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Company News, 2003-05-28, 02:00 AM

ThyssenKrupp Steel on solid growth track

ThyssenKrupp Steel AG can look back on a successful 1st half of fiscal 2002/2003. At Carbon Steel, the strategy of concentrating steel production at one site started to reap rewards, while Stainless Steel capitalized on its position as world market leader. In addition to cost cutting and performance enhancement measures, the improvement is also the result of a consistent customer focus, in which high-tech steel products are backed by systematic technical support. This allows the company to achieve appropriate prices even in times of economic downturn. The high level of value added and a high share of long-term supply agreements help stabilize revenues.

But the Steel segment - the biggest of the ThyssenKrupp Group`s core businesses - is not prepared to settle for its 1st-half achievements. The aim is to generate sustainable value growth. The earnings target for the fiscal year 2003/2004 ending September 30, 2004 is 800 million euros, equating to 12% ROCE. Dr. Middelmann: "Our strategy of concentrating on the right product mix and utilizing efficient equipment and processes is proving successful." ThyssenKrupp Steel is focused on high-value products with strong growth potential, which account for over 80% of carbon steel output and more than 90% of stainless production.

In ThyssenKrupp AG`s recently published interim report on the 1st half of fiscal 2002/2003, the Steel segment made the biggest contribution (229 million euros) to the Group`s pre-tax income and also reported the highest growth rate. "We have turned the company around, achieved major improvements and are now actually returning higher-than-budgeted results in our Carbon Steel und Stainless Steel business units", says Dr. Middelmann. He is confident that the current earnings trend can be maintained for the rest of the fiscal year, assuming no further deterioration of the economy.

The world steel market is currently in good shape. The International Iron and Steel Institute (IISI) expects record crude steel output of 950 million metric tons in 2003. Production in the first four months of the year was up 8.7%, with China recording easily the highest growth at just under 20%. Western European output rose 4.8% to the end of April; German and US production expanded 5.5% and 4.6% respectively from the comparable prior-year period. The 9% increase in crude steel output at ThyssenKrupp Steel in the 1st half of fiscal 2003/2004 was higher than the international average. Production facilities were running at virtually fully capacity.

All forecasts indicate that China will remain the biggest growth market in the coming years. The Carbon Steel and Stainless Steel business units both have production facilities there, with the focus again on high-value products: The Tagal hot-dip coating line in Dalian - a 50/50 joint venture with Angang New Steel Co. Ltd. - will start production in September. This 180 million US dollar investment will have an annual capacity of 400,000 tons. Another joint venture, ThyssenKrupp Zhong-Ren Tailored Blanks in Wuhan, commenced operation in October 2002. 5 million US dollar was invested in this 15,000 tpy capacity plant. Both companies primarily serve the auto industry. Shanghai Krupp Stainless, a joint venture with Baosteel, started production in November 2001 and has successfully completed the ramp-up phase. Phase two will involve an expansion of cold rolling capacity from 72,000 to 290,000 tpy by early 2005, with a further 100,000 tpy to be added by the end of 2005. This is ThyssenKrupp Steel`s biggest foreign investment, with a total volume of almost 1.4 billion US dollar. ThyssenKrupp Steel`s sales in China have grown almost 60% since 1997 to 337 million euros (2001/2002).

Having achieved major productivity improvements by concentrating production following the merger of Thyssen and Krupp`s steel activities in 1997, ThyssenKrupp Steel has now turned its attention to performance enhancement in all three business units. This involves both portfolio and organizational optimization. "Within the next two years, the measures we have initiated will reduce costs by a high nine-figure sum. This will enable us to offset increases in input material and personnel costs and further improve our earnings," states Dr. Middelmann.

Some structural measures have already been completed in recent months. Carbon Steel is looking to further globalize its downstream coating, processing and service activities. The latest example is the acquisition of a 100% interest in Spanish hot-dip galvanizer Galmed S.A. "This will significantly boost our chances on the high-growth Spanish market," says Dr. Middelmann. The Stainless Steel business unit has disposed of its quarto plate activities and is now in the process of reorganizing its European distribution network. Acquiring the service center activities of TAD Metals in Italy - Europe`s second largest stainless market - has made an important contribution to this.

On the Group`s strategy, Dr. Middelmann says: "Restructuring is an ongoing, never-ending process." ThyssenKrupp Steel is concentrating on its core capabilities. Only by focusing on things it can do better than others will the Group improve its competitiveness and secure skilled jobs in the long term. Investment funds are allocated to those Group companies that hold leading market positions and create sustainable value.

ThyssenKrupp Steel is thus putting itself in a position to play an active part in the further consolidation of the international steel industry expected in the course of this decade. Joint ventures like the ones in China and strategic alliances such as those agreed with the Japanese JFE Group for automotive research and development and with Nippon Steel for electrical steel are a key pillar of this concept. Dr. Middelmann: "We will still be one of the top 5 players on the global steel market in 2010."

ThyssenKrupp Steel AG
Erwin Schneider
Tel.: +49 203 / 52 - 2 56 90
Fax: +49 203 / 52 - 2 57 07

Dietmar Stamm
Tel.: +49 203 / 52 - 2 62 67
Fax: +49 203 / 52 - 2 57 07

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