Subsequent events, opportunities and outlook
Subsequent events
Subsequent events between the balance sheet date (December 31, 2007) and the date of authorization for issue (February 07, 2008) are presented in Note 13 to the interim financial statements.
Global economic growth slowing
We expect slightly weaker growth in world GDP in 2008 compared with the year before. However, the risk of a more severe slowdown in 2008 has increased significantly, in particular as a result of the mortgage crisis in the USA and increasing raw material prices.
In the USA, economic growth is falling as a result of the difficult situation on the housing market, slower investment growth and weakening private consumption. While a recession cannot be ruled out in the first half of 2008, a gradual economic improvement is expected in the second half of the year. In the euro zone and Germany the economy will remain on an upward trend even if growth slows. While net exports will fall due to the strong euro and the slight global slowdown, and investment growth is also slowing, private consumption is expected to recover on account of developments on the labor market. We expect continuing high growth in the developing countries of Asia and in Central and Eastern Europe.
We expect the following developments and opportunities for ThyssenKrupp on the major markets:
- The outlook for the global steel market remains favorable. In particular demand from China, India and the CIS states will continue to increase at above-average rates in the next few years. But growth is also forecast for the other regions. World steel consumption is expected to increase by almost 7% in 2008, corresponding to a rise in crude steel production to over 1.4 billion tons. Demand for raw materials and energy will also continue to rise and impact the cost of steel production - especially via rising prices. The European steel industry expects the steel market to stabilize at a high level in 2008. One factor causing uncertainty is the future development of third-country imports into the EU. However, we expect a slight reduction of import pressure – especially from China.
- The recovery of the stainless steel market is expected to continue in the coming months. The turnaround which began in Europe in the 4th quarter of 2007 with orders and base prices starting to pick up again will continue and lead to higher capacity utilization. In response to the improving market environment, base prices were increased at the end of 2007; further price increases are expected to follow in the course of the year.
- World demand for vehicles will continue to increase. The growth in output is focused on the developing countries of Asia and the Central and Eastern European countries. Production in Western Europe and the USA is expected to stagnate. German production of cars and trucks will not quite match the record output of 2007, falling just short of the 6 million mark.
- In the industrial countries, the mechanical engineering market is expected to weaken in 2008. Slower investment growth in the USA means a slight downturn cannot be ruled out. In Western Europe the high growth rates of the previous year will slacken. Thanks to the good order situation, output in Germany is expected to increase significantly in 2008. The situation in the large-scale plant construction sector will also remain positive.
- Global construction sector growth will continue to be driven by the emerging markets in Asia and Central and Eastern Europe. By contrast, US construction output will fall slightly on account of the weakness of the private housing sector. German construction output is expected to stabilize further thanks to robust commercial construction and increasing public-sector building.
Earnings outlook stable
Earnings: For 2007/2008 we forecast earnings before taxes and major nonrecurring items, including project costs for the steel mills in Brazil and the USA, of over €3 billion. As things stand at present we expect sales of €53 billion in the current fiscal year. We expect sales to continue to grow in 2008/2009 provided no unforeseeable economic downturns impact our business. Growing sales will also be reflected in earnings.
The mid-term sales target for ThyssenKrupp is €60 billion, while our mid-term goal for sustainable earnings before taxes and major nonrecurring items is €4 billion. In the longer term, especially after the startup of the steel mills of Steel and Stainless in North America and the investments of the other segments in other regions, we aim to achieve sales of around €65 billion and earnings before taxes and major nonrecurring items of €4.5 to €5.0 billion.
Employees: We expect the number of employees to increase to over 196,000 by the end of the fiscal year. In view of the internationalization of the Group, the growth in the workforce will take place almost exclusively outside Germany.
Research and development: For the current fiscal year we expect research and development expenditure in excess of €800 million. The focus will be on the development of new products and processes for materials and capital goods. In addition we will further develop our service offering.
Procurement: In 2007/2008 materials expense will amount to more than 50% of sales. This is due to the high raw material prices and the buying-in of more complex products and services. We do not anticipate any supply bottlenecks.
Energy: Further price increases are expected for oil, natural gas and electricity in the current fiscal year. We are countering this trend by concluding low-cost long-term supply agreements and introducing further measures to increase energy efficiency.