Reorganization of steel activities from 2005/2006
Outstanding performance in a difficult market environment
Value-based targets clearly exceeded
Fair distribution of value added

Business performance 2004/2005.

Success story of ThyssenKrupp Steel AG

After the merger of the long-established Thyssen and Krupp groups in 1999, the steel activities were combined under the holding company ThyssenKrupp Steel AG. The operating companies formed the three business units Carbon Steel, Stainless Steel (for stainless steel and nickel alloys) and Special Materials (for specialty steel long products and electrical steel).

The aim was to develop this Group segment into a leading company in the international steel sector with a claim to margin leadership in Europe. The target was to achieve a return on capital employed (ROCE) of at least 12%.

Significant progress has been made, based on the segment’s integrated focus on customers and employees, efficiency enhancement and concentration on the core flat steel business, technology leadership and value-based management. The success is clearly reflected in the key figures for the past four years.

Key financial indicators for ThyssenKrupp Steel (old)
1) continuing operations only
		2001/2002	2002/2003	2003/2004	2004/2005
Sales¹⁾	million €	10,993	11,522	13,151	14,752
Earnings before taxes and minority interest (EBT)¹⁾	million €	157	465	916	1,302
ROCE	%	4.1	7.1	12.6	16.0
EVA	million €	(532)	(255)	226	526
Free Cash-Flow	million €	243	226	800	555

Reorganization of steel activities from 2005/2006

Significant restructuring has taken place over the past few years under the management of ThyssenKrupp Steel. The long products companies Edelstahl Witten-Krefeld, Krupp Edelstahlprofile and Berkenhoff were sold to new best owners and the electrical steel activities were completely restructured. Focusing programs were also completed in the core Carbon Steel and Stainless Steel businesses, with the result that the two activities were operating in very different markets with independent strategic focuses.

For this reason the Supervisory Board of ThyssenKrupp AG resolved in August 2005 to dissolve the interim holding company ThyssenKrupp Steel AG at September 30, 2005 and form two separate segments for the core steel businesses Steel and Stainless. The new Steel segment concentrates on flat-rolled carbon steel, and the Stainless segment on stainless steel flat products and nickel alloys.

ThyssenKrupp Steel AG (previously ThyssenKrupp Stahl AG) is now the holding company of the new Steel segment and at the same time the biggest single enterprise. Its range of high-quality flat-rolled carbon steel products extends from hot-rolled strip to heavy plate to cold-rolled and coated products. Starting materials are supplied to subsidiaries along the value chain, where they are processed to customer specifications. This Sustainability Report presents the situation in the new Steel segment on the basis of figures for the previous Carbon Steel business unit.

Key financial indicators for ThyssenKrupp Steel (new)¹⁾
1) previously Carbon Steel business unit 2) continuing operations only
		2001/2002	2002/2003	2003/2004	2004/2005
Sales²⁾	million €	6,780	7,161	8,387	9,291
Earnings before taxes and minority interest (EBT)²⁾	million €	5	262	608	1,002
ROCE	%	2.6	7.0	13.0	19.4
EVA	million €	(417)	(162)	164	526
Free Cash-Flow	million €	44	320	460	473

Outstanding performance in a difficult market environment

The order intake of the new Steel segment in fiscal 2004/2005 was €8.8 billion, up 1% from the prior year. Significantly lower order volumes were offset by higher average prices. In the first half of the reporting year, the workload situation was initially characterized by restricted capacities due to the limited availability of steel. Later in the year we responded to the weaker demand according to the principle of “price before volume” and given the high inventories of finished products we cut production in the processing operations. At 13.6 million metric tons, rolled steel production was 4% down from 2003/2004. Due to the structurally restricted slab capacity, crude steel production decreased by only 1% to 13.8 million tons.

Sales increased 11% to €9.3 billion. The softening of the market after the boom in demand in the previous year resulted in an 8% decrease in shipments. The increase in sales was attributable entirely to higher average prices. Set against this were drastic cost increases for key materials such as iron ore, coal/coke and scrap as well as for freight rates and energy.

As a result, earnings before taxes and minority interest were €1,002 million, an increase of €394 million compared with fiscal 2003/2004. The greater part of this profit improvement is attributable to successful programs of measures in all units. The biggest earnings increase was achieved by what is now ThyssenKrupp Steel AG.

Almost all subsidiaries followed on from their very positive prior-year performances. In a particularly favorable market environment, the medium-wide strip products activity more than doubled its profits despite having to absorb nonrecurring expenses from the disposal of the special profiles business. The steel service centers and non-oriented electrical steel activity likewise returned substantially higher income and made a major contribution to the improvement in earnings. In tinmill products and tailored blanks, profits were down from the good prior-year level. The building construction and cold room activities generated a profit in a difficult market environment.

Value-based targets clearly exceeded

Following the progress made in the previous year, a further significant improvement was achieved in the value indicators. ROCE and EVA were well above target. With capital employed slightly higher, ROCE reached 19.4%, compared with 13.0% the year before. This means that ThyssenKrupp Steel not only generated its 10% cost of capital but in addition to this delivered a substantial contribution to increasing the value of the ThyssenKrupp Group. EVA climbed €362 million to €526 million.

ROCE in %

Free cash flow - the balance of cash flow provided by operating activities and cash used in investing activities - reached a new record level of €473 million. It was used to reduce debt and for profit transfer.

Fair distribution of value added

Business success is the basis for a sustainable corporate policy. It determines the size of the cake to be shared among the most important stakeholders - employees, owners, lenders and the public sector. A key measure of this is the added value created by the company.

Distribution of value added in million €
	2001/2002	2002/2003	2003/2004	2004/2005
Employees (wages, salaries, social security contributions, pension expense)	1,516	1,532	1,685	1,715
Owners (net income before profit transfer agreement)	15	162	367	582
Lenders (interest rates and similar expense)	108	84	66	53
State (income taxes)	(15)	64	232	386
Minority interest	4	4	5	7
Total	1,628	1,846	2,355	2,743

This indicator has also improved significantly in the last few fiscal years. It rose to just over €2.7 billion in 2004/2005, a 16% increase from the prior year. The main factor in this was the strong improvement in business performance, from which all stakeholder groups profited. Almost 63% of the value created, or €1.7 billion, was spent in the reporting year on employee benefits such as wages, salaries, social security contributions and pension expense. In absolute terms, these benefits have increased by 13% in the past four fiscal years. 21% was paid to the owners ThyssenKrupp AG and minority interest, who - unlike in the past - thus received an appropriate return on their investment. Thanks to the reduction in net financial debt, a far lower amount went to banks and other lenders, while tax expense rose significantly due to the strong income situation.

continue with: Foreword by the Chairman of the Executive Board