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Capital market-relevant press releases, 2013-02-12, 07:30 AM

ThyssenKrupp achieves operating targets and realizes key strategic milestones in first quarter 2012/2013

In the first quarter of the 2012/2013 fiscal year (October 1 – December 31, 2012) ThyssenKrupp’s orders from continuing operations amounted to €9.6 billion, level with the prior year despite the divestments. The capital goods businesses reported 14% growth year-on-year. Plant Technology and Elevator Technology each achieved record orders: While plant orders more than doubled, elevator orders were up by a strong 10%. However, weak demand and low prices weighed on the materials business. The Group’s sales were 8% lower at €8.8 billion. While the capital goods businesses of plant technology and in particular the elevator business reported significant growth, sales of industrial components and materials declined on account of divestments and conditions on the market.

Adjusted EBIT from continuing operations came to €229 million in the first quarter of the current fiscal year, compared with €372 million in the prior-year quarter. The earnings target for the first quarter 2012/2013 – adjusted EBIT from continuing operations of around €200 million – was achieved in full. All business areas posted positive adjusted EBIT. With €351 million the capital goods businesses accounted for a significantly higher share of adjusted EBIT than the materials businesses (€70 million). The biggest contributions came from Elevator Technology and Plant Technology. In addition, Elevator Technology increased its EBIT margin to 11%. Effective January 1, 2013 Plant Technology was combined with the Marine Systems business area to form the new Industrial Solutions business area. Earnings after tax attributable to ThyssenKrupp’s shareholders came to €29 million.

Free cash flow from continuing operations, i.e. the sum of operating cash flows and cash flows from investing activities, amounted to €736 million, an improvement of around €2.1 billion against the year-earlier quarter reflecting the Group’s efforts to optimize the structure of its cash flow profile. Free cash flow for the full Group improved by around €2.4 billion year-on-year to €361 million. The costs of discontinued operations were comfortably offset by cash inflows from the successful closing of the stainless steel transaction. As a result ThyssenKrupp also made progress with reducing its net financial debt. At December 31, 2012 this was €600 million lower quarter-on-quarter at €5,205 million (September 30, 2012: 5,800 Mio €). With available liquidity of altogether €7.4 billion and a balanced maturity structure, ThyssenKrupp is solidly financed.

Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: “We are well on track to achieve our operating targets for the full year. However, we cannot be satisfied with the Group’s current earning power. The Strategic Way Forward is aimed at significantly improving the Group’s value potential, and we will continue to work vigorously towards this goal. All the Group’s businesses must contribute to this. With its optimization program, Steel Europe has taken an initial forceful step towards improving its position in a difficult competitive environment and achieving the required profitability and capital efficiency. And as a Group we want to be able to respond much faster and more flexibly to changing market conditions in the future so as to profit more from the dynamic developments in the world’s growth regions. That’s why under the corporate program ACT we are creating a new leadership model that will allow us to work in a more efficient and more connected way throughout the Group.”

Performance of the business areas

The performance of the business areas in the first quarter 2012/2013 was as follows:

At Components Technology the disposals of the previous fiscal year in connection with the strategic development program resulted in a structurally lower volume of business in the 1st quarter 2012/2013. Order intake was 26% down from the prior-year quarter at €1.3 billion, sales were 23% lower at €1.3 billion. Excluding the disposals, order intake was 9% and sales 6% lower. At €42 million adjusted EBIT was down from the prior-year quarter (€103 million). This reflected the absence of Waupaca’s operating profit, the slowdown in the western European market for car and heavy truck components, and the ramp-up of the new plants in China and India. Added to this was continued weak demand in the wind energy and infrastructure sectors.

Elevator Technology achieved double-digit growth rates in the first quarter 2012/2013, with order intake of €1.6 billion (up 10%) and sales of €1.5 billion (up 14%). Adjusted EBIT came to €169 million (prior year: €142 million). This improvement resulted from both increased sales and positive effects from the restructuring measures initiated in the last fiscal year. The business area continued its growth track with the closing of the takeover of AMCO Elevator, USA, on December 31, 2012.

Plant Technology performed particularly well in chemical plant construction. In the first three months new orders were won with a total value of €1.8 billion, double the prior-year figure. Sales were 6% higher than a year earlier at €1.0 billion. Adjusted EBIT at €110 million fell short of the high prior-year level (€125 million) due to billing technicalities.

Marine Systems continued to profit from increased demand for frigates and submarines. Order intake in the reporting period came to €178 million, and sales to €305 million. At €30 million adjusted EBIT was level with the prior-year quarter minus the civil shipbuilding operations, which were included a year ago and have since been sold.

With the exception of North America, business at Materials Services was marked by declining demand and global price and margin pressure. Sales were 10% lower at €2.8 billion. Excluding the Xervon group contained in the prior-year figures, sales fell by 7%. The materials and logistics business for the aerospace industry performed well. Despite the significant slide in sales, adjusted EBIT was level with the year-earlier period at €40 million thanks to cost reduction measures, particularly in logistics and administration.

Low shipments and declining prices continued to weigh on business at Steel Europe. Sales in the first three months came to €2.3 billion. Adjusted EBIT fell to €30 million (prior year: €102 million) as a result of the persistent weakness of the European market and a year-on-year decrease in selling prices. The Groupwide improvement program impact was once again only able to partly offset the negative cost and margin effects.

Inoxum transaction completed – sale process for Steel Americas proceeding to plan

ThyssenKrupp made further important progress with its strategic development program in the first quarter 2012/2013. The combination of Inoxum, the former Stainless Global business area, and the Finnish stainless steel manufacturer Outokumpu was successfully completed on December 28, 2012 and contributed to a reduction in net financial debt.

The sale of Steel Americas is proceeding to plan. Since November 2012, a selection of potential buyers have had the opportunity to analyze the plants in Brazil and the USA in a due diligence process and submit binding purchase offers. ThyssenKrupp is confident of finding a new way forward for both plants before the end of this fiscal year. The proceeds from the sale will significantly reduce net financial debt.

Optimization program at Steel Europe with a savings volume of €500 million

Under the corporate program impact, a cumulative EBIT effect of €2 billion is to be generated from performance measures in this and the next two fiscal years. In this connection, the Steel Europe business area has developed a package of measures on the basis of a market and competition analysis to sustainably improve the steel unit’s profitability and competitiveness. As a supplier of premium steel products and grades, Steel Europe is well positioned in an extremely difficult market environment. Nevertheless, far-reaching structural adjustments and operational improvements are urgently needed to permit the continued running of the core units in the hot end operations and the hot rolling lines. As well as advantages in purchasing, this includes efficiency improvements in the production and administration processes. In addition, the company is looking into the closure, relocation or sale of business units and facilities. The optimization program aims to achieve a savings volume of around €500 million by the 2014/2015 fiscal year and includes the socially responsible reduction of the workforce by more than 2,000 employees (December 31, 2012: around 27,600 employees). As a result of possible disposals the number of employees could be reduced by a further 1,800. With this optimization program, the Steel Europe business area will make an important contribution to the corporate program impact and to improving the performance of the Group as a whole.

Changes in leadership model and leadership culture

To strengthen the performance of the Group and enhance its leadership culture Groupwide, a new leadership model is being created under our corporate program ACT. A matrix organizational structure is being introduced to optimize the way business units, functions and regions work together. With the reorganization of the Executive Board effective January 1, 2013, structural changes have already been implemented. According to their function the business area management board members now report directly to the Chief Executive Officer, the Chief Financial Officer, or the Chief Human Resources Officer of ThyssenKrupp AG. At February 1, 2013 the previous corporate functions were reduced and reorganized. In the future each corporate function will bear global responsibility for standards and processes. The business areas will have central functions analogous with the structure at Group level to optimize cooperation between the Group and business areas. In the coming months all further structures and processes will be planned in detail, also to include the regions. The Group plans to begin working in this new structure from October 2013.

Outlook for fiscal year 2012/2013

From the present perspective the Group’s business performance in the 2012/2013 fiscal year will be characterized to a very large extent by the continued absence of a global economic recovery, with an unsolved debt crisis in particular in the euro zone and slower growth in the emerging economies. Based on the assumption of stagnation for the most part in the core markets of our more cyclical materials and
components businesses, where in the current economic environment visibility does not extend much beyond a quarter, the Group’s expectations for sales and adjusted EBIT are currently as follows:

ThyssenKrupp expects the Group’s sales from continuing operations to remain at the prior-year level of around €40 billion in fiscal year 2012/2013, provided there are no major dislocations on the raw materials markets. Sales lost due to portfolio measures, in particular at Steel Europe and Components Technology, should be largely offset by organic growth in the capital goods businesses.

Assuming that the slower activity on the materials markets at the beginning of the new fiscal year compared with the prior year continues but does not progressively worsen, adjusted EBIT from the Group’s continuing operations should be around €1 billion.

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