Segment review
As well as manufacturing products, our five segments Steel, Stainless, Technologies, Elevator and Services are increasingly concentrating on system solutions and innovative services. All segments took advantage of the strong world economy to achieve further growth.
Steel
| 2005/2006 | 2006/2007 | ||||
|---|---|---|---|---|---|
| Order intake | million € | 12,343 | 12,718 | ||
| Sales | million € | 12,087 | 13,209 | ||
| Steelmaking | million € | 1,004 | 1,403 | ||
| Industry | million € | 5,846 | 6,390 | ||
| Auto | million € | 4,375 | 4,800 | ||
| Processing | million € | 2,433 | 2,695 | ||
| Consolidation | million € | (1,571) | (2,079) | ||
| Earnings before taxes (EBT) | million € | 1,406 | 1,662 | ||
| Employees (September 30) | 38,840 | 39,559 |
Earnings almost doubled
The Steel segment is focused on the highly attractive market for high-end carbon steel flat products. Its capabilities include intelligent material solutions, custom processing and comprehensive service.
Steel remained on growth track in fiscal 2006/2007 and continued to perform very successfully. Demand for premium flat-rolled carbon steel was extremely strong; in some cases we were unable to meet it in full due to capacity limitations. Order intake increased by 3% to €12.7 billion for price reasons. Order volumes slipped in the final quarter for seasonal and inventory-cycle reasons. Overall, order volume decreased by 6%.
Crude steel production increased by 4% to 14.5 million metric tons. Production by our investee company Hüttenwerke Krupp Mannesmann rose by 20%; this strong growth versus the previous fiscal year was mainly due to last year's production outages. At our own steelmaking facilities we succeeded in expanding production slightly, despite a major repair to blast furnace Schwelgern 1, by means of numerous optimization measures. To ensure maximum utilization of hot-rolled capacities we continued to buy in slab. Rolled-steel production for customers increased by 4% to 15.8 million metric tons. All major production units were fully utilized.
Sales of the Steel segment again increased strongly by 9% to €13.2 billion. This was mainly due to the price increases achieved in quarterly and contract deals and to a superior product mix. Shipments reached 14.1 million metric tons, exceeding the prior-year level by 1%.
With a profit of €1,662 million we again achieved record results. They include impairment losses of €76 million relating to the newly included Metal Forming business. Excluding these nonrecurring effects, earnings before taxes were €1,738 million. With shipments at a high level we succeeded in passing on increased raw material and energy costs to the market. In addition, there were positive earnings effects from the implementation of action programs to increase efficiency in all business units.
Steelmaking
The Steelmaking business unit combines the metallurgical operations in Duisburg, the logistics activities, and the segment's strategic projects. Its main role is to supply the three market-facing business units Industry, Auto and Processing with low-cost, high-quality starting material. Sales of pig iron, slabs and energy to external customers were higher than a year earlier as the increased costs were passed on. Sales revenues at the transport companies were virtually unchanged.
Steelmaking recorded a loss following a profit in the previous year. The main reasons were the start-up costs of the newbuild projects in Brazil and the USA.
Industry
The Industry business unit is a partner to many steel-using sectors which enjoyed very good activity levels in the reporting year. Sales were up 9% from the prior year. Higher prices were achieved in all quarterly and long-term contracts. Sales volume, however, was slightly down from the prior year. Profit increased substantially, driven mainly by the profit centers of the Industry Division of ThyssenKrupp Steel. Key factors were higher prices and efficiency improvement measures, which outweighed the negative effects of cost increases for starting materials and a slight fall in shipments.
Our European steel service centers recorded above-average sales growth due to volume and price factors. The main causes were improved starting material supplies, productivity increases and the passing on in full of higher input prices. Earnings almost doubled in a good operating environment.
For the most part the construction elements business was able to pass on higher starting material prices thanks to improved building activity in Europe and especially in Germany. Sales volumes were unchanged from the prior year. Despite this there was a drop in profits due to impairment losses.
Auto
Sales revenues of the Auto business unit increased by 10%, thanks in particular to the positive performance of the Auto Division at ThyssenKrupp Steel. Sales volumes expanded despite tight capacities. Cost increases on the procurement side were countered by price increases in contract deals and measures to improve performance. Earnings were up from the prior year.
At Tailored Blanks, sales and earnings rose significantly due to increased shipments and the ramp-up of the production sites in China and Sweden.
By contrast, the North American steel service centers recorded large volume losses and lower profits as a result of reduced orders from the auto industry. Positive price effects were unable to offset this. The profit decline is also due to asset impairment charges and the lower US dollar compared with the euro.
The Metal Forming business, integrated in Steel at the beginning of fiscal 2006/2007, increased its sales of body and chassis components for the auto industry in the reporting year. Tooling sales were lower, but component sales in Europe were higher. In addition, the acquisition of chassis operations in China and Brazil last year and this year had a positive impact. Metal Forming reported a high loss, mainly due to the impairment charges taken in the reporting year. Operating earnings were also negative as a result of start-up costs for new products and sites. The restructuring measures implemented were unable to offset the higher costs.
Processing
The Processing business unit comprises the tinplate, medium-wide strip and grain-oriented electrical steel product groups. A sales increase of 11% was accompanied by a big leap in profits.
We gained further market share on the tinplate market, which particularly in Europe is characterized by overcapacities and stagnating demand. In a slightly weakening market profits were down from the prior year.
Assisted by very high demand for medium-wide strip, Hoesch Hohenlimburg achieved record levels of production and shipments. With prices also higher, profits increased significantly. Earnings were impacted by higher starting material costs, which could not be offset by productivity increases.
Sales of grain-oriented electrical steel increased. Higher shipments to third-country markets offset lower sales volumes in Europe. Profits rose considerably thanks to the good price situation and the increased share of higher-value electrical steel grades in the product mix.
Significant events
The Umformtechnik group, managed until the end of fiscal 2005/2006 by the then ThyssenKrupp Automotive AG, was integrated into the Steel segment as the new Metal Forming business with effect from October 01, 2006. Its main operations are in Europe and we are currently in the process of establishing further operations overseas. A chassis production facility in Brazil was acquired in 2006/2007. Another new plant in Turkey making body parts for cars and delivery vehicles began operation in August 2007. The integration of Metal Forming into the Steel segment offers major potential for expanding our technological capabilities along the process chain from material to finished part.
In the Steel Service Europe business important decisions to expand operations were made. In Germany, a new service center is to be built in Krefeld, where the plan is to combine the production of the three existing centers in Bochum, Breyell and Leverkusen. Our goal is to achieve a significant improvement in quality and cost standards while at the same time expanding our processing capacity. A new service center began operation in Poland in 2006/2007, taking us a step further in our internationalization efforts and creating the ability to support the growth of customers in Eastern Europe.
The ThyssenKrupp Tailored Blanks group has built a new plant in Bursa in western Turkey. Production started in September 2007. The company thus became the country's first producer of laser-welded tailored blanks for the fast-growing Turkish auto industry.
In the Construction Elements business, the Hof and Leipzig sites in Germany were closed; in the future production will be concentrated at the plants in Kreuztal-Eichen/Siegerland and Oldenburg/Holstein. We are building a new site in Hungary. New sales bases were also created in Russia and the UK. In addition, the ownership structure at the companies Isocab N.V. (Belgium), Isocab France S.A.(France) and Decapanel S.A.S. (France) was cleaned up effective October 01, 2007 by the acquisition of remaining shares.
Capital expenditures
The capital expenditures of the Steel segment reached €1,659 million in the reporting year, with depreciation at €615 million.
The ThyssenKrupp CSA steel mill project in Brazil, which is having a major impact on cash flows from investing activities, is running to schedule. The majority of the contracts have been awarded and ground preparation and foundation work has been carried out on the site. This project in the state of Rio de Janeiro accounted for 51% of total capital expenditures. The second major strategic project – the construction of a steel mill in Alabama – had no effect on cash flows from investing activities in 2006/2007 as only preparatory measures for the start of construction took place.
At ThyssenKrupp Steel AG, investment focused further on modernizing the ironmaking facilities in Duisburg. The main item was the construction of the new blast furnace 8, which is to be blown-in in December 2007. Further investment funds went towards rebuilding electrolytic coating line 2 in Duisburg-Beeckerwerth. We also pushed ahead with expanding the hot-rolled lines and hot-dip coating facilities.
ThyssenKrupp Electrical Steel invested substantial funds in capacity expansions. In Isbergues, France, a decommissioned stress relieving furnace was put back into service; the Gelsenkirchen plant expanded its existing decarburizing capacities. These measures further increased productivity and the production of higher-value electrical steel grades.
Stainless
| 2005/2006 | 2006/2007 | ||||
|---|---|---|---|---|---|
| Order intake | million € | 7,292 | 7,684 | ||
| Sales | million € | 6,437 | 8,748 | ||
| ThyssenKrupp Nirosta | million € | 2,682 | 3,839 | ||
| ThyssenKrupp Acciai Speciali Terni | million € | 2,505 | 3,244 | ||
| ThyssenKrupp Mexinox | million € | 559 | 707 | ||
| Shanghai Krupp Stainless | million € | 364 | 454 | ||
| ThyssenKrupp Stainless International | million € | 1,186 | 1,570 | ||
| ThyssenKrupp VDM | million € | 998 | 1,463 | ||
| Corporate/Consolidation | million € | (1,857) | (2,529) | ||
| Earnings before taxes (EBT) | million € | 423 | 777 | ||
| Employees (September 30) | 12,197 | 12,182 |
Earnings almost doubled
The Stainless segment combines our activities in the areas of stainless steel flat products and the high-performance materials nickel alloys and titanium. With high delivery performance, flexibility and extensive services, Stainless supports its customers in the manufacture of high-quality end products.
The value of new orders reached €7.7 billion, up 5% from the prior year. However the volume of orders was significantly lower, mainly due to nickel price developments and higher imports. The high customer demand experienced since early 2006 pushed up base prices further at the beginning of the reporting year. Nickel prices also rose sharply, driving up alloy surcharges. Asian and particularly Chinese overcapacity, in conjunction with the relatively attractive price level in Europe compared with Asia, resulted in increasing imports to Europe, which particularly affected the Italian stainless market. European distributors and independent service centers took advantage of this situation to fill their inventories. As a result replenishment orders by distributors decreased to the minimum necessary levels. The nickel price began to fall sharply in early June 2007, causing distributors to sell their high inventories as quickly as possible to minimize the risk of impairment. This considerably reduced the volume of orders in the second fiscal half.
Despite the significant drop in order volumes, sales in the Stainless segment increased by 36% to €8.7 billion. With hot-rolled and cold-rolled volumes in decline this was mainly due to the enormous increase in alloy surcharges – especially for nickel – and a higher base price level. The nickel alloys business benefited not only from the nickel price rise but also from strong demand so far in the plant engineering, oil and gas sectors. However, here too orders weakened in the course of the year as a result of the high nickel price.
Stainless recorded a substantial increase in earnings before taxes to €777 million, the highest profit in the segment's history. In the prior year the figure was €423 million. The increase was due to significantly higher base price levels, the positive impact of nickel prices up to mid-2007, and the successful implementation of programs to increase efficiency at the operating companies. The drastic decline in the nickel price from June 2007 had a marked negative impact on order intake and utilization of our worldwide production capacities. In addition, the huge drop in nickel prices made it necessary to record significant inventory write-downs in the 4th fiscal quarter.
ThyssenKrupp Nirosta
The ThyssenKrupp Nirosta business unit recorded fewer new orders in the reporting year but significantly increased its sales due to higher prices. Thanks to the improved price level and the effects of internal programs we raised our profits substantially. Increased costs caused by measures to maintain deliveries and reduce losses as a result of the fire at the Krefeld plant were offset by insurance recoveries. The production units affected by the fire went back into operation in the course of the year and the production support provided by our Chinese business unit Shanghai Krupp Stainless was ended.
ThyssenKrupp Acciai Speciali Terni
ThyssenKrupp Acciai Speciali Terni recorded high sales growth and a decline in order intake. Driven by higher base prices and the effects of action programs, profits increased significantly, even though earnings were impacted by restructuring costs at the Terni steel plant and in connection with the relocation of production from Turin to Terni. Both the titanium and forging operations made noteworthy earnings contributions.
ThyssenKrupp Mexinox
At ThyssenKrupp Mexinox, order volumes on the North American market decreased slightly, while sales increased. In a generally stable NAFTA market the company recorded significantly higher earnings despite slightly lower shipments.
Shanghai Krupp Stainless
In the first half of the fiscal year Shanghai Krupp Stainless continued to benefit from the production support provided to ThyssenKrupp Nirosta to limit the fire-related losses at the Krefeld plant. Sales were up significantly from the prior year, while new orders from China declined. Following a loss in the prior year Shanghai Krupp Stainless generated a profit. In a continuing difficult market environment the improved earnings are the result of increased export activities and contract work for ThyssenKrupp Nirosta. In addition, cost advantages resulted from the start-up of the hot-rolled annealing and pickling line.
ThyssenKrupp Stainless International
Order intake at ThyssenKrupp Stainless International decreased in volume in the past fiscal year but increased in value along with sales. The business unit benefited from increased service center business and almost equaled its prior-year earnings.
ThyssenKrupp VDM
ThyssenKrupp VDM recorded higher order intake and, due to prices, increased sales, although the volume of new orders was below expectations due to customers holding back on orders in view of the high nickel price. Profits were up significantly from the prior year thanks to the continuing positive state of the market in the oil, gas and chemical plant sectors and the measures carried out to reduce costs.
Significant events
At the beginning of June 2007 ThyssenKrupp Acciai Speciali Terni announced that in order to strengthen competitiveness it would be closing the Turin plant and relocating production capacities step by step from Turin to Terni. This process is to be completed by the end of fiscal 2007/2008.
Capital expenditures
Stainless invested a total of €327 million in property, plant and equipment and intangible assets in 2006/2007, with depreciation amounting to €152 million. At ThyssenKrupp Nirosta the units destroyed by the fire in June 2006 were rebuilt and were able to begin production sooner than planned. At the company's Krefeld plant a start was made on modernizing the AOD converter to optimize melt shop production. To meet growing demand in the attractive "white goods" segment the processing capacity of the EBOR service center in Sachsenheim is being expanded further. At ThyssenKrupp Nirosta Präzisionsband the focus was on expanding annealing capacity.
At ThyssenKrupp Acciai Speciali Terni the restructuring measures are continuing. Some projects were initiated in 2006/2007 but will not be completed in some cases until 2007/2008. A major part of the measures involves relocating production from the Turin plant to Terni and subsequently closing the Turin plant, which suffers major disadvantages in terms of logistics, energy costs, infrastructure and environmental requirements. Significant investment is being made to expand hot-rolled and cold-rolled capacity and widen the product portfolio. When the restructuring and expansion measures are complete the Terni plant will be a world-class integrated stainless mill. A vod converter is currently under construction in the Terni melt shop which will start operation in early 2008. This unit will enable us to produce materials which cannot be manufactured by conventional technology – for example ferritics with high chromium and low carbon contents which can substitute expensive chromium-nickel steels in many areas. This vod converter will also make it possible to further improve the quality of forging ingots for the open-die forge. Following the market trend we are currently creating the conditions to be able to produce forging ingots weighing up to 500 t and forged products in weights of around 250 t. There is increasing demand for such ingots, above all in the energy sector and for the building of large hot rolling mills. To increase capacity for the production of titanium ingots, ThyssenKrupp Titanium in Essen has invested in the building of new remelting furnaces.
Investment at ThyssenKrupp VDM focused on expanding production capacities for nickel alloys, particularly for the energy and aerospace sectors. By building a forging press with reheat furnace and expanding the remelting units we intend to increase business with rods, especially in large sizes. The forging press will go into operation in the 2nd quarter 2008. In the sheet and wire product groups, investment centered on expansion and rationalization. The relocation of wire production from Bärenstein to Werdohl, now almost complete, provides us with a modern, efficient and competitive production setup.
Shanghai Krupp Stainless mainly invested in building processing capacities. A new stretcher-leveler is being installed to meet increasing flatness requirements for strip and sheet. The existing grinding/polishing line was upgraded to cover growing demand for decorative finishes.
ThyssenKrupp Stainless International invested further in expanding its distribution and service operations. New service centers were built in Poland and the UK, and an existing service center in Turkey is being moved to a better location and upgraded.
Technologies
| 2005/2006 | 2006/2007 | ||||
|---|---|---|---|---|---|
| Order intake | million € | 13,160 | 14,844 | ||
| Sales | million € | 11,366 | 11,523 | ||
| Plant Technology | million € | 2,266 | 2,624 | ||
| Marine Systems | million € | 1,932 | 2,021 | ||
| Mechanical Components | million € | 4,058 | 3,793 | ||
| Automotive Solutions | million € | 3,018 | 3,182 | ||
| Transrapid | million € | 17 | 49 | ||
| Corporate/Consolidation | million € | 75 | (146) | ||
| Earnings before taxes (EBT) | million € | 410 | 544 | ||
| Employees (September 30) | 54,757 | 54,762 |
Record earnings
ThyssenKrupp Technologies is a high-tech engineering contractor and component manufacturer which also provides tailored services for customers. The aim is to develop innovative products with high customer value. 7,300 engineers are working on this task worldwide.
The extremely positive performance of the Technologies segment continued unabated in fiscal 2006/2007. At €14.8 billion, order intake significantly exceeded the already high prior-year level. Sales at €11.5 billion were also higher, despite business disposals and the heavy impact of exchange rate effects. The pleasing order trend pushed orders in hand to around €15 billion, which means that more than a full year's sales are already secured.
Profits at Technologies increased by 33% to €544 million, easily exceeding our targets. The business units Plant Technology, Automotive Solutions and Transrapid played a major part in this increase. The biggest earnings contribution was again generated by the Mechanical Components business unit.
Plant Technology
High raw material and energy prices as well as numerous infrastructure projects, especially in the Middle East, Northern Africa and Eastern Europe, pushed up demand for the specialized and large-scale facilities offered by Plant Technology. Order intake, already high last year, increased to a new record level thanks to a number of major contracts. Customers ordered polymer plants, fertilizer complexes, electrolysis plants, coke oven plants, bulk handling systems, oil sands mining equipment and cement plants. At €2.6 billion sales were up sharply from the prior year, mainly thanks to the good order situation for chemical plants and mining and handling equipment. Plant Technology achieved excellent profits.
Marine Systems
Order intake at Marine Systems in 2006/2007 was slightly lower than a year earlier. Major contracts included the F125 frigate program for the German Navy, nine yachts and two SWATH ships for the German customs authority. The repair and service business performed very well, achieving a significantly higher volume of orders. Sales at Marine Systems were up slightly at €2.0 billion, while profits were unchanged.
Mechanical Components
At Mechanical Components the positive demand trend continued, with order intake higher than sales. Sales slipped slightly to €3.8 billion as a result of disposals and US dollar/euro translation effects. These were only partly offset by significant sales increases for slewing bearings and rings, thanks mainly to continued growth in the wind turbine sector. Mechanical Components again achieved a large profit in 2006/2007.
Automotive Solutions
The order situation in the Automotive Solutions business unit was pleasing. All operating groups contributed to the marked increase in orders, in particular the body shop equipment, tooling and assembly systems operations. Sales were also up from the prior year at €3.2 billion. Automotive Solutions significantly improved its earnings and recorded a two-digit million profit.
Transrapid
Transrapid achieved sales of €49 million with positive profit contributions mainly due to billings under the Chinese license contract.
Significant events
The sale of the body and chassis operations of ThyssenKrupp Budd with sales of around €1 billion was completed in the 1st quarter 2006/2007. In this connection we also disposed of our shareholding in the Mexican company Aventec. That completes our withdrawal from the loss-making North American body and chassis business.
Technologies also sold various marginal activities which are no longer part of our core business. They include the ThyssenKrupp Fundições foundry in Brazil, the production of car jacks and the manufacture of components for armored vehicles at B+V Industrietechnik.
In the Marine Systems business unit the naval electronics business of EADS was integrated into the joint venture Atlas Elektronik. This strengthened the technological base of Atlas Elektronik as a leading supplier in the European naval electronics industry. As a result of this transaction ThyssenKrupp's shareholding in Atlas Elektronik decreased from 60% to 51%.
As part of the strategy to expand its service business, Plant Technology acquired A-C Equipment Services Corp. based in Milwaukee, USA. The company, a market leader in kiln servicing and repairs, makes the business unit a full service provider in this fast-growing North American market segment.
Capital expenditures
Capital expenditures in the Technologies segment reached €581 million in the reporting year, with depreciation totaling €341 million. One focus of the spending was to expand existing production capacities. In addition, all Technologies companies invested considerable funds in rationalizing production processes to increase efficiency.
Mechanical Components began operation of an automated production line for assembled camshafts in the USA and invested in a new machining line for mid-range crankshafts in Brazil to meet growing demand. The line embodies a new production concept with far superior performance to conventional lines. Continuing high demand in the renewable energies sector prompted Mechanical Components to further expand its ring rolling capacities in both Germany and China. In response to continuing demand for wind turbines we began extensive investment programs at several plants to create additional capacities for the production of slewing bearings.
Automotive Solutions invested in various production units for innovative products such as DampTronic shock absorbers and heavy-duty springs. The business unit expanded its assembly capacities on the fast-growing Brazilian market.
In addition we made various financial investments. For example, Plant Technology acquired the remaining shares in a Mexican engineering company and bought a service company in the USA to expand its plant service operations in North America.
Elevator
| 2005/2006 | 2006/2007 | ||||
|---|---|---|---|---|---|
| Order intake | million € | 4,690 | 5,281 | ||
| Sales | million € | 4,298 | 4,712 | ||
| Central/Eastern/Northern Europe | million € | 1,282 | 1,389 | ||
| Southern Europe/Africa/Middle East | million € | 571 | 774 | ||
| Americas | million € | 1,804 | 1,821 | ||
| Asia/Pacific | million € | 453 | 505 | ||
| Escalators/Passenger Boarding Bridges | million € | 306 | 347 | ||
| Accessibility | million € | 167 | 190 | ||
| Corporate/Consolidation | million € | (285) | (314) | ||
| Earnings before taxes (EBT) | million € | 391 | (113) | ||
| Employees (September 30) | 36,247 | 39,501 |
Expansion continued
The Elevator segment is active in the installation, modernization and servicing of elevators, escalators, moving walks, passenger boarding bridges, stair and platform lifts. Its capabilities cover the entire product range, from installations for the volume market to individualized custom solutions. Closeness to customers throughout the world is ensured by a tight-knit network of branches and service operations.
Elevator continued its expansion in both the new installation and service businesses in 2006/2007, despite negative exchange rate effects. Order intake increased by 13% to €5.3 billion. Sales climbed by 10% to €4.7 billion. While the growth in the new installations business was mainly due to our continuing strong performance in North America, the expansion in the maintenance business took place in all regions. The growth of the service business is also due to the success of our global service strategy, which guarantees the same high service standards everywhere in the world.
The Elevator segment made a loss of €113 million in the reporting year. This is due to the impact of the fine imposed by the EU Commission for alleged anticompetitive behavior at national level in the Benelux countries and in Germany on the market for elevators and escalators. Excluding this effect, and despite negative exchange rate effects, Elevator almost equaled its prior-year earnings with a profit of €367 million.
Central/Eastern/Northern Europe
The Central/Eastern/Northern Europe business unit significantly exceeded its prior-year order intake and sales levels. A major role in this was played by new installations and modernization projects in France. New orders were also very pleasing in Eastern Europe, mainly thanks to our Russian operations. However, earnings of the Central/Eastern/Northern Europe business unit were significantly down from the prior year, even excluding the EU fine. An increase in profits at our production operations was unable to offset earnings drops on the UK and Eastern European markets. Stiff competition in the new installations market made itself particularly felt in the UK.
Southern Europe/Africa/Middle East
The Southern Europe/Africa/Middle East business unit recorded higher orders and significantly higher sales. The sales growth was mainly due to strong new installations and service business in Spain. Southern Europe also made a substantial contribution, with newly consolidated companies in these countries having a positive impact. The business unit significantly exceeded its prior-year earnings, with the profit growth coming mainly from the Spanish and Portuguese operations. The newly acquired Italian companies also delivered a strong earnings contribution.
Americas
The Americas business unit recorded improvements in both sales and orders, more than offsetting the negative exchange rate effects. A large part in this was played by the new installations and service activities in North America. The situation in Brazil was also very pleasing, easily compensating for a slightly weaker performance in the other countries of Latin America. The business unit increased its earnings significantly despite negative exchange rate effects. Higher sales, improved margins and increased efficiency resulted in substantially higher profits in North America. Earnings in Brazil were also higher.
Asia/Pacific
The Asia/Pacific business unit achieved higher orders and sales despite negative exchange rate effects. The growth in China was due to continuing high demand for new installations. Business in Australia was expanded particularly in the new installations area. Although the market environment in South Korea remained difficult, order intake and sales were stable – mainly due to the expanding service business. The business unit recorded a loss in the reporting year. The Chinese, Australian and Southeast Asian operations increased their earnings contributions but this was not enough to offset the renewed profit drop in South Korea.
Escalators/Passenger Boarding Bridges
The Escalators/Passenger Boarding Bridges business unit significantly expanded both its order intake and sales. Whereas business in escalators was down from the prior year due to intensive price competition, sales of passenger boarding bridges were distinctly higher thanks to growth in air traffic. The business unit recorded a loss due to the EU fine. At operating level, however, the unit achieved a profit, albeit lower than a year earlier. The passenger boarding bridges business was unable to match its prior-year earnings, and profits also dropped in the escalator business due to the difficult competitive situation.
Accessibility
The Accessibility business unit remained on expansion track, significantly exceeding its prior-year order and sales levels. The growth in business was substantial in some parts of the main European markets. In the USA, sales equaled their prior-year level despite negative exchange-rate effects. The business unit increased its profits considerably. The earnings increases resulted from the European operations.
Significant events
Elevator's acquisition strategy in 2006/2007 again focused on strengthening its worldwide sales and service operations. Thanks to the acquisition of several regional maintenance and service companies in Italy, Elevator further consolidated its market position in this important European elevator market. Alongside Southern Europe, the expansion strategy focused on the Eastern European region: there were smaller acquisitions in Croatia and Slovenia and the segment set up its own subsidiaries in Romania and Lithuania.
The acquisition of the operations of an elevator manufacturer in California further strengthened the position of Elevator in the San Francisco region. The segment's market presence in the southeastern USA was also bolstered by the acquisition of the operations of one of the largest distributors of home elevator products.
Capital expenditures
Capital expenditures in the Elevator segment in the reporting year amounted to €122 million, with depreciation at €62 million. The investment mainly served to maintain existing operations. As part of our efforts to standardize components, particular investment was made in the modernization of production technologies in our elevator plants in Madrid, Spain, and Angers, France. Financial investment focused on the acquisition of equity interests and service packages, particularly with a view to developing the Italian market.
Services
| 2005/2006 | 2006/2007 | ||||
|---|---|---|---|---|---|
| Order intake | million € | 14,602 | 16,823 | ||
| Sales | million € | 14,204 | 16,711 | ||
| Materials Services International | million € | 6,449 | 7,926 | ||
| Materials Services North America | million € | 2,330 | 2,340 | ||
| Industrial Services | million € | 1,716 | 1,899 | ||
| Special Products | million € | 3,650 | 4,600 | ||
| Discontinued operations/Consolidation | million € | 59 | (54) | ||
| Earnings before taxes (EBT) | million € | 482 | 704 | ||
| Employees (September 30) | 40,163 | 43,012 |
Sales and earnings at new record levels
The segment is focused on material and industrial services and on the supply of raw materials to the production and manufacturing sectors. As well as distributing and selling rolled and stainless steel, pipe, nonferrous metals and plastics, the segment also offers services ranging from processing and logistics, to warehouse and inventory management, to supply chain management. Our industrial services, in addition to sophisticated maintenance activities, also include production support services such as in-plant logistics, pre-assembly and just-in-sequence delivery to production companies. The segment also supplies metallurgical raw materials around the world as well as innovative technical system solutions.
Successful expansion measures, portfolio optimizations, efficiency programs and sales initiatives had a positive impact in the reporting year – in conjunction with the continuing good market for raw and processed materials. 2006/2007 was another record year for Services. Sales and earnings hit new highs. Sales increased by 18% to €16.7 billion, while earnings rose by 46% to €704 million.
Materials Services International
Materials Services International achieved further successful growth in 2006/2007. Sales increased once again. Business in rolled steel was at a high level for demand and price reasons. However, the stainless steel market came under pressure due to increased imports from Asia and a significant price drop for nickel in the third quarter of the fiscal year. In nonferrous metals, the market was characterized by long delivery times and high price levels. The plastics business performed positively on the whole without showing the major volume and price movements of the metal markets. The business unit significantly increased its sales volume thanks to a focus on high-end materials, particularly for the aerospace industry, and the acquisition of additional service contracts. Overall, the importance of integrated materials services increased further in the reporting year. Our marketing concepts, comprising not just the supply of materials but also additional services from processing to supply chain solutions, bore fruit.
Our materials operations in Germany had a very pleasing year. Key industries such as the mechanical engineering, plant engineering and automotive supply sectors enjoyed good workloads thanks to strong domestic and foreign demand. The foreign subsidiaries also benefited from the positive materials market. In France, Spain, the Benelux countries, the UK and Scandinavia, sales volumes were up from the prior year. We successfully continued our growth strategy in Eastern Europe – among other things by entering the Slovakian market and expanding our operations in Russia.
Against the background of a generally favorable materials market, Materials Services International increased its profits substantially.
Materials Services North America
The Materials Services North America business unit equaled its high prior-year sales level. In some regions growth was strengthened by targeted strategic measures; the service portfolio was also expanded especially in the area of supply chain management.
The materials market in North America was slightly weaker than in Europe. Although demand in the main markets remained at a high level – with the exception of the auto industry – prices, above all for flat steel products, were below those of other markets, which made imports very difficult. Prices of nonferrous metals were extremely volatile.
Materials Services North America fell just short of its very good prior-year earnings mainly because of price and exchange-rate effects.
Industrial Services
The Industrial Services business unit significantly increased its sales from the prior year. In Germany, increased selling efforts, supported by the good market situation, had a positive impact. In addition to our traditional sectors, business with the energy and chemical industries was expanded. The new operations in South America also made a significant contribution to the sales growth. In the future we will handle all steel mill services for the Steel segment's new steel mill in Brazil. In North America, sales increased slightly despite less favorable exchange rates.
The Industrial Services business unit doubled its earnings, mainly as a result of domestic business, although the foreign operations also generated very good results. Worthy of particular mention is our positive performance in Brazil and Norway as well as in steel mill and plant services, mainly due to efficiency enhancement programs. Earnings were positively impacted not least by the sale of SIR Industrieservice. Overall, the business unit significantly improved its operating performance in all areas.
Special Products
The Special Products business unit significantly improved on its very high prior-year sales level. There was a particular increase in rolled steel business with China and Brazil. The substantial investments made in projects to develop new raw material sources resulted in a demand overhang for pipe; due to limited availability business in large-diameter pipe was slightly down from the prior year.
The technical systems business benefited from high spending on infrastructure measures worldwide, particularly in Germany, Eastern Europe and the USA. The business significantly exceeded its already high prior-year sales. The contractors' plant business with its flood protection and port expansion capabilities, and the track business with equipment for road and rail traffic, significantly expanded their systems business both nationally and internationally. In the area of raw materials supply, there were increased sales of metallurgical products, nonferrous metals, minerals and industrial gases. Business in coke was slightly down from the prior year.
Starting from an already very high prior-year level the profits of the business unit increased at an even faster rate than sales. All areas of the business unit contributed to this.
Significant events
The acquisition policy of Services in the reporting period focused mainly on further expanding our US and Eastern European operations. However we also strengthened our activities in Germany, the rest of Western Europe and Asia. Some marginal activities were sold in Spain and Germany. The portfolio was further focused on the core activities of materials services, industrial process services and raw material supply.
Services expanded its material service business for the aerospace industry by acquiring the aerospace service business of Alcoa in Pittsburgh. This business specializes in the distribution and warehousing of aluminum materials and in high-end processing services for aircraft manufacturers. In North America we thus succeeded in intensifying our already successfully established materials services for the aerospace industry. Via our activities in Germany and the UK we also created a sustainable sales channel to the aerospace industry in Europe.
Services intends to strengthen its market position in Eastern Europe and to this end signed an agreement to acquire a majority interest in Ferostav. The company is one of the largest steel distributors in Slovakia and offers processing services for steel plate, reinforcing bar, merchant bar, structural shapes, wide-flange beams and pipe. Its main customers are in the construction and engineering industries.
Our plastic services business further improved on its leading position on the European market with the acquisition of Stokvis Plastics with a central warehouse and five service centers in the Netherlands and Belgium. Stokvis Plastics is focused on the sale, distribution and processing of semi-finished plastic products as well as tailored solutions for plastic sheet, film and piping. In addition, a joint venture to distribute materials was set up with a local partner in Vietnam, one of the fastest-growing regions of Asia. In the medium term it is planned to expand this business systematically to become a full-line supplier.
In the field of industrial services, Services expanded in Germany and the Czech Republic, where we acquired activities in the areas of industrial maintenance, coating technology and automation, instrumentation and controls.
Capital expenditures
Capital expenditures in the Services segment reached €282 million, with depreciation at €156 million. The main investment went into business expansion. In Germany, we built a new center for materials services in Wörth and expanded our capabilities for track system solutions. Outside Germany, we developed our SAP-based IT infrastructure in the NAFTA region and expanded our processing centers in Russia. Services also invested in optimizing the logistics of its plastics operations. The remaining investment served to maintain existing operations, develop new distribution channels, increase processing capacity and expand the supply chain management business – especially in North America.
Corporate
Corporate comprises the Group's head office including corporate services as well as non-operating companies not assignable to individual segments. Also included here is non-operating real estate, which is managed and utilized centrally. The retained assets and liabilities of ThyssenKrupp Budd are also assigned to Corporate. As this company's operations have now been sold, Corporate sales decreased from €1,469 million to €288 million.
Expenditure at Corporate amounted to €205 million before taxes, an improvement of €241 million compared with the prior year. €205 million of this is due to the absence of the negative earnings contribution of the since sold North American automotive operations. Set against this was the absence of the €153 million Dofasco break fee received in the prior year. The sale of real estate in connection with the concentration of our head office locations in Germany resulted in a gain of €115 million. Net interest improved by €83 million as a result of changed Group structures.