For customers, progress. For people, a future. Annual Report 2002_2003 TK C/1 Working for the future ThyssenKrupp aims to achieve continuous improvements in all areas. That’s a message we also want to put across in our annual reports. Whereas last year the focus was on sustainability and active dialogue, this year we want to take a closer look at innova- tions. Innovations at ThyssenKrupp are also the result of dialogue – with customers and employees. Addressing specific subjects from many different angles enables us to develop commercially successful innovations of the highest quality. For our customers, for our stockholders, for our employees. For people. www.thyssenkrupp.com Cover picture: ThyssenKrupp moving walks in the Seceda ski tunnel, St. Ulrich/Italy C/2 ThyssenKrupp in brief ThyssenKrupp is a global concern with business activities focused on the areas of Steel, Capital Goods and Services. We have over 190,000 employees in more than 70 countries developing products and services to meet the challenges of the future. In all five segments – Steel, Automotive, Elevator, Technologies and Services – they provide high- quality solutions to people’s needs and our customers’ requirements. Steel Capital Goods Services Steel Automotive Elevator Technologies Services The Group in figures 2001/2002 2002/2003 Change Order intake million € 36,404 36,047 – 357 Sales million € 36,698 36,137 – 561 EBITDA million € 2,648 2,454 – 194 EBIT million € 1,046 905 – 141 EBT (Income before taxes and minority interest) million € 762 714 – 48 Normalized EBT million € 419 734 315 Consolidated net income million € 216 512 296 Basic earnings per share € 0.42 1.01 0.59 Normalized earnings per share € 0.48 0.89 0.41 Distribution million € 206 249* 43 Dividend per share € 0.40 0.50* 0.10 Net cash provided by operating activities million € 2,454 2,027 – 427 Capital expenditures million € 1,777 1,604 – 173 Return on equity (before taxes and minority interest) % 9.2 9.4 0.2 ROCE % 7.0 6.9 – 0.1 EVA million € (413) (413) 0 Net financial payables million € 4,742 4,235 – 507 Stockholders’ equity million € 8,287 7,631 – 656 Gearing % 57.2 55.5 – 1.7 Employees (Sept. 30) 191,254 190,102 – 1,152 * Proposal to the Annual Stockholders’ Meeting Note: Accounting at the ThyssenKrupp Group is in accordance with us gaap. All financial information and disclosures are presented including disposal groups. I Letter to stockholders Your ThyssenKrupp investment performed creditably in fiscal year 2002/2003: the stock price increased by 3% and normalized earnings per share improved to €0.89 from €0.48 a year earlier. We will be proposing a dividend of €0.50 per share to the Annual Stockholders’ Meeting in January 2004, €0.10 higher than a year ago. On this basis, the dividend yield is 4.3%. What lies behind these figures? There are three questions of particular interest to you as stockholders: How did your company perform? What were the main challenges facing staff and management? What goals is the Company pursuing and what strategies is it using to achieve them? This annual report is designed to answer these questions, but I also think it is important to inform you personally about the main issues. The employees of ThyssenKrupp once again worked hard and creatively in 2002/2003 to achieve the best possible results. Unfortunately, we weren’t exactly helped by the economic environment, either nationally or internationally. The hoped- for recovery of the global economy failed to materialize, and the performance of the markets of importance to us was unsatisfactory. The only stabilizing factor was the international steel market, which is still in fairly robust shape. How did ThyssenKrupp perform specifically? The disappointing economic situation left its mark on our business, and it is no consolation that our competitors fared no differently. The Group’s order intake in 2002/2003 was €36.0 billion, 1% lower than a year earlier; sales also declined, by 2% to €36.1 billion. Nevertheless, normalized earnings before taxes, i.e. excluding disposals, rose to €734 million from €419 million a year earlier. This increase represents a significant improvement in the quality of our earnings, due not least to the success of the measures we have taken to enhance the efficiency of the Group. What were the negatives? The disappointing economic situation in 2002/2003 may sound like a convenient excuse, but the fact is that in our business we rely on investment by our customers around the world to create demand for our products and services. Let me also mention some of the other adverse factors we had to contend with in 2003. In February 2003, a rating agency downgraded ThyssenKrupp to non-investment grade. The only reason for this was that the agency changed the way it treats pension obligations. We find it impossible to comprehend the agency’s actions because far from deteriorating, the Group’s financial situation has improved significantly since its initial rating in summer 2001: we have reduced our debt by over €4 billion and lowered our gearing – the ratio of net debt to equity – to our medium-term target level of 60%. I can assure you that your Company, now as before, is on a solid financial footing. II Letter to stockholders In May 2003, ThyssenKrupp repurchased 16.9 million of its shares from IFIC Holding ag to reduce the Islamic Republic of Iran’s indirect shareholding in ThyssenKrupp ag. This was necessary to avert the threat of serious imminent harm to the Company; our activities in the usa would otherwise have faced major business losses under relevant us legislation. In concrete terms, sales of up to us$8 billion were at risk. In view of this threat, we regard the purchase price for the stock of around €406 million as justified. What is our strategy for the future? From my reports to you in recent years – whether in stockholder letters, Annual Stockholders’ Meetings or press conferences – you have been able to see that we are pursuing a long-term corporate strategy. We are focusing our activities within our three main areas of business Steel, Capital Goods and Services, and we are continuously optimizing our portfolio to achieve sustainable improvements in the earning power and value of your Company. Admittedly, we don’t always progress as quickly as we’d like. There are two reasons for this. Firstly, we base our decisions on strict criteria which do not allow acquisitions or disposals to be made “at any price”. After all, the aim is to create new value for you, our stockholders. Secondly, the economic weakness I mentioned earlier has been an additional impediment. But despite this, since the beginning of fiscal 2002/2003 we have acquired businesses with sales of €1.5 billion and disposed of companies with sales of €1.0 billion. Our strategy is beginning to bear fruit, and we intend to accelerate the pace of its implementation. In May 2003, the Supervisory Board approved the Executive Board’s plans for the further development of the Group. We will be disposing of over 30 non- strategic investments with total sales of around €7 billion. This will create new scope for strategic acquisitions and improve our liquidity. We have already made a start with the sale of Novoferm and the formwork and scaffold activities. With effect from October 01, 2003, we combined the two former segments Materials and Serv into the new Services segment, creating a platform from which to focus and expand our main strengths in this area – materials expertise and industrial services. Further elements of our corporate strategy include annual productivity increases of 2–3% and ThyssenKrupp best, our efficiency enhancement program. I am delighted by the progress ThyssenKrupp best has made: the program now embraces almost 2,300 projects in Germany and abroad, generating significant value-enhancement effects and greatly improving the transfer of knowledge within the Group. Not least, it produced outstanding winners of the inaugural ThyssenKrupp best Award presented in 2003. III Letter to stockholders What does the Group strategy aim to achieve? The success of our strategy to date, the progress and the strong international positions of our segments, and the skills and talents of our employees give my Executive Board colleagues and myself confidence for the future. There will be no letting up in our efforts to raise the tempo, improve our methods and find timely solutions to new challenges. Through organic growth, further strategic acquisitions and an even stronger service focus, the aim is to boost ThyssenKrupp’s sales in the medium term to €40 – 46 billion. We are also sticking to our medium-term goal of €1.5 billion for normalized pre-tax earnings. We will not be able to meet our target this year, as the forecast growth rates are too low and subject to too many uncertainties, but we are confident that it accurately reflects ThyssenKrupp’s sustainable potential. It is a clear and deliberate signal of our strength and shows what ThyssenKrupp is capable of achieving in a strong economic environment. In the interests of good corporate governance, our future actions will be kept trans- parent for all our partners. We want to establish long-term ties – with our customers by providing intelligent solutions to their problems, with our employees by giving them jobs with a future, and with society in general through responsible economic and social practices. But at the center of it all are you, our stockholders. You have entrusted us with your capital and rightly expect an appropriate return. Your trust is our obligation, and we will be measured against the results we achieve.