Segment review
Our five Group segments – Steel, Stainless, Technologies, Elevator and Services – take global challenges and turn them into opportunities. Our high-tech materials, plants, components and systems offer answers to many economic and technical questions of the future.
Steel
| 2006/2007 | 2007/2008 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 12,718 | 14,199 | |||
| Sales | million € | 13,209 | 14,358 | |||
| Corporate | million € | 60 | 58 | |||
| Steelmaking | million € | 1,354 | 1,531 | |||
| Industry | million € | 6,390 | 6,976 | |||
| Auto | million € | 4,800 | 5,106 | |||
| Processing | million € | 2,695 | 2,906 | |||
| Consolidation | million € | (2,090) | (2,219) | |||
| Earnings before taxes (EBT) | million € | 1,662 | 1,540 | |||
| Employees (Sept. 30) | 39,559 | 41,311 |
Cost increases not fully offset
The Steel segment is focused on premium carbon steel flat products and holds an outstanding position in its core market of Europe. Its capabilities include intelligent material solutions, custom processing and comprehensive services right through to finished parts.
The Steel segment performed successfully in a more difficult economic environment. Demand for premium carbon steel flat products increased further and could not be met in full. Order intake in the reporting year rose by 12% to €14.2 billion, and sales by 9% to €14.4 billion. These increases were primarily due to rising prices, although shipments were also higher than a year earlier. In the final quarter of the reporting year sales volumes were slightly more subdued.
At ThyssenKrupp Steel AG, average net prices were around 8% up year-on-year, but could not compensate in full for the substantial cost increases for raw materials and energy. Due to the high share of annual contracts, most of which were previously based on the calendar year, there will be a lag before the positive effect of higher steel prices is reflected in average revenues. In negotiations with our customers in the final quarter of the reporting year we were able to adapt most of the annual contracts to the increased raw material costs by means of higher prices. The periods of these contracts have also been matched to those of our contracts with raw material suppliers, which will allow us to respond quickly to changes in raw material prices in the future.
At €1,540 million, earnings before taxes were €122 million lower than a year earlier but higher than our expectations thanks to the positive performance of high-value special products. Efficiency gains and additional cost reduction programs in all business units only partially offset the cost increases for raw materials and energy. In addition, the pre-operating costs of the new plants in Brazil and the USA, and the restructuring charges at Metal Forming weighed significantly on earnings.
Corporate
The administrative functions of ThyssenKrupp Steel AG and the strategic investment projects in Brazil and the USA were combined in the new business unit Corporate at the beginning of fiscal 2007/2008. They previously belonged to the Steelmaking business unit. Due to the increase in pre-operating costs, particularly for the new steel mill in Brazil, the loss was higher than the comparable prior-year amount.
Steelmaking
The Steelmaking business unit comprises the metallurgical operations in Duisburg and all logistics activities. It primarily supplies the market-facing business units with high-quality starting material. Including the share of production of investee company Hüttenwerke Krupp Mannesmann, crude steel production reached 14.2 million metric tons, 2% down from the prior year. This decrease was mainly due to the slight delay in relining blast furnace Schwelgern 1 in Duisburg. In response to high demand, slabs were again bought-in externally in the reporting year. In December 2007 the new blast furnace 8 went into operation after a construction period of only 28 months. It has a capacity of 5,600 tons per day and replaces blast furnace 4, which now serves as a standby unit.
Compared with the prior year, sales of the business unit increased strongly as sharp rises in raw material costs were charged on to customers. Price-driven sales increases were also achieved in the marketing of byproducts. Most of the logistics companies also recorded higher sales, partly due to volumes and partly due to increased freight rates. Profits at Steelmaking were significantly higher than the comparable prior-year figure.
Industry
The Industry business unit serves all steel-using industries with the exception of the auto sector. Order intake from these customer groups increased from the prior year. Sales were 9% higher at €7.0 billion. Shipments also increased as our customers continued to enjoy good activity levels. The business unit's profits were lower than the high prior-year level.
The Industry/Distribution/Services profit center achieved sales growth especially with hot-rolled coil and sheet. Higher prices were realized in the quarterly and half-yearly deals, and most annual contracts were switched prematurely to new terms from July 01, 2008 in response to the extreme rise in raw material costs. However, earnings were lower than in the prior year as it was not possible to fully offset the cost increase.
The Heavy Plate profit center profited from continuing strong demand for premium-quality material, which we were unable to meet in full in the second fiscal half. Shipments were virtually unchanged. Cost increases were offset at least partially by higher prices in some product areas. Profits declined slightly.
At the beginning of fiscal 2007/2008 our organic coated sheet and construction elements operations were combined in the new competence center Color/Construction. Although demand for coil-coated products from the appliance industry was weaker, shipments were higher than a year earlier. However it was difficult to pass on increased costs in the very competitive market for color-coated products. Thanks mainly to higher volumes, the Construction Group increased its sales in Germany and the whole of Western Europe but business in the Central and Eastern European markets was more difficult. Profits at Color/Construction were down from the prior year.
The European steel service business also achieved higher sales and shipments, largely due to the successful ramp-up of a new company in Poland. After a difficult 1st fiscal quarter the business was able to pass on significantly increased starting material prices to customers in the further course of the year. Despite this, earnings were unable to reach the high level of the prior year.
Auto
The Auto business unit is a partner and supplier to global auto manufacturers. Sales increased by 6% to €5.1 billion; with shipments down, this was due to higher prices in contract business. Against the background of rising raw material costs, contracts with most of the Auto division's customers were renewed early from July 01, 2008 with modified contract periods and higher prices. We took additional measures to increase efficiency to counter the substantial cost increases. This had a positive effect on the business unit's profits.
Tailored Blanks again increased its sales and earnings. A major factor in this was the full inclusion of the TWB group in the USA from March 01, 2008. Sales in the rest of the business also increased as a result of higher prices.
The steel service operations in North America recorded a large drop in sales due to lower volumes and exchange rate effects. Drastic production cutbacks in the North American auto industry resulted in a sharp fall in orders and hence sales. Positive price effects were unable to compensate for this. Profits were nevertheless up from the prior year, when earnings were impacted by asset impairment charges.
At Metal Forming, sales and shipments increased significantly. Operating earnings were positive. However the unit again posted a large loss due to restructuring costs of €134 million in the reporting period.
Processing
The Processing business unit combines our tinplate, narrow strip and grain-oriented electrical steel activities. These operations were also impacted by significant price increases for starting materials. Altogether, sales rose by 8% to €2.9 billion. We improved on our already strong prior-year profits thanks to the positive trend in grain-oriented electrical steel. Tinplate also recorded higher earnings, while narrow strip generated a slightly lower profit.
Tinplate equaled its record shipments of the prior year. Deliveries outside the EU were reduced in favor of higher shipments to the European market, where supply was tight. Measures to increase efficiency and reduce costs were implemented successfully.
Strong demand for narrow strip again resulted in higher production and shipment volumes, and sales also increased. From the 4th fiscal quarter the unit was able to bring forward price increases in half-yearly and yearly contracts. However the substantial cost increases for starting material could not be passed on to customers to the extent necessary.
The grain-oriented electrical steel business continued to benefit from rising demand for electricity generation and transmission equipment. Shipments and revenues were up from the prior year.
Significant events
The integration of the Metal Forming business offers high potential for expanding our technological capabilities along the process chain from material to finished part. However as the earnings situation has so far been unsatisfactory an extensive restructuring program was introduced. In France it is planned to reduce the number of sites of ThyssenKrupp Sofedit from nine to five. In addition, the head office and the development center are to be relocated to the largest production site in Le Theil. Sales negotiations are being conducted with investors for two plants. A framework agreement on personnel adjustments has been concluded with the employee representatives. A restructuring plan has also been drawn up for the German sites and for the UK company ThyssenKrupp Tallent. In parallel with this, Metal Forming will strengthen its European plants through investments and expand its activities in the BRIC states. The construction of a second plant in Turkey was approved in September 2008.
Effective March 01, 2008 the Steel segment transferred its tailored blanks operations in Mexico to the US-based TWB Company, thereby increasing its shareholding in this company to 55%. With the takeover of control we will integrate TWB into the worldwide Tailored Blanks network and meet the demands of the auto industry for a global supplier. ThyssenKrupp Tailored Blanks successfully ramped up production in Turkey in the reporting period. A new plant in the Czech Republic began trial operation in June 2008.
The shareholding in Bertrandt AG was sold to a subsidiary of Landesbank Baden-Württemberg at the beginning of September 2008 as it no longer fitted in strategically with our automotive capabilities.
Capital expenditures
The capital expenditures of the Steel segment reached €2,596 million in the reporting year, with depreciation at €639 million.
The expenditures were dominated by the two major strategic projects in Brazil and the USA. The construction of the new steel mill in the Brazilian state of Rio de Janeiro accounted for asset additions of €1.7 billion. Around €210 million was spent on the construction of the processing plant near Mobile in Alabama. More details on the progress of the projects can be found in the section "Business management – goals and strategy".
In Germany, investment continued to focus on the modernization of the ironmaking facilities in Duisburg. The new blast furnace 8 was blown-in in December 2007 and the large blast furnace in Schwelgern resumed operation in April 2008 after a 70-day shutdown for relining. A large part of the investment funds went into the expansion of the hot-rolled lines, mainly at the Bochum site, where a new walking-beam furnace began operation in March 2008. In the heavy plate area, funds were invested in the further expansion of water quenching capacity for high-strength wear-resistant steels.
Major spending was also carried out in the electrical steel, narrow strip and European steel service operations. In electrical steel, we further expanded capacity for higher-value grades at the plants in Gelsenkirchen and Isbergues, France. The aim for narrow strip is to increase capacity to 1.1 million tons per year. Steel Service Europe is currently building a new service center in Krefeld to concentrate the production of smaller sites in North Rhine-Westphalia. This will significantly improve productivity and capacity and thus create competitive advantages.
Stainless
| 2006/2007 | 2007/2008 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 7,684 | 7,460 | |||
| Sales | million € | 8,748 | 7,420 | |||
| ThyssenKrupp Nirosta | million € | 3,839 | 3,234 | |||
| ThyssenKrupp Acciai Speciali Terni | million € | 3,244 | 2,688 | |||
| ThyssenKrupp Mexinox | million € | 707 | 591 | |||
| Shanghai Krupp Stainless | million € | 454 | 284 | |||
| ThyssenKrupp Stainless International | million € | 1,570 | 1,187 | |||
| ThyssenKrupp VDM | million € | 1,463 | 1,177 | |||
| Corporate/Consolidation | million € | (2,529) | (1,741) | |||
| Earnings before taxes (EBT) | million € | 777 | 126 | |||
| Employees (Sept. 30) | 12,182 | 12,212 |
Large profit drop
The Stainless segment is focused on stainless steel flat products and the high-performance materials nickel alloys and titanium. We hold leading positions in both areas.
The volume of orders received by the Stainless segment improved significantly, increasing by 28% to 2.3 million tons. The prior-year period was marked by a pronounced reluctance to buy on the part of distributors and users. This was caused by extremely high imports from Asia, high inventory levels at distributors and service centers, and drastic fluctuations in the nickel price. The value of orders received decreased by 3% to €7.5 billion due to low base and nickel prices. The value of new orders for nickel alloys also fell as a result of the low nickel price. The value of orders for titanium mill products likewise decreased.
At 2.3 million tons, total Stainless deliveries in the reporting year were 3% up from the prior year. Shipments of nickel alloys were down slightly, while deliveries of titanium increased. Sales decreased by 15% to €7.4 billion, mainly as a result of lower selling prices.
Following the record earnings of the prior year, the Stainless segment saw its profits slump by €651 million to €126 million. The main reasons for this were significantly lower average base prices and partial underutilization of capacity in the 1st and 4th fiscal quarters. Thanks to the slight market recovery at the end of 2007 earnings improved initially but this improvement came to a halt at the end of the 3rd fiscal quarter, mainly as a result of weaker demand from distributors. This led to falling base prices and corresponding production cutbacks through to the end of the fiscal year.
Due to the dramatic price falls for nickel and alloyed scrap and the above-mentioned price developments on the selling markets, earnings were down significantly from the previous year. The drop in earnings was mitigated by successful inventory management and income from the fair value measurement of derivatives used to hedge against commodity price risks from outstanding purchasing transactions and inventories. In addition, the continuing strength of the euro weakened the competitiveness of our exports to the US dollar region. Higher electricity costs, particularly in Italy and Germany, also weighed on earnings.
ThyssenKrupp Nirosta
The ThyssenKrupp Nirosta business unit benefited in Europe from improved demand from distributors and still relatively stable sales to end customers. This generally positive trend was reflected in a strong increase in the volume of orders received. However, at €3.2 billion the sales of the business unit were down from the prior year due to lower prices. The significant decline in earnings was mainly caused by a much weaker price level.
ThyssenKrupp Acciai Speciali Terni
At ThyssenKrupp Acciai Speciali Terni, too, the weakening of demand for stainless steel products over the year, above all from service centers and distributors, was reflected in order intake. This demand weakness was caused among other things by high volumes of imports coming into Europe, which impacted the Italian stainless market in particular. The sales of the Italian business unit slipped to €2.7 billion due to lower shipments and decreased transaction prices. In addition there were production losses at the Turin plant after the accident in December 2007.
ThyssenKrupp Acciai Speciali Terni posted a loss for 2007/2008. The drastic decline in earnings was mainly due to a weaker Italian stainless steel market. Earnings were additionally impacted by the extra costs associated with the decision by the EU Commission not to extend energy compensation payments. In addition, costs were incurred by the commenced relocation of production from Turin to Terni and by the fire in Turin in December 2007. The forging operations exceeded their prior-year earnings thanks to a stable market environment.
At ThyssenKrupp Titanium the volume of new orders increased strongly. Shipments were also higher, while sales fell slightly.
ThyssenKrupp Mexinox
ThyssenKrupp Mexinox held its own in a difficult market environment in the NAFTA region. Orders were up slightly from the prior year in terms of volume but decreased in value terms due to lower prices. Sales fell to €591 million.
The substantial drop in profits was due to the weak state of the US market. However the stable situation on the Mexican market weakened these negative effects.
Shanghai Krupp Stainless
At Shanghai Krupp Stainless order volumes were down from the prior year.
Sales were lower at €284 million, and profits also fell significantly. The deterioration was due to a continuing weak and difficult market environment in China – caused by increasing overcapacities – and the loss of contract work.
ThyssenKrupp Stainless International
The ThyssenKrupp Stainless International business unit recorded a fall in the volume and value of new orders due to the difficult market environment and low transaction prices. Sales decreased to €1.2 billion.
Following a profit in the prior year the business unit made a loss. The significant drop in earnings resulted from the generally weak state of the international stainless steel markets, which led to a decrease in margins and shipments.
ThyssenKrupp VDM
In the nickel alloy business of ThyssenKrupp VDM order intake and sales were lower than a year earlier. Wire production was successfully relocated from Bärenstein to Werdohl. With the construction of the new forge, which began operation in May 2008, ThyssenKrupp VDM widened its range of products in particular for the aerospace industry.
The business unit was unable to maintain its prior-year profit level. On the European markets, increased exports by US suppliers – favored by the weak US dollar – resulted in high price pressure. In addition, the strong euro meant that prices for exports to the US dollar region were no longer competitive.
Significant events
In December 2007 a fire occurred in the Turin plant.
The plant in Turin was closed early as part of the strategic realignment of the Terni site.
Capital expenditures
Stainless invested a total of €387 million in property, plant and equipment and intangible assets in the reporting year, with depreciation amounting to €157 million.
In the stainless flat products area the investment program centered on securing and expanding our existing market position in Europe and North America. This includes the construction of the new steelmaking and processing plant near Mobile in Alabama/USA, on which around €103 million was spent in the reporting year. The work is on schedule: Piling work and the construction of the foundations for the cold rolling mill have been completed. Erection of the first buildings began in late August 2008. Most of the orders for production equipment have been placed. A more detailed progress report is provided in the section "Business management – goals and strategy".
Capital expenditure at ThyssenKrupp Nirosta focused on expansion of the EBOR service center operations to increase end-customer business, the construction of an acid regeneration plant at the Krefeld site, and measures to maintain existing operations and modernize individual units. With the expansion of EBOR we continued the path of enhancing our processing capacities and thus increasing value-added in the area of high-quality stainless steel finishes. The new plant in Krefeld to regenerate spent acid is designed to further reduce the nitrate content of the wastewater. In the Krefeld and Bochum steelmaking shops the extensive modernization of the AOD furnaces will be continued in the coming years.
ThyssenKrupp Acciai Speciali Terni with its investments aims to gradually expand the Terni plant into one of the most modern and efficient production sites in the world. Some of the individual projects began in 2006/2007 but will not be completed until fiscal 2008/2009. After the closure of the plant in Turin a start has been made on moving individual units to Terni. An additional investment program will increase hot- and cold-rolled capacities while widening the product portfolio. This will improve the balance between steelmaking and hot/cold rolling capacities and make it possible to meet long-term rising European demand. The investment program mainly involves replacing the thin-slab caster with a conventional continuous caster to enhance hot-rolled quality and better utilize existing steelmaking capacity. In addition, the installation of two inline roll stands in the recently built hot strip anneal and pickle line will create the conditions for higher cold-rolled capacity. The investment package also includes the creation of further capacity in the anneal/pickle area and the expansion of the finishing and shipping departments. To allow the production of ferritic grades with high chromium and low carbon contents and to optimize operating procedures, a VOD furnace was installed in the melt shop of ThyssenKrupp Acciai Speciali Terni which began regular operation in spring 2008. This VOD furnace will also help improve the quality of the cast forging ingots and create the necessary conditions for increasing ingot weights to 500 t.
A key factor in the expansion of Società delle Fucine was the investment in a manipulator to facilitate faster forging with reduced manpower and energy requirements. This will increase the efficiency of the forge while shifting the product mix towards higher-quality products and larger unit weights, above all for the energy sector.
An existing Sendzimir mill in the plant of ThyssenKrupp Mexinox is being modernized step by step. The project will continue over the next two fiscal years.
In China, Shanghai Krupp Stainless has expanded its processing capacities with a circle cutting machine enabling it to offer its customers circular stampings for further processing.
ThyssenKrupp Stainless International expanded its international distribution and service center network with further service centers. In the growing Turkish market a new service center is being built in the greater Istanbul area which will combine our existing operations there. The new service center will begin operation in the 1st quarter 2009. As at Shanghai Krupp Stainless, a circle stamping machine is being built in the service center in Poland which will meet the rising requirements of customers in the white goods industry.
To allow us to share in market growth, particularly in the high-end segments, we optimized existing production structures and further expanded our capacities for high-performance materials. The biggest single project at ThyssenKrupp VDM is the construction of a complete open-die forge at the Unna plant. In addition, service capabilities have been significantly expanded. In response to fast-growing demand for titanium products, ingot capacity at the Essen plant has been more than doubled in two steps. The key investment here was a modern electron beam furnace which has the advantage of being able to process both titanium sponge and titanium scrap.
Technologies
| 2006/2007 | 2007/2008 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 14,844 | 13,490 | |||
| Sales | million € | 11,523 | 12,412 | |||
| Plant Technology | million € | 2,624 | 3,217 | |||
| Marine Systems | million € | 2,021 | 2,007 | |||
| Mechanical Components | million € | 3,793 | 3,924 | |||
| Automotive Solutions | million € | 3,182 | 3,247 | |||
| Transrapid | million € | 49 | 41 | |||
| Corporate/Consolidation | million € | (146) | (24) | |||
| Earnings before taxes (EBT) | million € | 544 | 741 | |||
| Employees (Sept. 30) | 54,762 | 54,043 |
Most successful fiscal year
The Technologies segment is a high-tech engineering contractor and component manufacturer which also provides tailored services. With its innovative system and engineering capabilities, Technologies holds outstanding world market positions.
The segment's extremely positive performance continued unabated in the reporting year. Order intake was again pleasingly high at €13.5 billion, though below the exceptionally high level of the prior year, which was boosted by the frigate project for the German Navy. The project situation in the plant technology sector remained very good, with numerous infrastructure and exploration projects. Orders in hand increased again to around €16 billion at September 30, 2008, securing more than a year's sales. Based on the good order situation, sales in the reporting year also improved, rising by 8% to €12.4 billion despite negative US dollar exchange rate effects and disposals.
Fiscal 2007/2008 was the most profitable year in the history of the segment. Profits improved from the prior year by €197 million to €741 million. The segment's active portfolio management with a focus on profitable business areas is having an increasing effect and confirming the sustainability of the Technologies strategy. The segment also benefited from the good order situation at Plant Technology, higher profits at Mechanical Components and lower costs and higher investment income at the segment holding company. All business units in the segment are now returning good - and in some cases excellent - profits, with the greatest earnings contributions again coming from the Mechanical Components and Plant Technology business units.
Plant Technology
The very good order and project situation at Plant Technology was driven by high raw material and energy prices and by high global demand for cement, which pushed order intake from its high prior-year level to a new record of €5.1 billion. Among other things, customers ordered propylene and polypropylene plants, fertilizer complexes, coal gasification plants, coke oven plants, bulk handling systems, oil sands mining equipment and cement plants. In the chemical plant sector we won a major contract for a mega fertilizer plant in Algeria.
At €3.2 billion, sales were up strongly from the prior year thanks to the good order situation in all sectors. Plant Technology achieved outstanding earnings in 2007/2008. The large increase was due to higher sales on high-margin orders, a good workload and significantly improved order results.
Marine Systems
At Marine Systems, order intake was well down from the prior year, which was boosted by major orders in connection with the German N.V. frigate program. While demand in the repair and service business remained high, the surface vessel unit in particular fell short of the prior year's figures.
At €2 billion, sales were almost level with the prior year. The business unit's profit was lower than a year earlier. Worthy of particular mention is the very good performance of the repair and service business. Negative earnings impacts arose from complex mega yacht orders.
Mechanical Components
Demand from machinery manufacturers for the high-tech products of the Mechanical Components business unit was generally positive in fiscal 2007/2008. Despite the disposal of the precision forging operation, order intake was unchanged from the high prior-year level.
Sales increased year-on-year to €3.9 billion. Gains in slewing bearings and rings, particularly due to unabated growth in the wind turbine sector, more than offset the fall in demand on the US markets and a strongly negative US dollar/euro exchange rate effect. Mechanical Components achieved a high three-digit million euro profit. Positive factors in this were the strong performance in slewing bearings and rings, and the income from a business disposal. Negative factors were declining demand in the USA, increased starting material prices at the North American foundries and, for exports, the continued depreciation of the US dollar against the euro.
Automotive Solutions
Order intake at Automotive Solutions increased year-on-year. All operating groups played a part in this, with particular contributions coming from the body shop equipment and assembly systems group and the axle module assembly business.
At €3.2 billion, sales were slightly higher than a year earlier. Earnings also improved, with the business unit achieving a two-digit million euro profit. The restructuring programs carried out are therefore starting to bear fruit.
Transrapid
Transrapid achieved sales of €41 million, mainly due to billings under the Chinese license agreement; the earnings contribution was positive.
Significant events
The Technologies segment rigorously continued its portfolio optimization in 2007/2008. The main events were the disposals of ThyssenKrupp Präzisionsschmiede to the Indian Sona Group, the ThyssenKrupp Drauz Nothelfer plant in Ravensburg to EBZ Systec, and the Nobiskrug shipyard in Rendsburg to Eagle River Capital.
Plant Technology strengthened its market position in the engineering and construction sector by purchasing the remaining 50% of Uhde Shedden with sites in Australia and Thailand. The company is active in the engineering sector, particularly in the oil, gas, chemical and petrochemical industries, and serves the Australian and Southeast Asian regions.
Marine Systems has repositioned itself. The restructuring will strengthen and expand the Hamburg site for civil shipbuilding and repairs. The same applies to the Emden site in the naval shipbuilding sector. In the USA the operations of Gray EOT were purchased. Gray produces and markets oil production equipment.
Mechanical Components has established its own plant for slewing bearings in the fast growing Indian market, the first manufacturer to do so. The operations of the Italian company Forteq were acquired effective October 01, 2007. This acquisition strengthens the business unit's market position in undercarriages and undercarriage components for earthmoving machinery. In mid-2008 Berco Undercarriage Trading began operations in Shanghai.
By combining the engineering specialists ThyssenKrupp Krause and ThyssenKrupp Drauz Nothelfer we improved our engineering and project capabilities for tooling and systems in the auto manufacturing sector. The minority shareholding in Bertrandt AG, an auto industry engineering service provider which is no longer part of our core business, was sold.
Following the ending of the Transrapid project in Munich, ThyssenKrupp and Siemens restructured their Transrapid operations. Due to the reduction in marketing and planning activities the Berlin office of the Transrapid International joint venture was closed as of October 01, 2008. The core capabilities of the Transrapid technology will be retained. Both companies continue to stand by the Transrapid system and are carrying on negotiations with potential customers for example in the USA and China.
Capital expenditures
Capital expenditures in the Technologies segment reached €763 million in the reporting year, with depreciation totaling €347 million.
More than half the funds were used to expand manufacturing capacities for existing and new products. Other major uses included measures to maintain existing operations and strengthen efficiency. Most of the investment was carried out in Germany, North and South America, China and India.
Plant Technology expanded its worldwide engineering network at sites offering cost advantages. One strategic focus was to intensify the service business. In the future, service centers located close to customers will repair and manufacture core components for plants supplied by us.
Capital spending at Mechanical Components focused on expanding production capacities and increasing efficiency. Investment was made into making final assembly of assembled camshafts more flexible. In the crankshaft area, the efficiency of forging particularly for low-cost car crankshafts was significantly increased.
In response to continuing strong demand for slewing bearings and seamless rings we launched a special investment program to significantly expand worldwide manufacturing capacities in these highly profitable businesses. The investment strategy is focused on the expansion of existing plants in America, Europe and above all Asia.
The investment projects carried out at Automotive Solutions served the purpose of strategic optimization. New assembly lines for the production of mechanically adjustable steering columns were purchased and existing lines were modernized. The assembly of DampTronic shock absorbers was optimized. Investments in new automated lines will increase both production capacity and process reliability.
Elevator
| 2006/2007 | 2007/2008 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 5,281 | 5,535 | |||
| Sales | million € | 4,712 | 4,930 | |||
| Central/Eastern/Northern Europe | million € | 1,389 | 1,482 | |||
| Southern Europe/Africa/Middle East | million € | 774 | 827 | |||
| Americas | million € | 1,821 | 1,892 | |||
| Asia/Pacific | million € | 505 | 495 | |||
| Escalators/Passenger Boarding Bridges | million € | 347 | 332 | |||
| Accessibility | million € | 190 | 215 | |||
| Corporate/Consolidation | million € | (314) | (313) | |||
| Earnings before taxes (EBT) | million € | (113) | 434 | |||
| Employees (Sept. 30) | 39,501 | 42,992 |
Expansion continued
The Elevator segment is one of the world's leading manufacturers and service providers in the area of elevators, escalators, moving walks, passenger boarding bridges, stair and platform lifts. The segment guarantees the high quality of its specialist services throughout the world through its tight-knit network of branches and service operations.
Elevator continued its expansion in 2007/2008. Despite very negative exchange rate effects, in particular the performance of the US dollar against the euro, and continuing price and margin pressure, the business volume was again expanded. Order intake increased by 5% to €5.5 billion and sales by 5% to €4.9 billion.
The segment returned a profit of €434 million in the reporting year. Excluding the EU antitrust fine of €480 million in the previous year, this represents a year-on-year increase of 18%. Operating improvements outweighed the negative exchange-rate effects and costs from the plant closures in Austria and Spain.
Central/Eastern/Northern Europe
In the Central/Eastern/Northern Europe business unit, order intake showed a slight improvement and sales rose to €1.5 billion. The activities in Eastern Europe in particular contributed to the strong performance, reporting significantly higher order intake and sales in the new installations business. In Germany orders and sales showed a further slight increase from an already high level. The high level of orders received in France was not quite maintained, though sales grew significantly as a result of strong modernization business.
Excluding the EU antitrust fine from the previous year, the business unit's profits remained stable. Operating improvements offset costs from the resolved plant closure in Gratkorn, Austria.
Southern Europe/Africa/Middle East
The Southern Europe/Africa/Middle East business unit exceeded its prior-year order intake and sales levels. In Spain, orders for new installations and services were significantly higher. However, sales on the Spanish market were down slightly from the high year-earlier level. A decline in business with new installations was virtually offset by growth in services. The volume of business in Italy expanded appreciably compared with the previous year thanks to further acquisitions. The operations in Turkey and the Gulf region also reported very pleasing growth.
The business unit achieved a substantial year-on-year increase in profits, with the Spanish operations in particular playing a major part in this. However, earnings were impacted by the closure of a production plant in Spain.
Americas
Due to very negative exchange rate effects, order intake in the Americas business unit was slightly down from the high level of the previous year. However, at €1.9 billion, sales were even higher than the year before. Excluding exchange rate effects, the North American operations achieved a marked improvement on their high prior-year order intake and sales levels in both new installations and services. Business in South America, especially Brazil, was generally very encouraging.
Despite the negative US dollar/euro exchange rate trend, the business unit's profits once again showed a significant year-on-year increase. This was attributable to further efficiency gains, most of all in North America, and a higher volume of business in South America, especially Brazil.
Asia/Pacific
The Asia/Pacific business unit reported increased orders and steady sales despite negative exchange rate effects. Strong growth in China, India and Australia offset the decline in South Korea. Order intake in Southeast Asia increased but sales were down slightly from the previous year.
As in the previous year, the business unit reported a loss due to the restructuring of the Korean operations. Earnings at all the Asia/Pacific business unit's other operations were level with or slightly higher than the previous year.
Escalators/Passenger Boarding Bridges
Orders and sales at the Escalators/Passenger Boarding Bridges business unit were slightly lower year on year. While the escalator business achieved a strong improvement in orders and a slight increase in sales, passenger boarding bridges could not maintain the previous year's high level of business.
The business unit made a loss. The pleasing earnings achieved in the escalator business could not offset the loss in passenger boarding bridges.
Accessibility
The Accessibility business unit continued its steady growth and reported a substantial increase in orders and sales. The activities in both Europe and North America contributed to this. The decline in the US housing market was reflected in the business volume, but this was offset by the acquisition of the operations of National-Wheel-O-Vator.
The business unit achieved further growth in profits year on year. The operations in both Europe and North America reported higher earnings, in the case of the latter this was due to acquisitions.
Significant events
The Elevator segment pressed ahead with the continuous expansion of its sales and services business in the past fiscal year and acquired numerous small regional companies. In Italy, several minor acquisitions strengthened growth above all in the services area. In established markets – such as the USA, Germany, Spain and Portugal – local companies were acquired to bolster the existing customer services activities. Elevator also expanded in Denmark with a small but strategically important acquisition.
The expansion strategy in the Accessibility business with products such as stair and platform lifts and home elevators was continued.
Capital expenditures
Capital expenditures in the Elevator segment in the reporting year amounted to €136 million, with depreciation at €57 million. The investment again served the segment's sustainable growth strategy and the strengthening of market positions in 2007/2008.
The capital spending related mainly to replacement investment. Financial investment focused on the acquisition of selected small servicing enterprises, particularly with a view to further developing the Italian market. An additional key investment objective was to strengthen the Accessibility unit. In the USA, the acquisition of the operations of National-Wheel-O-Vator consolidated our position in the market for home elevators and vertical platform lifts. With a further acquisition in the United Kingdom, the business unit strengthened its capabilities in the area of stair lifts for straight staircases to reinforce its position in this key European market.
Services
| 2006/2007 | 2007/2008 | |||||
|---|---|---|---|---|---|---|
| Order intake | million € | 16,823 | 17,453 | |||
| Sales | million € | 16,711 | 17,336 | |||
| Materials Services International | million € | 7,926 | 8,539 | |||
| Materials Services North America | million € | 2,340 | 1,833 | |||
| Industrial Services | million € | 1,899 | 2,086 | |||
| Special Products | million € | 4,600 | 4,929 | |||
| Discontinued operations/Consolidation | million € | (54) | (51) | |||
| Earnings before taxes (EBT) | million € | 704 | 750 | |||
| Employees (Sept. 30) | 43,012 | 46,486 |
Another record year for sales and earnings
The Services segment is focused on material and industrial services and on the supply of raw materials to the production and manufacturing sectors. The segment's main markets are Europe and the NAFTA region. Services sees particularly good growth opportunities in Eastern Europe and Asia.
Fiscal 2007/2008 was the third record year in succession for Services. Both sales and earnings hit new highs. Sales climbed 4% to €17.3 billion and earnings 7% to €750 million. In addition to the strength of the materials markets, these outstanding figures were the result of efficient portfolio optimization and performance enhancement programs. Added to this were growth initiatives in all business units.
Materials Services International
Benefiting from the positive situation on the materials markets, the Materials Services International business unit reported sales of €8.5 billion – a further improvement on the very good prior-year level. Despite price increases, demand for rolled steel and tubes was high. The sales growth was also partly attributable to the newly acquired companies – including Ferostav and the Apollo Metals Group – which were included in the reporting for the first time.
In Germany the upward business trend continued. Demand for rolled steel increased. The service center operations reported a pleasing workload. By contrast, prices for stainless steel were unsatisfactory. The picture was different for nonferrous metals, where strong global demand kept prices stable at a high level. It was only towards the end of the fiscal year that business began to slacken noticeably. Sales of plastics in Germany decreased on account of the weakness of the private construction sector.
Sales outside Germany increased mainly due to new activities in the Netherlands, Italy and Denmark. Demand and prices in the Eastern European market improved in the course of the fiscal year. Russia, Bulgaria, the Czech Republic and Poland reported stronger growth. The business unit systematically continued its concentration on the mechanical engineering, construction and aerospace sectors.
Materials Services International again exceeded its outstanding prior-year profits and remained the segment's highest earner.
Materials Services North America
At €1.8 billion, sales in the Materials Services North America business unit fell short of the year-earlier level due to strongly negative exchange-rate effects and the weakness of the North American materials market. Increasing inflation rates, driven in particular by high energy costs, and the continued financial crisis dampened private demand. In particular the US automobile industry and the private housing sector suffered as a result. By contrast, demand for materials from the aerospace and energy sectors remained satisfactory.
Generally all the relevant markets registered increased competitive and margin pressure. Demand for flat-rolled steel products and stainless steel was weak and business with nonferrous metals also slackened. The signing of a new ten-year contract with Boeing Commercial Airplane in June 2008 provided an additional boost to the aerospace service business. The contract for integrated supply chain management covers global purchasing coordination, deadline tracking, inventory management, the processing of all aluminum and titanium products, the optimization of in-plant material flows and the coordination of 700 production plants and subcontractors.
Overall the business unit reinforced its outstanding position in the North American materials market and maintained its market share despite shrinking demand, though it was unable to match the previous year's profit level.
Industrial Services
The Industrial Services business unit increased its sales to €2.1 billion. There were several reasons for this pleasing growth: the good situation in Germany – especially in the engineering and energy sectors – disproportionate growth in Brazil, and an encouraging performance in the USA, where sales increased despite the euro/US dollar exchange rate.
The trend among customers towards outsourcing non-core processes in the production chain continued. A key issue on the German market was the increasing margin pressure caused by minimum wages. However, labor cost advantages alone were not the main reason for outsourcing among our customers. Quality and expertise advantages played a more important role. Industrial Services responded to this trend by offering customers integrated system solutions and innovative operator models. As a result, business continued to grow evenly across all services, regions and sectors. In the reporting year the business unit continued to focus on its target industries, the auto, chemicals/petrochemicals, energy, construction and metal-producing sectors.
Overall the business unit further improved its operating performance in all areas and comfortably exceeded the record earnings of the year before.
Special Products
At €4.9 billion, sales of the Special Products business unit showed a further improvement on the high prior-year level. In the international rolled steel business, Chinese export tariffs and at times extremely high freight rates meant that procurement prices ex China were not always competitive in Europe. However, this development was almost offset by increased business within Asia. In the tube/pipe business, some major projects were deferred until the new fiscal year. Demand and prices for metallurgical raw materials, coke and minerals remained high.
Energy trading, trading with industrial minerals and the industrial gases activities again gave a very encouraging performance. The ferroalloys business also significantly improved on its prior-year sales level and prices for the most part remained at a very high level. However, the metals business could not quite match the exceptionally good figures of the year before. Sales of technical systems increased further, profiting from increasing demand for infrastructure projects in numerous European and non-European regions. In particular there was a strong increase in public-sector orders in Germany and other countries.
Thanks in particular to the performance of the raw materials business and technical systems, the business unit surpassed its record prior-year earnings.
Significant events
Services continued its growth strategy in strategically attractive regions and markets. At the beginning of the reporting year, the segment acquired an 80% shareholding in Ferostav, the third largest steel distributor in Slovakia. As a result we further strengthened our already very good market position in Eastern Europe.
At the beginning of 2008 the segment also acquired a 100% stake in the UK-based Apollo Metals Group. Apollo supplies high-quality products such as aluminum, stainless steel and nonferrous metals in conjunction with value-adding processing services - mainly for the aerospace industry. In the course of the fiscal year Apollo was combined with Services' other aerospace activities to form ThyssenKrupp Aerospace. With 30 locations in 13 countries, the new unit is the largest supplier of supply chain management solutions in this specialist sector worldwide.
Services reinforced its position in the plastics services market with targeted acquisitions in Scandinavia, the Benelux countries and Italy. In Spain the segment acquired a majority shareholding in the materials service provider Lamincer. The acquisition further strengthened the segment's service activities in hot-rolled, narrow and cold-rolled strip. In Australia the segment acquired 100% of Steelcom, a regional market leader in the sale and hire of sheet piling and accessories plus the related equipment.
Capital expenditures
Capital expenditures in the Services segment amounted to €369 million, with depreciation at €154 million. The main investment went into business expansion. In Germany, the materials services activities at various locations were expanded. In North America the focus was on harmonizing the IT infrastructure and further expanding the supply chain management business. Various properties were acquired in Central and Eastern Europe, for example in Poland, Bulgaria and Serbia. The remaining investment served to maintain existing operations, develop new distribution channels and optimize processing capacities.
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 were also assigned to Corporate. As this company's operations have now been sold, Corporate sales decreased from €288 million to €124 million.
Expenditure at Corporate amounted to €417 million, €212 million more than the year before. While income in the prior year was boosted by sales of real estate in the amount of €115 million, in the year under review expenses were incurred for litigation and guarantees in connection with business disposals. Net interest deteriorated mainly as a result of increased capital requirements.