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5. Central financing of the ThyssenKrupp Group

The financing of the ThyssenKrupp Group is centrally managed and therefore, the parent company, ThyssenKrupp AG, assumes the obligation to maintain the liquidity of the Group companies. This is achieved via the availability of funds within Group financing, by negotiating and warranting loans or by the granting of financial support in the form of letters of comfort.

In order to cover financial requirements of the Group companies, ThyssenKrupp AG and its financing companies use selectively local credit and capital markets.

Central financing is the basis for implementing cost-effective capital procurement alternatives. This financing method permits a uniform and - with respect to higher volumes - a more significant presence in financial and capital markets. The negotiating position with credit institutions and other market participants is thus strengthened. Moreover, the Group has the alternative to operate in international capital markets with its own foreign financing companies.

The intercompany cash management system is conducive to reducing external financing and optimizing financial and capital investments of the ThyssenKrupp Group, which results in less interest expense. The cash management system, which controls intercompany financial and capital investments, takes advantage of the surplus funds of individual Group companies to cover internal financial requirements of other Group companies. Due to intercompany payments via intercompany financial accounts maintained by ThyssenKrupp AG, volumes on bank accounts are substantially reduced.

Maintainance of Liquidity

Apart from the financial planning with a planning horizon of several years ThyssenKrupp has implemented a liquidity planning on a rolling monthly basis with a planning period of five months. Both planning systems comprise all consolidated Group companies.

Financial and liquidity planning in connection with available committed credit facilities assure that ThyssenKrupp always has a sufficient liquidity reserve.

In addition to bilateral bank loans and syndicated credit facilities, financing is accomplished through money market and equity market instruments. In order to maintain a presence in international financial and capital markets now and in the future, the Group continues to examine potential financing alternatives and will enter the market when favorable market conditions exist for the ThyssenKrupp Group.

Rating

Issuer ratings are necessary in order to utilize larger financing volumes through international capital markets. In 2001, ThyssenKrupp received an issuer rating from two rating agencies, Moody's and Standard & Poor's and in May 2003 from Fitch. In fiscal year 2003/2004, the Group's ratings remained unchanged. The issuer ratings and their development are pictured as follows:

			Long-term rating		Short-term rating		Outlook
Standard & Poor's
until 02/20/2003			BBB		A-2		stable
from 02/21/2003			BB+		B		stable
Moody's
until 07/30/2003			Baa1		Prime-2		negative
from 07/31/2003			Baa3		Prime-3		stable
Fitch
from 05/16/2003			BBB-		F3		stable

The downgrade of the ThyssenKrupp Investment-Grade rating to a Non-Investment-Grade status by Standard & Poor's in February 2003 was due to a change in methodology with regard to pension obligations. Different from the previous methodology, Standard & Poor's now considers pension obligations as financial payables when calculating the balance sheet ratios. Regarding this methodology, ThyssenKrupp has asked academic experts to provide their opinion.

The rating downgrade had only temporary effects on the capital markets. Measured by risk spread ThyssenKrupp bonds are clearly better evaluated than a year before. ThyssenKrupp is still working on a further reduction of its net financial payables in order to achieve the Investment Grade status from Standard & Poor's again. We are still holding on to our gearing target of 60%.

Interest rate risk management as a central task

Due to the international focus of the Group's business activities, the procurement of funds of the ThyssenKrupp Group in international financial and capital markets is effected in different currencies - predominantly in Euro and U.S. dollar - and with various maturities. The resulting liabilities are partially exposed to risks from changing interest rates. The goal of the Group's interest rate management is to minimize the risk from changing interest rates resulting from such liabilities. For this purpose, regular interest rate risk analyses are prepared in currencies that are significant to the Group's business activities. These analyses include scenario analyses and crash testing to more clearly identify the risk profile of a credit portfolio exposed to risks from changing interest rates. The regular information on the results of the interest rate risk analyses is a part of the Group's risk management system.

Foreign currency management of the ThyssenKrupp Group

The international orientation of the Group's business activities entails numerous cash flows in different currencies - in particular in U.S. dollar. Therefore, hedging of exchange rate risks is an essential part of our risk management.

Group-wide regulations form the basis for the centrally organized foreign currency management of the ThyssenKrupp Group. Principally, all companies of the ThyssenKrupp Group are obliged to hedge foreign currency positions at the time of their inception. All euro zone subsidiaries are obliged to submit unhedged foreign currency positions from trade activities to the central clearing office. The positions submitted are summarized first by currency and then according to maturity; the resulting overall position is globally hedged on a daily basis by the execution of opposing positions at banks. Moreover, the central clearing office hedges derivatives of the Group's domestic subsidiaries that meet the requirements for hedge accounting according to SFAS 133 on a micro hedge level.

The hedging of financial transactions and the transactions undertaken by the Group's foreign subsidiaries are performed in close cooperation with central Group management. The general coordination requirement with central Group management, the definition of hedging budgets, the regular review of exchange rate hedging transactions executed by means of Group-wide surveys as well as a regular examination performed by the central internal auditing team ensure that currency risk management is in compliance with the Group's requirements.