2005-2006 Financial Statements and Management Report

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54 GROWTH, EFFICIENCY AND OPTIMIZATION OF CAPITAL EMPLOYED ARE LEVERS TO INCREASE VALUE. Application of the value management system Three levers can be used to increase tkva: profitable growth, increases in operating efficiency, and optimization of capital employed. Value through profitable growth is created in particular by new projects, provided they generate returns higher than their cost of capital. A major contribution to increasing operating efficiency is made by the ThyssenKrupp best value enhancement program, which is described in more detail on pages 56-57. Capital employed as the third lever to increase tkva can be optimized by withdrawing from business activities in which the cost of capital cannot be earned. Alternatively, targeted programs can be implemented to release capital, i.e. to reduce capital employed without reducing ebit. The following tables show how tkva and its components developed over the last two fiscal years: Components of ThyssenKrupp Value Added (tkva) Group Thereof: Steel Stainless Automotive Technologies Elevator Services Group Thereof: Steel Stainless Automotive Technologies Elevator Services EBIT* (million €) 2,652 1,167 353 240 (179) 381 335 EBIT* (million €) 3,044 1,477 489 (52) 311 423 553 Capital employed (million €) 18,388 5,965 2,996 2,982 982 1,614 3,089 Capital employed (million €) 17,056 5,937 3,048 2,938 1,427 1,876 2,884 WACC (%) Spread (% points) TKVA (million €) The Group’s earnings before taxes and interest increased by €392 million to €3,044 million in 2005/2006. The improvement in roce associated with this was reinforced by a reduction in capital employed. Average capital employed decreased by €1,332 million to €17,056 million. roce thus increased from 14.4% to 17.9%; the Group’s wacc of 9.0% was thus again significantly exceeded. ROCE (%) 14.4 19.6 11.8 8.0 (12.9) 23.6 10.8 ROCE (%) 17.9 24.9 16.0 (1.8) 31.6 22.6 19.2 * Earnings including discontinued operations before taxes and interest income/expense 2004/2005 9.0 9.5 9.5 9.5 9.5 8.5 9.0 2005/2006 WACC (%) 9.0 9.5 9.5 9.5 9.5 8.5 9.0 5.4 10.1 2.3 (1.5) (22.4) 15.1 1.8 Spread (% points) 8.9 15.4 6.5 (11.3) 22.1 14.1 10.2 997 600 68 (43) (220) 244 57 TKVA (million €) 1,510 913 199 (331) 316 264 294 Change TKVA (million €) 513 313 131 (288) 536 20 237
FINANCIAL STATEMENTS AND MANAGEMENT REPORT Business management – goals and strategy tkva increased by €513 million to €1,510 million. The improvement in the Group’s profitability and tkva is due particularly to the large increase in operating earnings but also to the divestment program to refocus the Group strategically. In the Steel segment, earnings before interest and taxes increased by €310 million to €1,477 million thanks to the positive price and volume trends. With capital employed virtually unchanged, roce increased from 19.6% to 24.9%. The wacc of 9.5% was thus significantly exceeded and tkva of €913 million was achieved. This is an improvement of €313 million from the prior year. Earnings before interest and taxes at Stainless increased by €136 million to €489 million mainly as a result of the demand recovery that began in almost all market segments in early 2006, which in turn was accompanied by a steady increase in base prices. With capital employed slightly higher, roce increased from 11.8% to 16.0%. The wacc of 9.5% was exceeded, resulting in tkva of €199 million. This represents an increase of €131 million from the prior period. At Automotive, earnings before interest and taxes decreased by €292 million to -€52 million. This deterioration was mainly due to impairment charges in connection with the proposed divestments in North America but also reflected impairment charges and restructuring programs in various other areas of the segment. In addition, steel price increases could not be passed on to customers in full. With capital employed slightly lower, roce decreased from 8.0% in the prior year to -1.8% in 2005/2006 and was thus below the wacc of 9.5%. tkva decreased by €288 million to -€331 million. Earnings before interest and taxes at Technologies increased by €490 million to €311 million in the reporting period. roce improved from -12.9% to 31.6%. Significant operating improvements were achieved in all business units. The disposal of low-profit operations in the course of 2004/2005 and 2005/2006 also had a positive impact. With a wacc of 9.5%, tkva reached €316 million, an increase of €536 million from the prior period. In the Elevator segment, earnings before interest and taxes increased by €42 million to €423 million. However, capital employed rose by €262 million to €1,876 million, resulting in a slight decrease in roce by 1 percentage point to 22.6%. tkva increased to €264 million compared with €244 million a year earlier. In the Services segment, earnings before interest and taxes increased by €218 million to €553 million. This was mainly due to the improved situation on the international material markets but also reflected the absence of loss-making businesses sold in the meantime. Capital employed decreased by €205 million to €2,884 million. The two effects resulted in an increase in roce from 10.8% to 19.2%. tkva improved by €237 million to €294 million. The results of the analysis of the performance indicators feed directly into portfolio management at ThyssenKrupp. This involves structural measures with a primarily strategic character. Specifically it involves selecting and growing businesses with which the targeted tkva improvements are to be realized, and withdrawing in a timely and profitable way from activities which do not achieve adequate tkva improvements. In addition, it involves creating new businesses by entering into promising new markets on favorable terms. In this way we create the basic requirements for the ability to pay dividends and for sustainable, profitable growth in our core businesses. THYSSENKRUPP VALUE ADDED AT STEEL WAS €913 MILLION IN 2005/2006. 55
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2005 - 2006 Financial Statements an
Page 4 and 5:
02 BUSINESS AREAS AND ORGANIZATIONA
Page 6 and 7: 04 OVERVIEW OF THE COURSE OF BUSINE
Page 8 and 9: 06 NICKEL ALLOYS AND TITANIUM MILL
Page 10 and 11: 08 THYSSENKRUPP ACHIEVED A SIGNIFIC
Page 12 and 13: 10 €489 MILLION OF UNAPPROPRIATED
Page 14 and 15: 12 INVESTMENTS IN GROWTH AREAS STRE
Page 16 and 17: 14 FUEL PRICE INCREASES PUSHED UP T
Page 18 and 19: 16 WE HAVE DEVELOPED A PLANT FOR CO
Page 20 and 21: 18 STEEL ACHIEVED A PROFIT OF €1.
Page 22 and 23: 20 A STRONG MARKET REVIVAL AND INNO
Page 24 and 25: 22 IN MEXICO, HIGH-VALUE PRODUCTS A
Page 26 and 27: 24 AUTOMOTIVE CONTINUED ITS PORTFOL
Page 28 and 29: 26 TECHNOLOGIES ENJOYS SUCCESS ON T
Page 30 and 31: 28 THE LARGEST LATHE IN NORTHERN EU
Page 32 and 33: 30 ACQUISITIONS IN THE USA, ASIA AN
Page 34 and 35: 32 SERVICES ALMOST DOUBLED ITS PROF
Page 36 and 37: 34 CORPORATE INCLUDES VARIOUS SERVI
Page 38 and 39: 36 OUR CONTROL SYSTEM FOR LASER WEL
Page 40 and 41: 38 TO DATE, ALMOST 300 PROJECTS HAV
Page 42 and 43: 40 OCCUPATIONAL SAFETY HAS IMPROVED
Page 44 and 45: 42 OUR EXECUTIVE POLICY IS BASED ON
Page 46 and 47: 44 FINANCIAL POSITION The Group’s
Page 48 and 49: 46 INTANGIBLE ASSETS INCLUDE GOODWI
Page 50 and 51: 48 THE THYSSENKRUPP BRAND WAS FURTH
Page 52 and 53: 50 WE HAVE SEVERAL STRATEGIC OPTION
Page 54 and 55: 52 OUR INTEGRATED CONTROL CONCEPT S
Page 58 and 59: 56 OVER 60% OF BEST PROJECTS TAKE P
Page 60 and 61: 58 COMPENSATION REPORT THE BONUS AM
Page 62 and 63: 60 THE LTMI EXPIRED WITH PAYMENT OF
Page 64 and 65: 62 THE SECURITY OF THE INFORMATION
Page 66 and 67: 64 THE AREAS OF ACTIVITY OF THE SEG
Page 68 and 69: 66 THE RISKS TO THE THYSSENKRUPP GR
Page 70 and 71: 68 VEHICLE PRODUCTION REMAINS A GLO
Page 72 and 73: 70 THE NUMBER OF EMPLOYEES WILL RIS
Page 74 and 75: 72 BALANCE SHEET Assets million €
Page 76 and 77: 74 NOTES GENERAL ThyssenKrupp ag is
Page 78 and 79: 76 FIXED ASSETS SCHEDULE in million
Page 80 and 81: 78 Disclosures on the volume of tre
Page 82 and 83: 80 million € Bonds Liabilities to
Page 84 and 85: 82 Foreign currency derivatives The
Page 86 and 87: 84 22 TAXES ON INCOME Taxes on inco
Page 88 and 89: 86 AUDITORS’ REPORT We have audit
Page 90 and 91: 88 SUPERVISORY BOARD PROF. DR. H.C.
Page 92 and 93: 90 LIST OF EQUITY INTERESTS Compani
Page 94 and 95: 92 Companies (As of September 30, 2
Page 102: 100 CONTACT/2007/2008 DATES For mor
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2005-2006 Financial Statements and Management Report

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