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Capital market-relevant press releases, 2000-11-14, 01:00 AM

ThyssenKrupp on the right track - Executive Board interim report:

Significant earnings increase in year two after merger

Adjustment of strategy to reflect changing environment

The end of ThyssenKrupp AG's second fiscal year presents the Executive Board with an opportunity to assess what has been achieved so far. This interim report describes a significant increase in earnings in fiscal 1999/2000 and an adjustment to the strategy resolved in November 1999 to reflect changing market and environmental conditions.

The key figures for 1999/2000 prove that ThyssenKrupp is on the right track and has realized the first successes of the merger.

Following pre-tax earnings of Euro0.6 billion in year one after the merger (1998/99), year two saw a significant increase in earnings of more than 60% to a pleasing figure of around Euro1 billion. EBITDA (earnings before interest, tax, depreciation and amortization) clearly exceeded the Euro3 billion mark. The reasons for this growth were the improved market environment and the ongoing integration of the Group.

Net sales reached Euro37 billion, against Euro32 billion last time. All segments of the Group contributed to this rise, with the biggest increases being achieved by Steel, Automotive and FacilitiesServices.

Order intake increased by over 20% to around Euro40 billion. Almost all businesses recorded strong double-digit growth rates, laying a solid basis for further sales and earnings growth this year.

ThyssenKrupp had around 193,000 employees worldwide on September 30, 2000, compared with around 185,000 a year earlier. This change is the net result of M&A activities, investments and rationalization measures.

A further sign of the success achieved in the post-merger restructuring of the Group is the progress made in active portfolio management:

Since the merger ThyssenKrupp has acquired businesses with total sales of more than Euro3.4 billion. Examples include the following acquisitions to strengthen our growth businesses: an aluminum foundry in America for Automotive, Dover Elevators in the USA and Elevadores Sur in Brazil for the Elevators segment, and HiServ and Safway for the FacilitiesServices segment. At the same time the businesses have been strengthened by targeted organic growth, linked with extensive investment.

On the other hand the Group has disposed of a number of businesses as part of the focusing. Development opportunities were found outside the Group for activities with total sales of Euro1.6 billion, most recently in the plastics machinery sector.

Together with the positive market trend the measures and cost reduction programs linked with the merger have helped improve the earnings situation. As part of a systematic Groupwide value management program, available resources are being directed to high-growth activities. The continuing aim is to further strengthen the Group's earning power and thereby continuously increase the value of the Company in the interests of stockholders and employees. This is also the central guiding principle behind the strategic realignment of the ThyssenKrupp Group.

Central elements of the strategy to achieve this goal are a focusing of the portfolio, expansion of activities with growth potential, stronger Groupwide service orientation, growth in e-commerce activities in the Group and expansion of information technologies. ThyssenKrupp has made good progress toward achieving these goals. For example the Groupwide program put in place to increase our service orientation has already led to successes through a further strengthening of customer loyalty.

Other elements of the strategy have also been implemented: ThyssenKrupp's first annual financial statements for 1998/99 were drawn up in accordance with US GAAP. The second tranche of a stock options program introduced in 1999 was issued in May this year and the number of participants is being increased.

The main measures to streamline the organization of the Group have also been largely completed. The number of Corporate Center employees for instance has been virtually halved. The formation of the segments will be completed in the course of the fiscal year.

The changed situation on the capital market for steel stocks together with changes in the tax treatment of disposal gains and the global market situation in the engineering and construction business have made it necessary to adapt the strategy for two major elements of the realignment - the Steel IPO and the disposals of Shipyards and Engineering.

The cancellation of the ThyssenKrupp Steel flotation was an imperative under the principles of our value management policy. The discrepancy between ThyssenKrupp Steel's rising earnings and good market positions on the one hand and the stock market's poor valuation of steel companies in general on the other would have led to a massive destruction of value.

The preparations for the IPO showed clearly that ThyssenKrupp Steel has outstanding potential for development and further substantial cost reduction. This will continue to be systematically realized.

ThyssenKrupp has a number of machinery and systems activities where the Group already holds strong market positions in the respective technologies on a regional and global basis. These activities, in which engineering services are of key importance, include Production Systems and Components as well as Shipyards and Engineering. These activities are being combined under single management in a new segment ThyssenKrupp Invest. As most of them are characterized by a very high engineering content in relation to total value added, preserving and expanding this capability is key to their future development. The businesses in this grouping will be further developed in accordance with their capabilities, and in addition tight portfolio management will result in higher value added in this segment too.

The future corporate structure of ThyssenKrupp will have six operating units, which will be run directly by ThyssenKrupp AG: Steel, Automotive, Elevators, Invest, Materials and Serv. Annex

Steel --- Automotive - Elevators - Invest --- Materials - Serv

The ThyssenKrupp Group will therefore stand for the following three main areas of activity in which ThyssenKrupp for the most part already holds top three positions worldwide today:

<b>Steel</b> (over Euro12 billion sales): ThyssenKrupp Steel, a highly competitive company - world market leader in Stainless and European No. 2 in Carbon - is focused on higher-value-added flat products.

<b>Capital goods</b> (over Euro14 billion sales): Excellent product and market positions at Automotive (around Euro6 billion sales) and Elevators (around Euro3 billion sales) and a portfolio of future-oriented engineering activities at Invest (around Euro5 billion sales) that is to be actively developed.

<b>Services</b> (over Euro12 billion sales): With market-leading positions in materials services at Materials (around Euro10 billion sales) and good positions in the growth markets of industrial services and information technology at Serv (around Euro2 billion sales).

All six segments are to be further developed in line with their specific particularities under an active portfolio management program.

The real estate activities with sales of around Euro350 million will remain pooled in a separate organization. One key area in the future will be marketing existing know-how.

In connection with the Strategic Realignment in November 1999 ThyssenKrupp set the following three goals for the Group, which continue to apply:

・ Pre-tax earnings &gt; Euro1.5 billion
・ EBITDA &gt; Euro3 billion
・ ROCE &gt; 12%

In fiscal 1999/2000 earnings increased significantly from Euro0.6 billion to around Euro1 billion. A further earnings increase to over Euro1.3 billion is targeted for the fiscal year just started. The medium-term target is an earnings figure of > Euro1.5 billion. In the year just ended EBITDA reached our target of over Euro3 billion and we increased our return on capital employed.

The good EBITDA figure of over Euro3 billion means that the ThyssenKrupp Group is strongly placed to finance investment internally. In the last two years we have spent around Euro5 billion on fixed asset and financial investments. Based on the positive earnings expectations for the coming years this investment policy will be continued. Net debt, which has increased temporarily to over Euro7 billion as a result of the capital spending, is to be reduced by more than Euro2 billion.

This is to be achieved as follows: Thanks to its encouraging earnings growth the Group has substantial cash flow from operations which offers enough scope for financing investment. The high investment made in the last two years characterizes the track to growth and will be maintained in the years ahead. The program already started to reduce capital employed in operating assets will steadily free up substantial resources with which to reduce our financial debt. Disposals in connection with our active portfolio management program - this applies equally to all six segments - will also generate further funds in the medium term. Against this background the Group has enough flexibility to carry out even larger acquisitions to strengthen its activities.

This interim report on ThyssenKrupp after two fiscal years shows that a focused company can be successful in the fields of steel, capital goods and services if it holds world leading market positions, is active in high-growth areas and gears its high-tech products systematically to the needs of its customers.

The Executive Board will report to the Supervisory Board in detail about the positive earnings situation and the adaptation of the strategy at a Supervisory Board meeting on December 8, 2000. After the Supervisory Board meeting we will be publishing further key figures on fiscal 1999/2000. The consolidated financial statements for the year ended September 30, 2000 will be presented in detail at the Annual Press Conference and the analysts' meeting on January 15, 2001.

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