Segment review
Steel: Holding up well
| 1st quarter ended Dec. 31, 2006 |
1st quarter ended Dec. 31 2007 |
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|---|---|---|---|---|---|
| Order intake | million € | 3,123 | 3,188 | ||
| Sales | million € | 3,118 | 3,214 | ||
| Earnings before taxes (EBT) | million € | 399 | 353 | ||
| Employees (Dec. 31) | 38,837 | 39,922 |
The Steel segment again increased its business slightly in the 1st quarter 2007/2008, despite a slightly weaker market environment. The value of orders received climbed by 2% to €3.2 billion; this was due to higher prices, with order volumes virtually unchanged from the prior year. Sales rose by 3% to €3.2 billion, which was also due to higher prices with shipments down slightly from the prior-year quarter. The segment generated a profit of €353 million, compared with €399 million in the same prior-year quarter. The decline is due to lower profit contributions from the Industry and Auto business units and to the project costs of the steel mill project in Brazil.
Corporate
Effective October 01, 2007 the administrative functions at ThyssenKrupp Steel AG as well as the strategic investment projects in Brazil and the USA were grouped together in a new business unit Corporate. Previously they had been part of the Steelmaking business unit. Due to the rising project costs of the steel mill project in Brazil, the unit's loss increased from the prior year.
Steelmaking
Steelmaking now comprises only the metallurgical operations in Duisburg and the transportation companies. Compared with the prior year crude steel production increased by 5% to 3.7 million metric tons, with all units working at full capacity. The new blast furnace 8 was put into operation in December. With a daily capacity of 5,600 tons of hot metal it will replace blast furnace 4, which will serve as a spare in the future. Steelmaking's sales to external customers were lower than a year earlier. However the business unit moved to a profit from a loss in the prior year, when earnings were impacted by the limited availability of a blast furnace.
Industry
The Industry business unit recorded an increase in sales and a slight decrease in shipments. Compared with the prior year, price levels were higher in both long-term and quarterly deals. Shipments to industrial customers remained steady, with most customer groups enjoying continuing good workloads. The heavy plate business recorded a drop in volumes due to excess inventories at distributors, but sales increased strongly thanks to higher prices. Effective October 01 the organic coated steel and construction elements operations were combined to form the Color/Construction competence center. Sales of organic coated steel were virtually unchanged, but market prices came under pressure – not least due to high imports. The construction elements business recorded significant sales losses in Germany but these were offset by volume gains in the rest of Western Europe. In November 2007 ThyssenKrupp Steel opened a new components plant in Hungary in response to fast-growing demand for steel sandwich elements in Central and Eastern Europe. The European steel service centers again recorded above-average business growth thanks to another slight increase in volumes and higher prices in annual contracts. All sectors of the Industry business unit – with the exception of heavy plate – recorded a decline in profits. Increased starting material costs were not fully offset by measures to increase efficiency.
Auto
Sales in the Auto business unit increased due to higher prices in contracts with the auto industry. Tailored Blanks profited from higher orders from key auto customers, mainly in Germany. Business on the US auto market was more difficult. Our steel service centers there recorded volume losses; in addition there were negative effects from the rise in the euro exchange rate. However, US dollar prices remained at a high level. In total the Auto business unit recorded a lower profit than a year earlier. Earnings were impacted by lower shipments and higher energy and raw material costs, which were not fully offset by price increases and continuing performance programs. Tailored Blanks reported an increase in profits from the prior year.
The Metal Forming unit, which has been part of the Steel segment since the beginning of the past fiscal year, increased its sales on the back of higher orders from auto manufacturers but posted another loss. The strategic plan drawn up for this unit provides for the optimization of the European production network, strengthening of the profitable chassis activities and an increased presence in growth markets.
Processing
Sales of the Processing business unit, which combines our tinplate, medium-wide strip and grain-oriented electrical steel activities, were slightly higher than a year earlier; profits rose more strongly. The volume of tinplate business was down, with Rasselstein unable to match its high prior-year shipments. Profits also fell. In a continuing positive market, Hoesch Hohenlimburg held its shipments steady at a high level and increased its sales again thanks to continued price increases. This was accompanied by a large rise in profits. The grain-oriented electrical steel business also continued to perform very well. Sales grew strongly, mainly due to increased prices, but there was also a slight rise in shipments. As a result, earnings improved significantly from the prior-year quarter.
Stainless: Earnings impacted by market developments
| 1st quarter ended Dec. 31, 2006 |
1st quarter ended Dec. 31 2007 |
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|---|---|---|---|---|---|
| Order intake | million € | 1,913 | 2,150 | ||
| Sales | million € | 1,971 | 1,838 | ||
| Earnings before taxes (EBT) | million € | 325 | (45) | ||
| Employees (Dec. 31) | 12,221 | 12,075 |
ThyssenKrupp Stainless recorded significant year-on-year growth in the volume of orders received thanks to increasing demand from distributors and stable end-user demand. In value terms, order intake increased by 12% to €2.2 billion despite the extremely low price level. In the stainless steel unit, order volume increased by 33% for cold-rolled and 37% for hot-rolled coil. In the case of nickel alloys, order volume decreased by 8%.
Overall deliveries by ThyssenKrupp Stainless were lower than a year earlier at around 537,000 metric tons. The decline affected both stainless cold- and hot-rolled and the high-performance materials. Sales fell by 7% to €1.8 billion. The main reason for the fall was the low price level, caused by a significant drop in base prices and a reduction in alloy surcharges due to falling nickel prices.
Earnings of the Stainless segment fell by €370 million, resulting in a loss of €45 million. The decrease was mainly due to the drastic fall in base prices compared with the prior-year quarter and continuing underutilization of capacity in the reporting quarter. Whereas the prior-year quarter was marked by a still very high base price level, the base price in the 1st quarter 2007/2008 was at an extremely low level, but with orders rising again. The drastic fall in nickel prices from mid-2007 resulted in market uncertainty and a reluctance to spend. Distributors began running down stocks, which accelerated the fall in base prices. As a result, inventories again had to be written down in the reporting period.
ThyssenKrupp Nirosta
After several months of weak orders the ThyssenKrupp Nirosta business unit recorded a recovery in demand from distributors and stable business with end customers. This generally positive trend was reflected in a significant rise in order volumes, though mainly for cold-rolled strip. Demand for hot-rolled strip was still relatively weak. Capacities were therefore still underutilized, especially in the steelmaking shops. Sales almost matched the prior-year level. Due to the deterioration in prices, earnings fell significantly.
ThyssenKrupp Acciai Speciali Terni
ThyssenKrupp Acciai Speciali Terni also saw a recovery in demand for stainless products, particularly from service centers and distributors, in the 1st fiscal quarter. Here too, however, demand for hot-rolled products was weak. As a result, capacity utilization in the cold rolling mills and especially in the steelmaking shops was lower than in the prior-year quarter, which was reflected in the lower sales of the business unit. Earnings decreased significantly. Costs directly related to the relocation of production from Turin to Terni also weighed down on earnings. Profits from the titanium business were virtually unchanged from the prior year.
On December 06, 2007 a tragic fire occurred in the Turin plant which claimed the lives of seven employees. Since then production at the Turin cold rolling mill has been suspended on the instructions of the authorities.
ThyssenKrupp Mexinox
The volume of orders received by ThyssenKrupp Mexinox was slightly higher than a year earlier despite the weaker market in the NAFTA region. The value of orders received decreased for price reasons. Sales were lower than in the prior-year quarter. Earnings also fell significantly in this weaker market environment.
Shanghai Krupp Stainless
Shanghai Krupp Stainless recorded higher order volumes as distributors replenished their inventories. Production of ferritic stainless steels was increased in response to higher demand. Sales and profits were lower than in the prior-year quarter. The fall in profits was due to the continuing difficult market environment in China and the absence of contract work carried out for ThyssenKrupp Nirosta in the prior-year quarter.
ThyssenKrupp Stainless International
Order intake and sales in the ThyssenKrupp Stainless International business unit were lower than in the prior-year quarter. In addition, the significantly lower price level on the international stainless steel markets resulted in noticeable earnings losses. However, the company now has increased sales potential as a result of additional service centers to supply the markets in Central and Eastern Europe and the UK.
ThyssenKrupp VDM
In the nickel alloy business, the wait-and-see attitude of customers resulted in a fall in order intake and sales from the prior-year quarter. The relocation of wire production from Bärenstein to Werdohl has been largely completed. The construction of the new forging line, which will officially begin operation in May 2008, will widen ThyssenKrupp VDM's range of products, particularly for the aerospace industry.
Profits were virtually unchanged from the prior year.
Technologies: Earnings again higher
| 1st quarter ended Dec. 31, 2006 |
1st quarter ended Dec. 31 2007 |
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|---|---|---|---|---|---|
| Order intake | million € | 3,428 | 3,212 | ||
| Sales | million € | 2,792 | 2,822 | ||
| Earnings before taxes (EBT) | million € | 148 | 179 | ||
| Employees (Dec. 31) | 52,954 | 55,567 |
The Technologies segment made a good start to the new fiscal year. Following the record level achieved in the prior-year quarter, order intake was again high at €3.2 billion in the 1st quarter 2007/2008. Thanks to the good project situation in the plant technology sector, further major orders are expected in the quarters ahead. At €2.8 billion, sales were higher than the prior-year level despite the negative effects of the US dollar exchange rate. Orders in hand at December 31, 2007 increased strongly to €15.7 billion, securing more than a year's sales. The profit of €179 million represents a quarterly record and a significant increase from the high level of the prior year. Contributory factors in this included the continuing good order situation at Plant Technology and lower personnel costs.
As part of the further optimization of the segment portfolio, the search for a best owner for the precision forging operations was successfully concluded. The purchaser will be the Indian Sona group, which produces steering systems, rear axle parts and cold forgings for transmission, engine and powertrain components. By purchasing the precision forging operations, Sona intends to build a world-leading forging group.
Plant Technology
The order situation at Plant Technology remained pleasing. High order volumes were achieved particularly in chemical and cement plant engineering. Order intake for mining and materials handling equipment was slightly down from the prior-year quarter, which was boosted by major orders. Thanks to a large increase in orders in hand, sales were up again from the high prior-year level. This growth is being driven by the global megatrends in the climate, environmental, energy and infrastructure sectors. Plant Technology improved again on the high profit level of the prior-year quarter and made the biggest contribution to segment earnings.
Marine Systems
Marine Systems enjoyed continuing high demand in its repair and service business with significant growth in orders. Orders for surface vessels were slightly down from the prior-year quarter. Overall the project situation in the naval shipbuilding sector is promising and major orders are expected in the quarters ahead. Sales were lower than the comparable prior-year value due to lower percentage completion rates on orders in hand in the submarine unit. Marine Systems generated a profit equal to the prior-year quarter.
Mechanical Components
The Mechanical Components business unit received higher orders for high-tech components for cars, construction equipment and general engineering uses. In particular demand for slewing bearings and rings for the wind energy sector remained steady at a high level. Sales were up from the prior-year quarter, although the continued appreciation of the euro against the US dollar had an increasing impact. Mechanical Components was not quite able to match the high profits of the prior-year quarter, which were boosted by disposal gains. Earnings were also impacted by declining US demand and the continued depreciation of the US dollar, whereas the continuing strong demand for slewing bearings and rings led to positive earnings effects.
Automotive Solutions
The Automotive Solutions business unit expanded its business with innovative system solutions for the auto industry. Order intake and sales showed a pleasing increase mainly due to higher orders for axle modules from German manufacturers. As in the prior-year, Automotive Solutions generated a small profit. Higher profits in the steering column and steering system business were partly offset by a decline in assembly system, tooling and carbody business caused by a low-margin order backlog and restructuring costs in the assembly systems unit. To secure the future of the business, cost-reducing site optimization and streamlining measures and efficiency programs were initiated.
Transrapid
Transrapid recorded a small profit on higher sales. Compared with the prior-year period earnings contributions from the Chinese license agreement had a positive effect.
Elevator: Successful start to new fiscal year
| 1st quarter ended Dec. 31, 2006 |
1st quarter ended Dec. 31 2007 |
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|---|---|---|---|---|---|
| Order intake | million € | 1,299 | 1,466 | ||
| Sales | million € | 1,083 | 1,184 | ||
| Earnings before taxes (EBT) | million € | 97 | 119 | ||
| Employees (Dec. 31) | 37,279 | 40,191 |
Elevator made a successful start to the 2007/2008 fiscal year. Despite the negative impact of price and margin pressure, both order intake and sales improved significantly against the previous year. Order intake climbed 13% to €1.5 billion. Sales were up by 9% to €1.2 billion. In the same period the segment's profit showed a significant 23% increase to €119 million.
Central/Eastern/Northern Europe
The Central/Eastern/Northern Europe business unit exceeded its year-earlier order intake and sales. In France the growth was mainly attributable to the continued pleasing performance of the modernization business. Business activities in Germany, the Benelux countries and Northern Europe were further expanded. All regional activities matched or slightly improved on their prior-year profits. In the United Kingdom profit was down, which led to a slight fall in earnings for the business unit as a whole.
Southern Europe/Africa/Middle East
The Southern Europe/Africa/Middle East business unit achieved a considerable improvement in both order intake and sales. Most of the growth was generated in Spain and Italy. While the new installations and service activities were further expanded in Spain, newly acquired companies were responsible for the growth in Italy. The significant improvement in the business unit's profit is mainly attributable to the business activities in Spain.
Americas
The Americas business unit significantly increased its order intake from a very good prior-year level and reported slight sales growth despite negative exchange-rate effects. The growth in order intake is attributable in particular to North America, where the new installations and service businesses were again expanded. The business situation in Brazil was also very encouraging and easily compensated for the slight weakening of activities in the other countries of Latin America. The business unit again achieved a higher profit.
Asia/Pacific
The Asia/Pacific business unit significantly expanded order intake and sales despite unfavorable exchange-rate effects. Continued strong growth in the new installations business in China contributed to the good performance. Order intake in Korea was lower than a year earlier. Compared with the year before, the business unit reported a profit. Alongside increased earnings contributions in China, this reflects in particular a reduced loss in Korea.
Escalators/Passenger Boarding Bridges
In the Escalators/Passenger Boarding Bridges business unit, both order intake and sales fell far short of the prior-year figures. While the escalator business was negatively affected by price-intensive competition, the reduction of business in passenger boarding bridges was due to the deferral of major orders. The business unit reported a loss overall.
Accessibility
The Accessibility business unit successfully continued its expansion. However, the significant growth of the European activities could not outweigh the decline in demand in the USA caused by the housing market crisis. This impacted profits with the result that the prior-year figure was merely repeated.
Services: High sales despite weaker market
| 1st quarter ended Dec. 31, 2006 |
1st quarter ended Dec. 31 2007 |
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|---|---|---|---|---|---|
| Order intake | million € | 4,207 | 3,951 | ||
| Sales | million € | 3,972 | 3,867 | ||
| Earnings before taxes (EBT) | million € | 192 | 132 | ||
| Employees (Dec. 31) | 40,690 | 43,054 |
The Services segment achieved sales of €3.9 billion in the 1st quarter, down 3% from the same period the year before. Compared with the extremely good prior-year quarter, income was €60 million lower at €132 million.
Materials Services International
With demand largely stable, sales in the segment's largest business unit remained level with the previous year. However, selling prices came under pressure, especially on the Eastern European market which was affected by fiercer competition and growth in imports. The stainless steel business was in a very weak state with distinct price reductions. Towards the end of the quarter a slight trend reversal seemed to be emerging in this product area. The plastics business in Germany and abroad was very stable in terms of both sales and earnings. Although Materials Services International reported a significantly lower profit overall, the business unit nevertheless made the strongest contribution to the segment's earnings.
Services continued its growth strategy in attractive regions and markets. At October 1, 2007, an 80% shareholding was acquired in Ferostav spol. s.r.o., the third largest steel distributor in Slovakia. This will further expand the segment's market position in Eastern Europe.
Services acquired all the shares in the UK-based Apollo Metals Group with economic effect at January 1, 2008. Apollo supplies high-grade products such as aluminum, stainless steel and nonferrous metals with value-adding processing services predominantly for the aerospace industry and its supply chains. The acquisition will combine the Apollo group's largely European and Far Eastern businesses with ThyssenKrupp Services' mainly USA-based operations to form a global enterprise with 30 locations in 13 countries and annual sales of currently around €500 million.
Materials Services North America
The North American materials market slowed more noticeably than the European market, impacting both volumes and prices. With stainless steel prices also plummeting, the business unit was unable to match its excellent prior-year sales and above all income.
Industrial Services
Industrial Services reported slightly higher sales in the 1st quarter. The workload and order situation in Germany was satisfactory, in some sectors good to very good. This was true for example of the mechanical engineering and energy sectors. While sales decreased in Scandinavia due to the completion of a major order, they increased further in America. The Brazilian activities performed very well. In North America sales were further expanded despite the lower value of the US dollar against the euro. Although Industrial Services' earnings were down from the previous year as a result of nonrecurring items, the unit's operating profit increased.
Special Products
The business unit matched the high sales level of the year before. The international rolled steel business was impacted by slightly lower demand, reflecting a wait-and-see approach by customers in virtually all product areas, and significantly higher freight costs. By contrast, demand and prices for metallurgical raw materials remained stable at a relatively high level. Coke and minerals, especially from China, were subject to limited availability. As a result, prices on the world market increased; the same was true of freight rates. However, the overall growth in sales of raw materials was set against a decline in sales in the technical systems business, which was due only to billing technicalities. Reflecting in particular the positive performance of the raw materials business, the business unit further improved on the record earnings of the previous year.
Corporate includes the Group's head office and internal service providers as well as inactive companies not assignable to individual segments. Also included here is the non-operating real estate, which is managed and utilized centrally by Corporate. The retained assets and liabilities of ThyssenKrupp Budd were also assigned to Corporate. The disposal in the meantime of this company's operations is responsible for the decrease in Corporate's sales.
Corporate reported a loss of €84 million, an improvement of €9 million compared with the prior-year quarter. A major role in this was played by the Real Estate unit thanks to an improvement in risk provisions for contaminated land. In addition, Corporate's net interest income from the Group's internal financing system improved among other things as a result of higher intercompany receivables and the rise in the interest rate. Running counter to this were the non-cash effects of the fair value measurement of the cross-currency swap.
Consolidation mainly includes the results of intercompany profit elimination.