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Course of business in 2004/2005The economic environment continued to provide mainly positive impetus for the performance of ThyssenKrupp in fiscal year 2004/2005. Although overall growth rates weakened slightly, they remained generally at a high level. Demand for ThyssenKrupp products and services increased pleasingly. Order intake improved by 9% to €42.5 billion and sales by 13% to €42.1 billion. World economy again strong in 2005The world economy remained on growth track in 2005, although the economic momentum weakened towards mid-year, mainly as a result of substantial rises in energy and raw material prices. The drastic oil price increase dampened economic activity in the oil-importing industrialized countries. According to current estimates, world GDP increased by 4.0% in 2005, compared with 5.1% a year earlier; world trade grew by 6.5%, compared with 8.0% in 2004. North America and Asia again provided the greatest growth impetus in 2005. In the USA, the dynamic growth of the economy was mainly due to high domestic demand. Private consumption and capital spending expanded strongly. The high growth rates in Asia were again driven by China. According to estimates, the Chinese economy grew by more than 9% in 2005. The other Southeast Asian emerging nations also showed above-average growth rates. In Japan, the moderate upswing continued thanks to improving domestic demand. Latin America's robust economic growth continued, but without reaching the high rates of the previous year. In Brazil, increasing exports contributed to a stabilizing of the economy. Continuing high growth characterized the economic situation in Central and Eastern Europe in 2005, with Russia in particular profiting from rising energy and raw material prices. By contrast, the economic recovery in Western Europe was very subdued. According to estimates, gross domestic product in the euro zone increased by only 1.3% in 2005, with very heterogeneous growth patterns in the individual countries. Economic growth remained below average in Germany, where weak private consumption in particular dampened economic activity. On the other hand, higher capital spending and an increase in exports despite the, at times, stronger euro had a positive impact. Gross domestic product 2005* Real change compared to previous year in %
Positive trend on ThyssenKrupp's sales marketsIn the sectors of importance to ThyssenKrupp – the graphic below shows an analysis of Group sales by customer group – the market situation was generally pleasing. On the international steel market, the high rate of expansion observed last year continued in individual regions in 2005. Unchecked production growth – mainly in China but also in India – pushed world crude steel output up by 7% to more than 1.1 billion metric tons in 2005, according to initial estimates. In the NAFTA region and Western Europe, on the other hand, production was cut back from spring 2005 in response to falling demand. In the EU 25, full-year steel production in 2005 was 5% lower than a year earlier at 183 million tons. The German steel mills also recorded lower output at just under 45 million tons. After operating at their capacity limit in the first months of the year, they finally cut back production in May 2005 and then increasingly in the summer months. However, the situation on the international steel markets over large parts of the year was also characterized by demand weakness, mainly due to inventory cycle factors, and initially still high supply. The previous year's strong demand pull from China and North America and the associated price increases had led to significant speculative inventory building in many regions. This resulted in a marked decrease in steel demand in most markets from the beginning of 2005. In parallel with this, competitive pressure increased, especially in the USA and Western Europe, due to higher imports. As a result, steel prices decreased across a broad front. The Western European market for carbon steel flat products was also characterized from the beginning of 2005 by weak demand coupled with high inventories at steel users and distributors, shortening delivery times and shrinking order books at suppliers. Initially still high shipments by Western European producers, combined with large increases in third-country imports in all product segments, resulted in a significant supply surplus in all product segments. As a result, prices came under pressure from the 2nd quarter 2005. Inventory adjustments by customers continued until the end of the fiscal year, by which time the market was largely back in balance, supported by reduced shipments. In addition, imports began to decrease again from the early summer as Western European steel was available more quickly and at lower prices. World production of stainless steel in 2005 was level with the prior year at 24.7 million metric tons. Demand for cold rolled flat products improved by only 0.3% to 13.3 million metric tons. The decline in Europe and North America was more than offset by the positive trend in Asia. Above all in China, demand rose strongly after moderate growth in the previous year. However, as the year progressed a massive expansion in national capacities added to the supply overhang in the country, resulting in significant price falls from the 2nd quarter 2005. In the North American market, the continued consolidation on the producer side resulted in further capacity closures. Despite this, base prices decreased slightly as a result of higher imports, with demand subdued. In Western Europe, the market for stainless cold rolled flat products was weak throughout the reporting period. High inventories at customers and uncertainty over raw material prices depressed demand. In addition, continuing high third-country imports and new capacities pushing onto the market increased the imbalance between supply and demand. As a result, base prices came under increasing pressure from the 2nd quarter 2005. Most producers reacted by making in some cases massive production cutbacks. A pleasing development was the significant recovery in demand for nickel-base materials, which allowed marked price improvements to be made. Sales by customer group 2004/2005 in %
The situation on the global auto market was positive on the whole. According to initial estimates, more than 66 million passenger cars and trucks were produced around the world in 2005 – an increase of roughly 2% or 1 million vehicles compared with 2004. The trends in the individual regions were again very mixed. While production in Western Europe was down 2% from 2004 at an estimated 17.3 million vehicles, in Germany the positive trend continued. According to initial estimates, Germany produced around 5.7 million passenger cars and trucks in 2005, roughly 2% more than in 2004. The truck sector was particularly expansive. In Central and Eastern Europe, vehicle production grew by more than 10%. Growth in the NAFTA region was slightly down from the previous year. While production of passenger cars increased slightly, the boom in light trucks such as minivans and sport utility vehicles came to a halt. Increased fuel prices depressed demand and therefore production. Production of heavy trucks picked up significantly. Despite offering ever higher incentives, big American manufacturers lost further market share to Asian manufacturers. In South America, the automobile market showed continued growth, with vehicle production increasing by 5% to 2.5 million units. The strongest growth impetus again came from Asia. While production in Japan stagnated, volumes in China increased by 10% to 5.7 million vehicles. Altogether, around 24 million passenger cars and trucks were produced in Asia in 2005, 4% more than in 2004. The continuing growth of the world economy stimulated further demand for machinery and equipment. Thanks to strong domestic demand, the USA and China enjoyed above-average growth. Equipment manufacturers in Japan and Germany showed lower growth rates. German manufacturers reported slipping domestic orders but higher levels of foreign business, with the raw material boom boosting demand from areas such as Russia, Australia and South America. The construction sector showed a slight improvement generally. Construction activity in Asia and Central and Eastern Europe was particularly favorable. The USA and most Western European countries also recorded growth. By contrast, the German construction sector remained difficult, but the order situation improved slightly from mid-year. Strong increase in ThyssenKrupp sales
ThyssenKrupp continued to perform well in the reporting year 2004/2005. With help from the economy, but mainly thanks to our own efforts to enhance performance, we further improved our key indicators, as shown in the tables above. We successfully continued the portfolio streamlining process. A number of significant activities were sold – Edelstahl Witten-Krefeld, aluminum castings, the European truck spring business, the turbine components operation, the machine tools business MetalCutting and the residential real estate activity. More information on the discontinued operations is contained in "Discontinued operations and disposal groups". To allow comparability between the periods, the following statements regarding order intake, sales, earnings and employees apply only to continuing operations unless otherwise stated. Sales by region 2004/2005 in %
Demand for our products and services increased strongly in 2004/2005. Order intake from continuing operations reached €42.5 billion, 9% more than a year earlier. However, exchange rates continued to impact results. Excluding the appreciation of the euro against the US dollar, the Group's order intake would have increased in total by 10%. The discontinued operations achieved new orders worth €1,488 million. Sales from continuing operations increased by 13% to €42.1 billion. All segments contributed to this rise. Excluding exchange rate effects, sales would have been 14% higher. Sales from discontinued operations reached €1,449 million. The main sales regions, as illustrated by the graphic above, were the countries of the EU, especially Germany, and the NAFTA region. Two thirds of our sales – 67% or €28.2 billion – were to customers outside the German market. Steel: Outstanding performance
The Steel segment performed outstandingly in a much more difficult market environment. Large parts of fiscal 2004/2005 were marked by weaker demand due to the inventory cycle. Nevertheless, the value of new orders increased by 5% to €14.4 billion. Order volumes were significantly lower but they were offset by higher average prices. The price increases for steel products were made necessary by further extreme cost increases for raw material purchases. Sales increased by 12% to €14.8 billion. Here again, lower volumes were offset by higher prices. Crude steel production was almost unchanged from the prior year at 16.5 million metric tons. At the beginning of the fiscal year the core production units were running at full capacity but from the middle of the period ThyssenKrupp Stahl had to cut production by around 800,000 tons as a result of lower demand and high inventories of finished products. The cutback mainly affected the cold rolling mills and coating lines. In the 4th quarter 2004/2005 Stainless Steel reacted to the weaker market in Europe by cutting production by 120,000 tons. Overall, the Steel segment's rolled steel production for customers decreased by 5% from the prior year. The Carbon Steel business unit increased its sales by 11% to €9.3 billion. With volumes lower, the increase was due to significantly higher steel prices. At ThyssenKrupp Stahl, sales increased by 11% purely for price reasons. Price improvements were possible up to mid-2005 but from the 4th fiscal quarter the weakness of the market resulted in price corrections for quarterly deals. Nevertheless average prices for the full year were 23% higher than a year earlier, thanks particularly to the price rises achieved in contract business. Sales volumes at ThyssenKrupp Stahl were 8% down from the prior year. The decline affected virtually all our regional markets. Almost without exception the other companies in the business unit repeated their very positive performance of the prior year. Sales of tinplate and medium-wide strip increased substantially for price reasons. In the tailored blanks area, orders from the auto industry were down from the prior year but sales were unchanged. The European steel service centers and the ThyssenKrupp Steel North America processing center performed positively. The Stainless Steel business unit increased its sales to €5.6 billion. The 12% rise was due firstly to higher base prices in the first half of the fiscal year and secondly to higher alloy and scrap surcharges due to cost increases for raw materials. To a large extent, the increased costs above all of nickel, chromium and scrap were passed on to the market with a time lag. Shipments were 11% down from the prior year due to weaker demand. The production cutbacks carried out to adjust supply to demand and the strike at ThyssenKrupp Acciai Speciali Terni at the beginning of the year had a particular impact on shipments of cold rolled strip, which decreased by 10%. The nickel-base alloy business continued its positive performance of the prior year. The strong rise in sales at ThyssenKrupp VDM was due to both price and volume factors. The Special Materials business unit disposed of the stainless steel long products operation in the reporting period, leaving only the grain-oriented electrical steel activities. ThyssenKrupp Electrical Steel recorded a sales increase of 28% to €387 million. The market was characterized by high growth rates throughout the reporting period, which allowed us to improve prices significantly. Automotive: Position strengthened
In a generally positive global market environment the Automotive segment further strengthened its position as an international partner and full-service supplier to the auto industry with rising production figures. This was reflected in a significant rise in business. Order intake increased by 9% to €7.9 billion, and sales by 5% to €7.6 billion. The sales growth was mainly due to significantly increased systems business, higher volumes, and price-related growth at the North American foundries. Other positive factors were the further increase in the use of diesel engines in passenger cars, continuing very high international demand for truck crankshafts, and various new model and plant launches and ramp-ups. Negative factors were the exchange rate effect and above all the decrease in sales volumes at the North American stamping plants. The Body & Chassis (North America) business unit expanded its sales by 4% in the reporting period thanks to volume and price growth at the North American foundries of ThyssenKrupp Waupaca. ThyssenKrupp Budd Systems also recorded a significant increase in systems business with the start of production of a rear axle module for a US sport utility vehicle. Orders from Japanese transplants at ThyssenKrupp Fabco and ThyssenKrupp Budd Plastics additionally boosted sales. Business at the Hopkinsville stamping plant increased significantly, while other stamping plants were impacted by a collapse in demand for various vehicle models. Shipments under various framework contracts were also lower at the Kitchener plant. The Body & Chassis (Europe/Asia Pacific/Latin America) business unit's sales were essentially unchanged from the prior year. New contracts and increased shipments to German auto manufacturers had a pleasing impact, as did new product launches. Price effects from the passing-on of material price increases also had a positive effect. Offsetting factors were the ending of production and lower demand for various vehicle models. The companies in the UK were particularly impacted by this, with the insolvency of MG Rover causing a substantial decrease in volumes. Sales of the Powertrain (Global) business unit expanded by 14% in 2004/2005, mainly reflecting the start-up of the new production site for steering products in Terre Haute, USA, and steering system contracts in France. The ramp-up of camshaft production for French and German auto manufacturers also stimulated sales. Demand for truck crankshafts remained at a high level worldwide in fiscal 2004/2005. As a result of the increasing popularity of diesel engines, demand for car crankshafts was also very encouraging. Not least, the passing-on of steel price increases had a positive impact on sales. In Brazil, there was a further expansion of business and an increase in domestic sales volumes thanks to an export drive by auto manufacturers. Changes to the scope of consolidation had a net positive sales effect. ThyssenKrupp Presta SteerTec was included for twelve months for the first time in the reporting period. Technologies on growth track
Market conditions for the Technologies segment were generally pleasing. World demand for specialized and large-scale engineering increased. There was positive impetus in the shipbuilding sector. The market for mechanical engineering products also improved further. Negative factors were high raw material costs and the weak US dollar. Nevertheless, Technologies was able to expand its business significantly and increase order intake by 16% to €5.5 billion. Sales improved by 39% to €5.7 billion. Orders in hand at the end of the reporting period totaled €9.3 billion, 58% more than a year earlier. The Plant Technology business unit won numerous large orders in the reporting period, particularly for cement plants and mining/handling equipment. The business unit profited in particular from high foreign demand, not least from customers in the Middle East. The chemical plant business was impacted by order deferrals. Order intake generally was at the high level of the prior year. The excellent project situation for cement and mining/handling equipment resulted in a strong rise in sales. The fertilizer and chemical plant business also performed very well. Marine Systems almost doubled its order intake, reflecting the inclusion of HDW for the first time and the receipt of several shipbuilding orders. In merchant shipbuilding Marine Systems continued to benefit from strong demand for high-quality mid-size container ships. Also gaining in importance is the construction of mega yachts featuring innovative technology and luxury specification levels. Orders in hand at the end of the reporting period totaled €5.3 billion. Sales of Marine Systems more than doubled due to the inclusion of HDW and billings for the German and South African navies. Order intake at Mechanical Engineering improved significantly from the prior year. Components and systems for construction equipment and the general engineering sector recorded high order growth. Business in large-diameter bearings for wind turbines remained at a high level. Thanks to the high order intake sales increased substantially. Transrapid received an order from the German Federal Government in August 2005 to develop and adapt the Transrapid vehicle to the requirements of the Munich airport link. Sales were down from the prior year, when the Shanghai contract was billed. Elevator: Successful in a difficult market environment
The Elevator segment was successful in a difficult market environment. The new installations business in particular had to contend with greatly increased price and margin pressure, made worse by the worldwide rise in starting material prices. Increasing price competition likewise impacted the service and modernization business, which also had to contend with continuing adverse exchange rates. Despite this, order intake increased by 10% to €4.2 billion, and sales by 6% to €3.8 billion. This performance was based not only on our strong international presence but also on increasing successes in cross-selling our various products and services. The Central/Eastern/Northern Europe business unit improved slightly on its high prior-year results for both order intake and sales. The volume of business was maintained or expanded in all markets despite significantly higher price pressure, especially in the new installations business. One highlight was the successful market launch of the "Spirit", a machine-room-less elevator for the low- to medium-rise residential building segment. The service activities also performed pleasingly. Despite negative exchange rate effects the Americas business unit recorded significantly higher orders and sales in fiscal 2004/2005 compared with the prior year. In addition to a continuing positive performance in the service area there was also a sustained improvement in the new installations business. This resulted in pleasing growth both in the USA and in Latin America. The Southern Europe/Africa/Middle East business unit also turned in a very pleasing performance with its activities on the Spanish and Portuguese markets as well as in the Middle East. Order intake increased considerably, mainly due to the second major order for Dubai Airport. Other infrastructure projects such as the Barcelona Metro also made a contribution. The inclusion of the Spanish company Ascensores Silves Hidrolex and the Italian company Marco Bonfedi Ascensori Scale Mobile had a positive impact. Order intake and sales of the Asia/Pacific business unit increased. The Chinese market in particular was marked by vigorous growth, resulting in higher demand for new installations and a further expansion in service business. Business also improved in the rest of the Southeast Asian region. The only slight decline was in South Korea, due to weak construction activity. In the Escalators/Passenger Boarding Bridges business unit, order intake was down from the very high prior-year level. Large orders were received for escalators, moving walks and passenger boarding bridges for Barcelona and Cairo Airports. Sales also increased through utilization of cross-selling potential. The Accessibility business unit expanded its activities. Order intake and sales both increased. In addition to the positive impact of the acquisitions of smaller activities on the US market, the European companies made a very pleasing contribution to the success of the business unit. Services: Performance programs working
Sales of the Services segment totaled €12.5 billion in the reporting period, up 11% from the prior year. The improvement was due to continuing high prices for most industrial and raw materials and above all to the segment's own efforts to expand business. All business units contributed to this pleasing performance. Despite a slight decline in volumes, the Materials Services Europe business unit increased its sales substantially thanks to higher prices and an optimized product range. Sales of flat steel, higher-value grades and stainless steel increased particularly. Business in nonferrous metals was steady, while sales of plastics were up from the prior year. Sales also performed positively throughout Europe outside Germany. The business expansion in Eastern Europe was continued – both in traditionally strong markets such as Poland, Hungary and the Czech Republic, and with new activities in Russia, Ukraine and Bulgaria. The largest foreign market was again France, where sales increased significantly. In the rest of Western Europe, too, the business unit improved on its high sales of the prior year. Despite negative exchange rate effects, the Materials Services North America business unit also improved significantly from the prior year. The positive price trend in the first half of the year, stronger volumes and a broad-based sales initiative were major factors in this. The business unit's diversified product and service range was able to cushion the effects of fluctuating activity levels in individual market segments. Whereas prices and margins fell sharply for carbon steel products in the second fiscal half, prices for other products – particularly aluminum, copper and tool steel – remained at a high level. In the services sector the business unit won several new customers for supply chain management contracts. The Industrial Services business unit improved its sales from the prior year. The foreign markets in the USA, Scandinavia, the Middle East and Asia performed positively. In Germany, demand for individual services remained low due to slow maintenance orders from industrial customers. However, this was offset by the continuing outsourcing trend. In particular orders from the chemical/petrochemical, automotive and steel sectors contributed to the sales increase. The rail equipment business strengthened its leading market position, thanks largely to investment by Deutsche Bahn in repairing and expanding its rail network. Sales of the Special Products business unit were above the already very high prior-year level. Rolled steel sales increased thanks to dynamic price growth. Thanks to high order backlogs the international tube trading business repeated its strong performance of the prior year. The contractors' plant business expanded its market position worldwide. Business in Chinese blast furnace and foundry coke and in coal was lively. Trade in industrial minerals and industrial gases was also positive. In the alloys business a start was made on securing long-term and exclusive supply sources through minority shareholdings. CorporateCorporate includes the Group's head office and internal service providers as well as inactive companies not assignable to individual segments. Non-operating real estate is also managed centrally by Corporate. Sales at Corporate were €119 million, compared with €121 million in the prior year. Continued success with active portfolio managementWith numerous acquisitions and disposals ThyssenKrupp further optimized its portfolio in the reporting period and systematically continued its active portfolio management of recent years.
In fiscal 2004/2005 ThyssenKrupp acquired activities with total sales of €1.5 billion and disposed of activities with sales of €2.3 billion. Since the merger of Thyssen and Krupp, companies with sales of €7.0 billion have been sold and businesses with sales of €7.1 billion have been acquired. Under our portfolio management strategy we will continue to carry out selective strategic acquisitions and dispose of non-strategic investments in the future. Workforce higher
The number of employees increased in fiscal 2004/2005. On September 30, 2005, ThyssenKrupp had 183,729 employees worldwide, 9,673 more than a year earlier. The almost 6% increase is mainly due to the inclusion of the HDW companies in Germany, Greece and Sweden in the Technologies segment. In the Elevator segment the number of employees increased as a result of the expansion in business. 5,016 people were employed at the discontinued operations at the end of the fiscal year. In Germany, the number of employees increased by 1,518 to 86,104, and outside Germany by 8,155 to 97,625. At the end of September 2005, 47% of the workforce was employed in Germany, 14% in the USA, 6% in France and 5% in Brazil. Personnel expense from continuing operations increased by 4% to €9.0 billion in the reporting year. ThyssenKrupp employees by region in % (Sept. 30, 2005)
Raw material prices higherInternational raw material prices increased further in 2004/2005 due to high demand in China. We also had to pay higher prices for bought-in steel products. For other products and services, however, we succeeded largely in avoiding higher prices by pooling purchasing volumes and by international procurement management. Materials expense in 2004/2005 totaled €26.1 billion, up 17% from the prior year. As well as increased raw material prices, this increase reflects the Group's higher volume of business in the reporting year. There were no supply bottlenecks. We were able to purchase all the goods and services required by ThyssenKrupp in the required quantities and quality. Prices on the international raw material markets increased in some cases drastically last year. For nickel, at times we had to pay more than 17,500 US dollars per ton. Peak prices were charged for chromium in mid-2005. In the case of iron ores, high Chinese demand resulted in price increases of more than 70% on the world market. The price increases for coal, calculated on a US dollar basis, were even higher at 120%. Coke prices, on the other hand, eased slightly thanks to increasing cokemaking capacities. Indeed, towards the end of the reporting year coke prices were at the level they were prior to the 2003 boom. Molybdenum and vanadium prices reached record levels in the first half of 2005 and are only gradually falling. Scrap prices fluctuated considerably in 2004/2005, moving between €127 and more than €270 per ton. As a trend, however, prices for scrap, an important secondary raw material for the steel industry, were higher than in previous years. This was mainly due to reduced availability of scrap for structural reasons and increased exports due to the global raw materials boom. Input prices for steel long and flat products increased due to the higher raw material prices. Flat products increased in price by more than 20% and long products by over 25%. Prices of components with a high steel content, e.g. stamped, bent and turned parts, also went up. By contrast, purchased mechanical and hydraulic components which were not affected by the higher metal prices remained stable or decreased slightly. We were able to reduce purchasing costs of direct and indirect services. The Group project Inhouse Sourcing also resulted in optimizations. The ThyssenKrupp best value enhancement program with purchasing as a new focus has already paid dividends and delivered cost-effective solutions. The Global Sourcing project that commenced in the reporting period has also proven successful. We were able to find low-cost suppliers in Asia and Eastern Europe and make considerable savings in the purchase of electronic components and castings. Our global purchasing efforts are supported by the ThyssenKrupp procurement platform on the internet. A Strategic Sourcing module has now been integrated which allows worldwide requests for quotations and auctions. In its first year of use we advertised purchases worth more than €500 million. Online requests for quotes are currently being used by Group companies in Europe and the USA. Our e-procurement platform is available at https://sourcing.thyssenkrupp.info. Another of our program modules – Catalog Ordering – has also proved successful internationally. More than two million articles from over 230 suppliers can now be purchased online via this platform by all ThyssenKrupp companies. By pooling Group demand we were able to agree improved prices and terms. Groupwide deals with global logistics providers also led to a reduction in freight costs, although these price reductions were eroded in part by rising oil prices and the introduction of truck tolls in Germany. Significant savings were also made possible by the fleet management system in Germany with its electronic carpool system. This system and the associated supplier integration have largely automated the purchasing and administration process for company cars and service vehicles. Electricity prices continued to rise sharply. Suppliers blamed the price increase on higher coal, oil and gas prices. There was no reduction in the charges for using the electricity networks in Germany, which are well above the European average. The extra costs resulting from the subsidization of renewable energies, combined heat and power plants and the electricity tax are still impacting electricity prices in Germany. These have already reached the level they were at before the liberalization of the market in 1999. In particular the costs of subsidizing renewable energies increased further in the reporting period. Unfortunately, the special rules for energy-intensive companies are of benefit to only a few major electricity consumers in the Group. The high prices represent an increasing threat to our energy-intensive plants in Germany. The situation on the gas market is similar. Gas prices have been driven up by the high price of oil and the situation is made worse by a lack of competition. Focus on reducing CO2 emissionsOur responsibility for the environment and sustainable development involves a commitment to reduce air, water and soil pollution, use energy and raw materials efficiently and recycle used products. In the reporting period, we spent €402 million on the operation of pollution control equipment worldwide. In addition, €45 million was invested in environmental protection equipment. As in previous years, the main share of operating costs (41%) was for water protection. Air pollution control accounted for 35% of expense, while recycling, waste disposal, noise control and landscape protection accounted for 24%. As part of the emissions trading system begun at the start of 2005, affected Group companies installed monitoring systems to check and control their CO2 emissions. In addition to optimizing our own equipment, we are also involved in joint projects to minimize greenhouse gas emissions in Germany and abroad. One example is the project ULCOS (Ultra Low CO2 Steelmaking). Under this project, our steel business together with other international steel manufacturers is researching new ways to further reduce greenhouse gas emissions in steelmaking. New concepts are to be developed with the aim of reducing CO2 emissions in ore-based steelmaking by more than 30%. We successfully completed a multiyear package of measures designed to reduce dust emissions from our steelmaking facilities and improve the local environment. The final step was the first large-scale application of a new system to clean the fumes from a sinter belt. Another goal is to further minimize particulate emissions: a new action plan includes 23 short-term measures, and a further 18 particulate reduction projects will follow by fall 2007. One important objective for the auto industry and therefore also for ThyssenKrupp as a supplier is to produce low-emission, fuel-efficient vehicles. Our technology and systems capabilities are making an important contribution to this. For example, structural components made of our high-strength steels in conjunction with other materials are making vehicles lighter and thus more fuel-efficient. Our innovative manufacturing technologies allow component weight to be reduced. Developments such as the continuously variable valve control system Presta DeltaValveControl from ThyssenKrupp Presta further reduce fuel consumption and result in lower exhaust emissions. The goal of energy saving also applies to our innovative elevators. Energy consumption can now also be entered as a control parameter in our electronic destination selection control systems which optimize elevator operation in high-rise buildings and large office buildings by reducing empty trips and waiting times. Trips can be saved and energy consumption reduced by almost 15%. This energy-efficient car dispatch system has already been registered for patent. More information on the destination selection system can be found in "Elevator: Intelligent passenger boarding bridges and elevators". Our newly developed EnviNOx® process eliminates harmful nitrogen oxides from the waste gas of chemical plants. As such emission reductions can be used in the EU emissions trading system and therefore have a market value, the process is particularly cost-efficient. Group company Uhde won an innovation award from the European environmental press for the development of the process. Significant increase in innovative capacityFor ThyssenKrupp as a technology-oriented company, innovations are a key requirement for market success and future viability. In 2004/2005 we spent a total of €733 million, 13% more than the year before, on developing new ideas for products, processes and services and at the same time ensuring the quality of our products. €186 million of this was for basic research and development projects and €266 million for customer-related development projects. Total R&D expense was more than 22% higher than the year before. Expense for technical quality assurance remained unchanged at €281 million. More than 3,300 employees are working on innovation projects in the Group's 87 international development centers and other research areas. These are scientists and engineers specializing in materials, production, process and electrical technology. Mechatronics is becoming an ever more important focus. Our researchers and developers maintain close contacts with universities and public research bodies in Europe, Asia and the USA, and particularly with the Group's partner universities in Aachen, Berlin, Bochum, Dortmund, Dresden and Hamburg-Harburg and with Tongji University in Shanghai. We also have close working contacts with the technical universities of Clausthal-Zellerfeld and Freiberg. Together with external partners from science and research we carried out over 2,000 development projects in the reporting period. One in five projects involved universities and institutes outside Germany. More than 60% of these joint efforts concerned concrete projects, focused on metallurgy, materials and coating technology, analysis, measurement and control technology. The major innovation successes of the reporting period are presented in "Research and development". Capital expenditures up from prior yearIn fiscal 2004/2005, ThyssenKrupp made investments totaling €1.9 billion, 7% more than the previous year. €1,522 million was spent on property, plant and equipment and intangible assets, while the remaining €336 million was used for acquisitions. Capital expenditure was €0.3 billion lower than depreciation (€2.2 billion). Capital expenditure in the Steel segment amounted to €753 million, with depreciation at €807 million. Carbon Steel invested €521 million and Stainless Steel €203 million. In the Carbon Steel business unit, investment was made in optimizing the casthouse and stockhouse dust collection system on blast furnace 1 in Duisburg. Further funds were spent on new hot blast stoves for blast furnace 9. To meet the high quality requirements of customers from the auto industry, a new walking beam furnace began operation at the Duisburg-Beeckerwerth hot strip mill in December 2004. Various modernization projects were carried out on the hot and cold rolling mills at all locations. The investment projects being carried out in tinplate production at Rasselstein, mainly comprising the construction of a continuous annealing furnace and further coating lines, are progressing to schedule. Production started in summer 2005. Hoesch Hohenlimburg significantly increased the capacity of its medium-wide strip mill with the startup of a second slab furnace. In Changchun, China, ThyssenKrupp Tailored Blanks began operation of a new laser welding line in August 2005, further expanding its international presence. At ThyssenKrupp Electrical Steel the emphasis was on expanding annealing capacities at the Gelsenkirchen plant. The main aims of investment spending at Stainless Steel were to moderately adjust capacities to regional market requirements, expand the global distribution network and improve quality, service, productivity and environmental protection. The expansion of processing capacities at EBOR Edelstahl, a subsidiary of ThyssenKrupp Nirosta, the startup of a modern finished-products warehouse in Dillenburg, and the improvements to the service center structure will significantly enhance the range of productspecific services offered by the European stainless companies. To strengthen its stainless activities the Italian company ThyssenKrupp Acciai Speciali Terni ordered a new 20-high Sendzimir cold rolling mill which will increase the share of high-quality cold rolled products in the product mix. The same aim will be served by the construction of a bright annealing line and an expansion of finishing capacities at ThyssenKrupp Mexinox. Shanghai Krupp Stainless completed a further phase of expansion with the startup of two new cold rolling stands and an annealing and pickling line for cold rolled strip. Depending on the product mix, maximum cold rolled capacity is now 250,000-290,000 tons per year. The next phase of expansion comprising a hot rolled annealing and pickling line began on schedule. An important step in strengthening the distribution network was the construction of a stainless distribution centre in Guangzhou, completed at the end of fiscal 2004/2005; it has direct access to the high-consumption regions in Southern China and acts as a bridgehead to the other countries of Southeast Asia.
Automotive invested €462 million, with depreciation at €407 million. Spending again centered on customer orders and associated capacity increases. In the Body & Chassis (North America) business unit, investment at the ThyssenKrupp Waupaca foundry focused on capacity expansion, quality improvement and environmental programs. The stamping plants of ThyssenKrupp Budd mainly invested in new production equipment. For example, new welding lines for the manufacture of subframes were installed at the Hopkinsville plant and new assembly lines were built in Shelbyville. The most important project at ThyssenKrupp Fabco involved investment in hot stamping technology. In the Body & Chassis (Europe/Asia Pacific/Latin America) business unit, spending likewise focused on measures to modernize and expand capacities. At the Brackwede plant, we invested in new production lines and automated existing equipment. At the Ludwigsfelde plant, further welding and assembly facilities were installed to meet new customer orders. In the UK and France, too, production facilities had to be expanded to meet new orders. In addition, hot stamping capacity was expanded at Le Theil plant of ThyssenKrupp Sofedit in France. ThyssenKrupp Automotive Systems installed a new assembly line for chassis products in Brazil for a Japanese customer. The Powertrain (Global) business unit won numerous new orders and invested accordingly in new production equipment. ThyssenKrupp Gerlach began building a new machining line for crankshafts. In the growth market of China, we entered into a joint venture with Sumitomo to produce forged car crankshafts. ThyssenKrupp Präzisionsschmiede expanded its machining capacity for bevel gears and die production. High customer orders necessitated an expansion of ThyssenKrupp Presta's Ilsenburg plant. The positive market situation in Brazil resulted in an expansion of production and machining capacities at ThyssenKrupp Metalúrgica Campo Limpo. ThyssenKrupp Fundicoes had to increase its melting capacity for the production of cast crankshafts. Technologies invested €411 million in the reporting period, with depreciation at €301 million. The focus was again on rationalizing production processes and renewing machinery and equipment. At ThyssenKrupp Marine Systems, for example, panel production was significantly enhanced in terms of quality and lead times and the outfitting center for modularized engine room components was completed. Another focus was on sales and product expansion. Mechanical Engineering continued its capacity expansion program for large-diameter bearings and invested in new production equipment mainly in Europe and Asia. The business unit added chain drives for mini-excavators to its product range to meet strong demand in this field. In addition, the company's world leading position in large drive sprockets for earthmoving equipment was secured and expanded by the switch from cast to forged products. The Elevator segment invested €119 million, with depreciation at €51 million. In addition to investment aimed at maintaining operational capability, the focus was on financial investments and the acquisition of maintenance packages. As part of the growth strategy the segment made several small and mid-size acquisitions, particularly in Europe, to complement its existing activities, strengthen market presence and support the service business. In the Services segment, investment totaled €190 million, with depreciation at €118 million. The focus was on investment to maintain operational readiness and to expand and modernize the warehouse business – particularly in Germany, Poland, Hungary and the USA. The main financial projects included the acquisition of an interest in Cline Mining Corporation in Canada, the purchase of Automata Industrial in Brazil, a service company in the aerospace sector, and the establishment of two companies in Ukraine and Bulgaria as part of the Eastern Europe strategy. |
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