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Number of employees increased

In the year under review the number of employees increased by 9,673 or 5.6%. On September 30, 2005 we employed a total of 183,729 people.

This growth was mainly due to the optimization of the Group portfolio. A total of 8,555 employees joined the Group as a result of acquisitions; the inclusion of HDW alone is responsible for 6,312 additional employees. By contrast, only 1,359 people left the workforce as a result of disposals. The headcount also increased as a result of changes in operating business: compared with a year earlier, 7,183 new employees joined the Group, while those leaving numbered 4,706.

The share of employees outside Germany increased to 53% of the Group's workforce. Altogether 97,625 of the Group's employees now work abroad, mainly in the USA, France, Brazil, Italy, Spain and the United Kingdom.

Strong commitment to training

We continue to train well in excess of our own needs. We see this as a responsibility to society which we are glad to fulfill. In these times of high youth unemployment it is particularly important to offer young people high-quality training and thus improve their prospects on the labor market.

At September 30, 2005 a total of 4,271 young people were learning one of over 70 occupations offered by ThyssenKrupp in Germany. Our apprenticeship training rate, which has been pleasingly high for years, increased slightly to 5.4%. The Group offers the full range of industrial apprenticeships, from industrial mechanics and lathe operators to electronic engineers and industrial clerks.

In the new fiscal year ThyssenKrupp will once again participate in the training pact between government and industry. The Group already contributed to improving the training opportunities for schoolleavers in Germany in fiscal 2003/2004. In the reporting period we increased this commitment and provided a total of 280 new apprenticeships and initial training placements.

Despite the tight situation on the training market, many applicants had to be turned down because of inadequate qualifications. Unfortunately, the trend of young people failing to meet apprenticeship requirements continues.

Realignment of company pension scheme successful

We continued to pursue our company pension strategy of successively converting existing schemes from defined-benefit to defined-contribution plans and from annuity to lump sum payments. The optional changeover has been well received, with one out of two employees electing to switch from the traditional company pension scheme to the Groupwide defined-contribution pension plan. Since 1998 new employees joining the Group have been enrolled in defined-contribution plans.

One out of two employees now shareholders

The new issue of employee shares was once again a great success: One out of two employees in Germany and France decided to purchase ThyssenKrupp shares on special terms. With the offer of employee shares in France, the scheme was available to a foreign workforce for the first time this year. Spain and the United Kingdom will follow in fiscal 2005/2006. Differences in the statutory provisions mean that the German employee share model cannot be transferred as it stands to our companies in other countries.

The main aims of the new issue of employee shares were:

• to allow employees to share in the Group's success,
• to encourage employees to identify more strongly with their company and the ThyssenKrupp Group as a whole,
• to promote the shareholder culture in the workforce,
• to enhance the Group's attractiveness as an employer.

Details of the share program are provided in "Good response to employee share program".

Universities and graduates

In the competition for the best young graduates, ThyssenKrupp's strategy is to foster intensive contacts with students from an early stage. With the number of graduates declining in Germany, it will be increasingly difficult in future to attract highly qualified engineering and business graduates. We are therefore committed to establishing ThyssenKrupp as an attractive employer at national and international level.

Collaboration with our German partner universities and with Tongji University in Shanghai is constantly being intensified. We plan among other things to set up special dialogue forums with school and university students, academics, ThyssenKrupp executives and prominent participants covering all aspects of technology and innovation.

To ensure that we attract sufficient young talent, our university marketing activities focus on selected target groups. These include final-grade school students aiming to go to university, highly qualified female engineering and science undergraduates as well as competitive athletes taking degree courses.

At TU Berlin, ThyssenKrupp is collaborating with the university careers center for women, "femtec". Founded three years ago, the network aims to encourage talented young women to study engineering and science subjects and to provide targeted support for female undergraduates in these fields. In addition, "femtec" is trying out innovative forms of training cooperation between universities and industry. By cooperating in this project, we hope to increase the number of women in top engineering and management positions at ThyssenKrupp.

Executive compensation policy strongly performance-based

Individual performance and the Company's success are key elements in ThyssenKrupp's compensation policy. This is reflected in bonus schemes and – in particular for the top management – in medium-term share and value-added-based compensation models – the Long Term Management Incentive plan (LTMI) and the Mid Term Incentive plan (MTI).

The final installment of the share-based LTMI was issued in fiscal year 2002/2003 and will expire in 2006. In fiscal 2002/2003 it was replaced by the Mid Term Incentive plan for Executive Board members. In the past two fiscal years the MTI was extended to include top management staff. The plan is linked to both the development of the Group's eva and the ThyssenKrupp share price over a three-year performance period.

For detailed information on the LTMI and MTI, please turn to "Share-based compensation programs".

Executive development remains key theme

Attracting and developing top-class executives and specialists is one of the key goals of our executive development policy. We work consistently to fill our leadership positions optimally – preferably from within the Group – to train our executives in line with requirements and to make efficient and integrated use of the vast expertise available in the Group.

As a central basis for selecting and developing executives, the ThyssenKrupp management competencies have proved their worth. Eight competencies define the key requirements our executives need to meet – from leadership qualities to market orientation to internationality. We assess our executives' potential for carrying out more responsible duties according to these competencies.

As part of our annual, worldwide survey of potential and succession planning in all segments, high potentials are identified in internal assessments which are then supplemented by external management audits. In yearly executive development meetings, the Executive Board of ThyssenKrupp AG and the segment executive boards discuss the potential of current candidates and develop a concrete succession plan for the top management levels of the Group. This ensures continuity and helps prepare suitable candidates for senior positions in the Group from an early stage.

In feedback interviews the candidates are informed of their current assessment and the development areas and career prospects identified for them. For example, job rotation is often a suitable option for expanding a candidate's practical experience. In addition, individual training and coaching is available as well as a multi-stage Group seminar program for top candidates in which international groups of participants work together to develop solutions to current questions of corporate strategy. Renowned professors from international business schools present forward-looking management approaches, with the focus on how these approaches can be applied to the specific questions arising at ThyssenKrupp. The seminars are supplemented by feedback and coaching schemes aimed at enhancing the leadership competencies and intercultural skills of participants. Seminar courses in the segments on topics such as value-based management and sales leadership as well as exchange and mentoring programs complete the offering.

In 2006 we aim to further expand executive development at ThyssenKrupp in view of the key role it plays in achieving our strategic goals. A milestone in this will be the establishment of a ThyssenKrupp Corporate Academy – a high-level center of learning with a clear focus on business practice designed to offer our executives tailored in-depth training.