems. We now have modern web-based purchasing solutions which automate business processes and reduce material costs. This allows us to intensify competition among our suppliers and open up new procurement sources, primarily in low-cost countries. Electronic purchasing in the Group is supported by user groups, best practices and benchmark projects.

Fleet management in Germany was successfully centralized in the reporting year, leading to savings from lower process costs as well as pooling and standardization effects. The centralization of travel management in Germany generated further savings, with reductions in process costs and even in travel costs themselves. This was made possible by the introduction of a standard travel policy based on an online booking facility and a uniform credit card system.

In the energy area, electricity prices in Germany once again increased significantly from the year before. This impacted the new electricity purchase agreements we had to conclude, although a ThyssenKrupp best project helped limit the price increase. The subsidization of renewable energies and combined heat and power plants as well as the ecology tax have pushed up German electricity prices to among Europe's highest. The amended Renewable Energies Act will add to the already heavy burden on electricity-intensive consumers. The special rules for energy-intensive companies are of limited assistance and apply only to a few major electricity consumers in the Group. On top of this, the high electricity prices also had a knock-on effect on our procurement costs for electricity-intensive products such as industrial gases.

As the amendment to the German Energy Industry Law was delayed, the regulatory authority has yet to start work, which means that the expected impetus for lower electricity and gas transmission fees failed to materialize. Gas prices themselves rose in the wake of higher oil prices, and the competitive situation on the gas market remained unsatisfactory.

Continuous advancements in pollution control

ThyssenKrupp is committed to the principle of sustainability. We regard economy, ecology and social responsibility as important factors, although economic success is the key prerequisite for progress in the other two areas. ThyssenKrupp's products, processes and services for innovative and environment-friendly technologies make a major contribution to sustainable development. We are also a member of econsense, the sustainability forum set up by German industry.

In fiscal 2003/2004 we spent €377 million on operating pollution control equipment at our companies in Germany and abroad. €65 million was invested in environmental protection equipment. At 47%, the greater part of the running costs for environmental protection was spent on water pollution control. Clean air activities accounted for 33% and recycling/waste disposal a further 17%. The remainder was spent on noise reduction and landscape protection.

Plans by the German Ministry of the Environment to implement the EU emissions trading directive in the reporting year would have placed a major burden on the German steel industry and jeopardized its sustainable development. After intensive negotiations with the Economics and Labor as well as the Environment ministries, a compromise was agreed which excludes process-related gases from the emissions trading system. However, the system will still have a significant impact on German steel production, albeit one that can be compensated. In the first stage of emissions trading from 2005 to 2007, ThyssenKrupp will be granted almost adequate CO₂ emission rights – subject to the decision of the German emissions trading office. However, the differences in emissions trading mechanisms in the other EU states will result in a further distortion of competition. It is also still unclear as to how the allocation of emission rights will be regulated in the second trading period from 2008 to 2012.

ThyssenKrupp's main contribution to sustainable development lies in new engineering methods and products that minimize environmental impact and improve recyclability. An excellent example is the NSB^® NewSteelBody, an in-house development which is 24% lighter than the production benchmark model while offering equivalent safety at only slightly higher production costs. Calculated over the lifetime of a car, the lower body weight alone would reduce fuel consumption by 450 liters. Another development that reduces fuel consumption is the Presta DeltaValveControl with internal exhaust gas recirculation which enhances the efficiency of diesel engines while reducing exhaust emissions.

Production processes at ThyssenKrupp are also subject to continuous improvement in the interests of sustainable development. The start-up in summer 2004 of a new recycling process at our Duisburg site represented a further important step on the way to the zero waste concept in which all waste materials are fed back into the value chain. In this innovative process, iron- and carbon-bearing dusts and sludges – such as those resulting from waste gas cleaning – are first pressed into solid bricks and then melted in the blast furnace with coke and fluxes. Applied here for the first time worldwide, this new technology allows waste materials to be converted into typical steel mill products – hot metal, slag and blast furnace gas. This method further closes the material loop and avoids the expense of external recycling or landfilling of the iron-bearing dusts and sludges.

The measurements required as part of the approval process for the new Schwelgern coking plant at the Duisburg site of our Steel segment were carried out to schedule. Independent experts confirmed that the plant gives off neither the typical smells associated with coke production nor any major noise emissions. The dust emissions from the coke quenching towers were also measured using a method specially developed for the new coking plant in collaboration with the state environment office. This confirmed that dust emissions were lower than 10 grams per ton of coke, as planned by the process developers. The new quenching process is thus just as environmentally friendly as the dry coke cooling process.

As part of an EU-funded research project, the Marine business unit of Technologies has developed a water treatment system which, as a world first, also removes copper and tin compounds from the antifouling coatings of docked ships from waste water. The system uses ion exchangers and a UV radiation unit. The wastewater is created when the paint on ships' hulls is cleaned or removed using high-pressure water jets. The new system generates 98% less waste than the previously used sand-blasting method; the heavy metal load entering the water has fallen by 90%.

When it comes to sustainable development, environmental efforts frequently go hand in hand with a commitment to the community. ThyssenKrupp is replacing the conventional roofing at several schools in the city of Duisburg with 5,500 square meters of solar paneling from its own production. Thanks to their innovative thin film cell technology, these panels yield 20% more energy than conventional solar modules.

45 development centers for our customers

Innovation is essential to the success of our technology-intensive products and services. That's why we spent €191 million on basic research and development projects in the past fiscal year, 1% more than a year earlier. A further €457 million was spent on customer-related development work, including technical quality assurance, again 1% more than in fiscal 2002/2003. This adds up to €648 million spent on innovations as against €629 million the year before. ThyssenKrupp once again carried out some 2,000 research and development projects.

The roughly 3,000 scientists, technicians and engineers involved in R&D work in the Group are specialists in the fields of materials, production, process, electronics and information technology and maintain close contacts with international universities and public research institutions as well as with the development departments of our customers. ThyssenKrupp operates a total of 45 development centers in Europe, Asia and the USA.

More details on the major innovations of the past fiscal year can be found in the "Research and development" section.

The importance of innovations, both for ThyssenKrupp and for Germany as a technology location, was underlined by our Ideas Park: staged in Gelsenkirchen, this three-day event on a 17,500 square meter site offered more than 60,000 visitors the opportunity to experience technology at first hand. A central element in the "Year of Technology" organized by the German Ministry of Education and Research, the event demonstrated the need for a positive attitude to technology and the opportunities it offers. For more on the Ideas Park, please turn to the "Commitment" section.

Capital expenditures at €1.7 billion

In the reporting period, ThyssenKrupp made investments totaling €1.7 billion, 8% more than the previous year. €1.4 billion was spent on property, plant and equipment and intangible assets, while the remaining €0.3 billion was used for acquisitions. Capital expenditure was €0.2 billion higher than depreciation (€1.5 billion).

Investment by segment million €
			2002/2003		2003/2004
Steel			678		729
Automotive			319		439
Elevator			132		214
Technologies			133		159
Services			337		147
Real Estate			45		151
Corporate			29		27
Consolidation			(69)		(132)
Group			1,604		1,734
Intangible assets			96		106
Property, plant and equipment			1,186		1,325
Financial assets			322		303

Capital expenditure in the Steel segment amounted to €729 million in the reporting period, with depreciation at €788 million. A key project at Carbon Steel was the further modernization of the steel production base in Duisburg. The investments in the hot end agreed with the Environment Ministry of North Rhine-Westphalia to reduce dust pollution in the north of Duisburg were virtually completed. In summer 2004 we started production of a new shaft furnace to recycle iron-bearing steel mill wastes. A new walking beam furnace is being installed at the hot strip line in Duisburg-Beeckerwerth to meet the high quality requirements of our automotive customers. Major investments were made in Rasselstein's tinplate production facilities. The construction of a continuous annealing line and further coating equipment in the next few years will make the Andernach plant the world's biggest tinplate production site. In response to the strong demand for tailored blanks, capacity was increased under phase two of the expansion project at the Duisburg-Hüttenheim plant.

Stainless Steel put a new 20-high cold rolling mill into production in Krefeld to match capacity to rising demand. Investments at ThyssenKrupp Acciai Speciali Terni rounded off a technical concept for the thin slab caster and cold strip line. ThyssenKrupp Mexinox invested in improvements to the productivity and quality of its annealing and pickling lines and expanded its finishing capacities. The expansion of Shanghai Krupp Stainless in China is proceeding to plan. A second cold rolling mill was installed in the reporting period and is now in the start-up phase, to be followed by testing of the new annealing and pickling line and the cold strip mill. Cold strip capacity will subsequently be ramped up to 290,000 t/year.

In the Automotive segment, capital expenditure totaled €439 million and depreciation €319 million. Once again, most of the investments and associated capacity increases were order-related. A project center, where all Automotive companies involved in a project can work closely with the respective customer, was established in Bochum to handle numerous new development orders. The Chassis business unit built an assembly plant for subframes and side members in Hermosillo, Mexico. Numerous new orders in North America and Europe necessitated the modernization and expansion of stamping and welding lines. At Mandern in the German state of Rhineland-Palatinate, preparations got underway for the production of a further air suspension system.

Capital spending at the North American and European plants of the Body business unit was concentrated on expanding stamping, welding and assembly lines. Thyssen­Krupp Drauz is further strengthening its position as a specialist producer of body assemblies through to complete vehicle bodies. The companies of the Powertrain business unit also invested mainly in the expansion and modernization of their production and processing capacities. Upon completion of a further expansion phase, the Ilsenburg site will be the world's biggest camshaft manufacturer. Capacities for the production of steering systems also had to be extended. ThyssenKrupp Fahrzeugguss installed a counter pressure casting line which will allow it to move into a new market segment. This innovative casting process makes it possible for the first time to use aluminum alloys for safety-relevant components.

The Elevator segment invested €214 million, while depreciation amounted to €51 million. The main focus was on financial investments, the most important being the acquisition of what is now ThyssenKrupp Dongyang Elevator in South Korea. This enabled us to significantly strengthen our position in the promising Asian market. Further investments related to the acquisition of attractive maintenance contracts and equity interests. The objective was to steadily expand our service business and strengthen our market presence.

In the Technologies segment, capital expenditure totaled €159 million and depreciation €125 million. The emphasis was once again on modernizing and rationalizing production operations. Berco, for example, modernized forging presses used to produce track chain links and combined them into an automated line. Investments were also made to expand the product range. To step up its activities on the Chinese market for large-diameter bearings, Rothe Erde expanded the production capacities of its local joint venture. Uhde acquired the Swiss engineering company Inventa-Fischer to expand its technology portfolio. The company builds plants for the production of polymers and synthetic fibers.

Investments in the Services segment amounted to €147 million with depreciation at €144 million. The focus was on property, plant and equipment aimed at maintaining operational readiness and expanding and modernizing the warehousing and service business. There were three main financial investment projects: in Russia we established a materials warehousing joint venture, in China Services acquired a stake in a new coking plant, and in Germany the segment acquired a company specializing in heat, cold, noise and fire insulation.