Prof. Dr. Ekkehard Schulz

The national and international steel markets are in the middle of a strong upswing. Since the middle of last year the forces of growth have gained significant momentum. The start to the new millennium was also promising: in January 70 million tonnes of crude steel was produced worldwide, a year-on-year increase of 13%. For the first time world steel production looks set to exceed 800 million tonnes in 2000.

The German steel industry´s order books have strengthened significantly in recent months. In the 4th quarter of 1999 orders were 26% higher than a year earlier, and the encouraging demand trend continued in January and February. The favorable prospects for the overall economy give grounds to hope that the current upswing in the steel cycle will persist both nationally and internationally.

For the German steel industry, the industry association forecasts one of the better steel years since reunification. All demand indicators are pointing firmly upward, both for domestic demand and for exports. The high dollar is supporting exports to non-EU countries. The current forecast for German steel production in the year 2000 is 45 million tonnes. This is an increase of 7% against the previous year and it could turn out to be much higher.

Business situation in the 1st quarter 99/00

The order intake of the Steel segment is marked by a strong recovery. The first quarter of 99/00 was well up on a year earlier in both the Carbon Steel Flat-Rolled and Stainless units.

Orders are considerably higher than sales, holding out the promise of a significant upward trend in the further course of the fiscal year which will be much better overall.

Sales in the first three months showed a still relatively moderate increase. The highest rate of increase is in Stainless, whereas the Investments unit recorded a decline mainly attributable to rails and EWK. The movements in sales were primarily market-related. Whereas the 1st quarter of the past fiscal year had not yet been significantly affected by the volume and price collapses of 1999, in the current fiscal year the expected recovery has not been significantly reflected in 1st quarter sales. However the earnings trend is already showing an improvement.

Strategy with clear objectives

Ladies and Gentlemen,

What is the strategic platform from which ThyssenKrupp Steel started the current fiscal year?

Thyssen Krupp Steel AG with sales of Euro10.5 billion and around 54,000 employees stands essentially on the three pillars Carbon Steel Flat-Rolled, Stainless and Investments.

The Investments unit with sales of Euro 919 million and around 6,000 employees is currently undergoing a systematic portfolio streamlining. Affected by this, among others, are:

･ Spundwand (sheet piling)
･ Edelstahl Witten-Krefeld
･ Krupp Edelstahlprofile
･ Böhler Thyssen Schweißtechnik

The acquisition of all shares in HSP Hoesch Spundwand und Profil GmbH by Salzgitter AG is about to be completed. We are in final negotiations with a potential partner for Edelstahl Witten-Krefeld GmbH, and in the case of Krupp Edelstahlprofile talks are underway with potential buyers. We have received initial offers for Böhler Thyssen Schweißtechnik and a deal is expected to be closed before the summer break. Hoesch Hohenlimburg was assigned to the Carbon Steel Flat-Rolled unit as of the 1998/99 fiscal year.

Focus on value-added products

The product structure in Carbon Steel Flat-Rolled has undergone major change in the last 10 years. The share of coated products is now 74 percent, compared with 56 percent at the beginning of the nineties, which corresponded to a production of 3 million tonnes. The aim is to increase the share of coated products to 80 percent and 5.4 million tonnes.

A comparable focusing on value-added flat products has also taken place in Stainless.

Sales generated with these products have increased significantly in recent years. Today, around 80 percent of sales in Carbon Steel Flat-Rolled and almost 85 percent of sales in Stainless are made with innovative materials (for example high-strength steels) and innovative applications (new coating technologies).

Joint strengths

The combination of Carbon Steel Flat-Rolled and Stainless in one group creates considerable added value for ThyssenKrupp Steel.

The Carbon Steel Flat-Rolled unit has great experience as a partner to the international automobile industry. With its technological capabilities it enjoys outstanding access to what is by far its most important customer group. In the future Stainless will also benefit more strongly from this platform. Stainless is not in competition with flat-rolled, but with aluminum.

On the other hand Stainless has an excellent position in the construction sector, from which Carbon Steel Flat-Rolled can profit in future with regard to the use of hot-dipped products.

The pooling of the materials and systems capabilities of Carbon Steel Flat-Rolled and Stainless creates new applications and releases added market and growth potential. Innovative products and new manufacturing technologies are the result of joint R&D activities and make ThyssenKrupp Steel into a global supplier to major international customers.

Leading international market position

The world market positions occupied by ThyssenKrupp Steel are extremely attractive, even though there is still room for improvement in some areas. In flat steel products we are currently the world number 3, in carbon steel flat-rolled number 4 and in stainless flat-rolled number 1. We also hold leading world positions in tinplate, electrical sheet and nickel-base alloys.

There is no great skill in making good profits in good steel years. But not making losses in periods of crisis, latterly in 1992/93, is far more difficult. Drastic cost-cutting measures implemented in recent years have ensured that even in a poor market environment like last year, where rolled steel prices reached rock bottom, ThyssenKrupp Steel still returned a profit. The quality of income we have achieved today is unrivalled in Europe.

Strategic objectives

ThyssenKrupp Steel´s strategic targets can be summarized in five points:

･ expand leading market positions
･ focus and selectively strengthen business
･ achieve margin leadership
･ pursue a value-oriented management strategy

In other words:

The company has ambitious expansion and growth targets; financing these targets brings me to the next part of my report: the flotation of ThyssenKrupp Steel.

IPO

Preparations for the Steel flotation are currently in full swing. Our planning at present envisages floating 25-35% of Steel on the stock market in September/October as part of an Initial Public Offering (IPO). The majority of the stocks will be made available from Thyssen Krupp AG´s shareholding, some will come from a capital increase at Thyssen Krupp Steel AG.

We are aiming to achieve a broad spread of private and institutional German investors. At the moment we are still considering an offering outside Germany.

The Steel IPO is a key element of the Group´s strategic realignment which we explained to you in detail last November.

Aims and advantages of the IPO

What are the advantages for parent and subsidiary?

For both companies these will be primarily

･ improved positioning on the capital market
･ a cash inflow and thus new options for financing expansion and growth and
･ the opportunity to pursue a forward strategy tailored to the core businesses.

We are convinced that going separate ways will result in the greater success for both companies.

To date the ThyssenKrupp Group - like Thyssen and Krupp in the past - has been mainly identified with its steel activities and traded on the stock exchange as a steel stock. The flotation of Steel will give ThyssenKrupp the chance to hone its profile as a global supplier of industrial products and services and achieve a fair valuation of its shares.

For ThyssenKrupp Steel, the flotation opens up new opportunities to finance its expansion and growth objectives. The planned capital increase will generate a cash inflow which can be used for strategic projects.

In addition, the Steel shares can be used in the future as an acquisition currency for further strategic options. The flotation will put ThyssenKrupp Steel in a position to play an active part in shaping the ongoing process of consolidation and concentration in the European and world steel industry.

The IPO will release significant value-adding potential and secure a competitive capital structure.

I am firmly convinced that despite all the euphoria surrounding the New Economy, the Steel stock will be an extremely attractive investment. There are five good reasons in favor of this:

･ competence in successful restructuring
･ carbon and stainless steel complement each other ideally
･ sustained margin leadership
･ geared to expansion and growth

In other words:

ThyssenKrupp Steel means steel potential