Letter to stockholders
Your ThyssenKrupp stock performed very well in fiscal 2003/2004: the share price rose 36%, clearly outstripping the DAX index by almost 17 percentage points. Earnings per share improved to €1.81 from €1.09 a year earlier, allowing us to propose a €0.10 higher dividend of €0.60 to the Annual General Meeting in January 2005.
What lies behind these figures? They show two things: firstly, that the Group performed solidly in the past fiscal year, and secondly that the capital market is recognizing this performance. To give you a clearer picture of our work, I will concentrate on three key questions: How did ThyssenKrupp perform? What progress have we made in implementing our corporate strategy and what are our plans for the new fiscal year? What are the priority issues for staff and management? I will concentrate here on the key points; further details can be found elsewhere in this annual report.
I would like to start by stating – with a certain degree of pride – that the Group's employees once again gave their best in 2003/2004 and set themselves high standards. We took advantage of the upswing in many of the countries and sectors important to the Group to expand our business. However, we did not simply rely on the economy for help but continued to drive forward our internal performance and efficiency enhancement programs.
How did ThyssenKrupp perform? Orders in the Group rose 17% to €41.0 billion in 2003/2004, and sales were up by an encouraging 11% to €39.3 billion. Earnings before taxes reached €1.58 billion, compared with €774 million a year earlier. These figures relate to the Group's continuing operations and therefore do not include contributions from operations we have already sold – such as Triaton or Krupp Edelstahlprofile.
We achieved a further significant improvement in the quality of our earnings in the reporting period which allowed us to meet our medium-term profit goal earlier than expected. We also showed that our target of €1.5 billion EBT was a realistic reflection of our earnings potential – something else we take pride in. The Group's net financial payables were further reduced and stood at €2.8 billion on September 30, 2004 compared with €4.2 billion at the end of the prior fiscal year.
Of course there were also obstacles to be overcome. Although the boom on the international steel market ensured full order books and high workloads at ThyssenKrupp Steel, we were also faced with sharp increases in procurement prices for ores, coal, coke, alloys, energy and freights. Higher steel prices were thus essential to absorb the significant cost rises. However, these were only possible in some areas, as we have longer-term supply agreements with many major customers. So it is wrong to believe that the steel industry is the great beneficiary of the steel boom and can raise its prices virtually at will.
The continuing strength of the euro against other major currencies also had an impact on our business, as 46% of ThyssenKrupp's sales are generated outside the euro zone. For example, the 11% increase in the Group's sales would have been 3 percentage points higher had exchange rates remained constant. On the other hand, the stronger euro helped cushion the effects of increasing raw material prices to a certain extent.
What progress have we made in implementing our corporate strategy? As part of our strategy, we are focusing the Group's activities within our three main areas of business Steel, Capital Goods and Services. The aim of our ongoing portfolio optimization efforts is to achieve a continuous and sustainable increase in the earning power and value of your Company.
In May 2003 we launched the "Divest 33+" program to dispose of more than 30 non-strategic interests. This will allow us to concentrate on our core businesses and create more scope for strategic acquisitions in these areas. In 2003/2004 we acquired companies with sales of €0.6 billion and disposed of others with sales of €1.5 billion. We have made good overall progress with our divestment program: more than 20 entities with total sales of €2.2 billion have already been sold. Since the merger in 1999, we have acquired companies with sales of €5.6 billion and disposed of businesses with sales of €4.8 billion. Major transactions in the reporting period included the acquisition of the Korean elevator group Dongyang and the disposal of the IT service provider Triaton.
Combining the former Materials and Serv segments to form the new Services segment is also yielding results. In its first year, the new segment returned significantly improved profits and provides a platform from which we can pool and expand our expertise in materials and industrial services.
A further element of our corporate strategy is the ThyssenKrupp best improvement and efficiency enhancement program. In 2003/2004 ThyssenKrupp best once again set a brisk pace: the number of projects topped the 3,000 mark, generating greater value-enhancement effects and further improving the transfer of knowledge within the Group. The newly launched sales initiative focuses our work even more closely on the needs of our customers.
What are our strategic plans? We intend to stick to our strategy and will take advantage of the economic upswing to speed its implementation. Through organic growth, strategic acquisitions and an even stronger service focus, the aim is to boost ThyssenKrupp's sales in the medium term to €40 – 46 billion. We are also sticking to our target of €1.5 billion for pre-tax earnings as a measure of our strength in a strong economic environment.
The five segments of the Group are implementing their strategic plans step by step:
ThyssenKrupp already played a key role in the restructuring of the German and European steel industries in the 1990s. There has been further consolidation since then, but with new suppliers coming onto the market the process must go on. ThyssenKrupp Steel will continue to play an active part in this process. Carbon Steel will expand its market position and Stainless Steel will further strengthen its market leadership; both aim to remain international leaders in their fields. To do this we aim to extend our edge in product and process innovation, improve our performance, achieve further organic growth and also enter into strategic partnerships where expedient. For example, we are expanding our presence in China and examining the possibility of building a steel mill in Brazil.
The Automotive segment is already a technology leader. Most of its products hold top positions. Through organic growth and targeted acquisitions we intend to build on the strong market positions of the Body, Chassis and Powertrain business units, primarily in the growth regions of Asia and Eastern Europe. Growth will be based on strict profitability criteria to avoid dependency on individual customers or models.
Elevator, the world's third largest elevator manufacturer, is using acquisitions and organic growth to systematically improve its international position. The segment is working hard to extend its service capabilities and thus grow its high-margin service business. The new organizational structure introduced in October 2004 will help improve the efficiency of its marketing efforts and internal control systems.
The Marine business unit of the Technologies segment has entered into a German shipyards alliance with Howaldtswerke-Deutsche Werft; ThyssenKrupp Marine Systems will start operations shortly. The restructuring and efficiency enhancement programs introduced in other areas of the segment are continuing with a view to concentrating on high-tech products delivering high customer value.
Services, a leading international supplier of materials and industrial services, is concentrating on its core strengths of Materials Services, Industrial Services and Special Products. The segment's goals are to enhance efficiency, intensify cooperation with other segments and further expand its presence in Eastern Europe and North America.
What was of particular importance for management and staff in 2003/2004? For a technology-oriented company like ThyssenKrupp, innovation is vital. Our ability to innovate ultimately determines the success and future of the Company. That's why we have created a climate in the Group that encourages unconventional thinking and new ideas.
As a clear signal of this intent, both the Company and I personally are involved in actions aimed at raising public acceptance and enthusiasm for technology. One example of this was our Ideas Park, staged in Gelsenkirchen in early September 2004. The focus was on explaining and understanding innovations and on discussions with the people behind them. The event was a resounding success, attracting more than 60,000 visitors including German President Horst Köhler and the Prime Minister of North Rhine-Westphalia Peer Steinbrück as well as numerous customers, employees, partners, interested ThyssenKrupp neighbors and stockholders.
ThyssenKrupp takes this dialogue seriously, and we intend to continue it in the future. We regard this as part of our overall responsibility – to our customers for innovative solutions, to our employees for viable jobs, and to the community, whose prosperity depends to a large extent on the economy.
Our primary responsibility is of course to you, our stockholders. You have invested your capital in ThyssenKrupp and are entitled to an appropriate return. But we want more: We want you to be proud of your Company and to believe in its future. That is what we work toward every day.
Sincerely yours,
Prof. Dr.-Ing. Dr. h.c. Ekkehard D. Schulz
Chairman of the Executive Board
Düsseldorf, November 2004
