Earnings before tax of € 1.3 billion, with consolidated sales exceeding € 10 billion for the first time

Key Figures for the Financial Year 2007

In the financial year 2007, the Salzgitter Group set a new record high for consolidated sales, thereby considerably exceeding the already excellent operating result of the previous year. Along with the ongoing exceptionally good market for rolled steel products and tubes, the consistent implementation of further growth strategy measures contributed to these gratifying developments.

External group sales rose 21 % to € 10.19 billion (2006: € 8.45 billion). The first-time consolidation of Klöckner-Werke AG, acquired at the start of the second half-year, in the new Technology Division and other companies in the Tubes Division contributed € 665 million to this result.

Earnings before tax (EBT) of € 1,314 million impressively outperformed the operating profit of 2006 which is the relevant basis for comparison (EBT from operations 2006: € 948 million; total EBT 2006: € 1,855 million, including non-operational profit of € 907 million from the sale of the Vallourec participation). The relaunch of the profitability improvement program across the Group also made a remarkable contribution to this result.

The after-tax profit of € 905 million (2006: € 1,510 million, including the sale of the Vallourec shares) resulted in earnings per share of € 15.80 (2006: € 26.50). ROCE from industrial business attained the excellent level of 46.9 % in 2007 (2006: 55.1 %). Including income from the investment of funds in excess of € 2 billion, ROCE came to 28.0 %.

Good capacity utilization in steel processing sectors raised the demand for steel further in 2007. The total sales of the Steel Division climbed € 617 million to € 3,967 million (2006: € 3,350 million). Primarily due to higher selling prices the sales of the large steel companies grew significantly. The Steel Division generated an excellent pre-tax profit of € 749.4 million, thereby outperforming the previous year’s figure of € 433.8 million by 73 %. Against the backdrop of excellent market conditions, the consistent leverage of profitability improvement potential was also a contributing factor.

The companies of the Tubes Division also benefited from the robust condition of the steel tubes market in 2007. The main drivers were the persistently high demand for tubes in the oil and gas industry and international power plant construction. The sales of the Tubes Division advanced € 409 million to € 2,604 million (2006: € 2,195 million), with the large-diameter tubes activities and the newly added precision tube companies representing the sales mainstays. Earnings before tax of € 302.5 million considerably outperformed the previous year’s figure (€ 262.9 million). Excluding the proceeds from Vallourec still included in the first half year of 2006 (€ 73.0 million) and the results of the new precision tube companies (€ 7.9 million) in the second half year of 2007, there was a similar increase in profit of € 104.7 million.

The favorable market conditions enabled the Trading Division to outperform the record results of the financial year 2006. Prospering domestic stockholding trading, buoyed by brisk demand in the construction industry and of other steel processors, and the stable international business in the emerging markets of China, India, Brazil and Russia compensated for slowing business in North America. Sales of the Trading Division rose € 508 million to € 5,021 million, mainly owing to a higher average price level, and earnings before tax of € 212.5 million exceeded the outstanding previous-year figure (€ 200.9 million).

The Services Division lifted sales by € 146 million to € 1,189 million, which was primarily attributable to the raw materials trading of DEUMU Deutsche Erz- und Metall-Union GmbH. Including a claim waiver by Salzgitter Mannesmann GmbH in favor of Salzgitter Automotive Engineering GmbH & Co. KG, earnings before tax came to € 40.4 million (2006: € 15.4 million). Without special effects, the Division raised its earnings before tax by € +3.6 million as against the previous year.

The sales of the Technology Division, the core of which is constituted by the Klöckner-Werke Group, achieved a gratifying € 566 million in the second half year of 2007, with the lion's share generated by the filling and packaging technology product segment. The operating result posted € 18.0 million before tax. Taking account of the one-off effects of the purchase price allocation required by IFRS standards (€ -14.0 million), earnings before tax stood at € 4.0 million.

Total sales of the Others segment, generated by business in semi-finished goods with Group companies and external parties, grew to € 441 million (2006: € 327 million) owing to higher volumes and selling prices during the period under review. The aforementioned claim waiver of € 25 million reduced the pre-tax result of the division to € 5.1 million. (The previous year’s result of € 941.8 million comprised € 907 million in proceeds from the sale of Vallourec SA in the third quarter of 2006.)

Furthermore, the discernible increase in the Salzgitter Group's internal sales to be consolidated to € 3.60 billion (2006: € 2.98 billion) owing to the greater use of intra-Group sales channels should be noted.

The annual financial statements for the financial year 2007 are to be submitted to the Supervisory Board for adoption at its next meeting and published in their full version on March 27, 2008.

The anticipated development in 2008 of the Group and its divisions described in the following is based on the corporate planning concluded at the end of 2007 and takes account of current insights:

All in all, the start to the new financial year was most satisfactory and therefore much better than expected by many market operators in the capital markets some weeks ago.

The Steel Division’s flat rolled steel product segment reported strong recovery in order intake and selling prices after a temporary dip in the fall of 2007. Business in the sections and plate product segments was brisk, supported by improved selling prices. However, the costs of iron ore and other input materials, as well as for coal and other sources of energy, are set to rise substantially in the course of the year 2008, with the result that profit in the Steel Division in 2008 is expected to be outstanding again, albeit somewhat lower than 2007.

The Tubes Division has also forecast dynamic development of its relevant markets in 2008. At the same time, the full-year inclusion of the new precision tubes companies will produce a positive effect. The well-filled order books give rise to expectations of a high level of capacity utilization in almost all mills as from the first quarter of 2008. Profit is thus likely to settle at a similarly good level in a year-on-year comparison.

The Trading Division anticipates that shipment levels will hold steady in 2008, as stockholding traders in Germany and international trading can be expected to benefit from persistently sound demand. If the momentum of supply and demand returns to normal levels, this could have an impact on the specific gross earnings.
The Trading Division has therefore planned for a reduction in the 2008 result, which will nonetheless remain notably higher than the long-standing average.

Net of special effects, the sales and pre-tax profit of the Services Division are likely to settle around the level of the financial year 2007.

During the current year, the Technology Division looks set to repeat the very gratifying developments of the last financial year. Based on the anticipated market trend and the effectiveness of internal measures, the anticipated rise in sales is likely to go hand in hand with an increase in profitability. Earnings before tax are therefore expected to be higher than the previous year’s figure.

Based on a confident estimate of the steel, tubes and mechanical engineering markets, and taking account of current business data from the first months of 2008, our assessment on how the Group is likely to develop is as follows:

In the financial year 2008, we are striving to attain a notable growth of the Group, of which more than 50 % will result from the first-time full-year inclusion of the companies of the Klöckner Group in our new Technology Division. Accordingly, we expect an ambitious pre-tax operating profit in the upper triple-digit million range which could repeat the dimensions attained by the operating results in the financial years 2005 (EBT of € 803 million) and 2006 (EBT of € 948 million).

Express reference is made to the fact that opportunities and risks arising from currently unforeseeable trends in sales prices, input materials and capacity level developments, as well as changes in the currency parity, may still considerably affect performance in the course of the financial year 2008. As shown by previous years, the resulting potential range within which the consolidated pre-tax result could fluctuate may be considerable, both in positive and negative terms. The dimensions of the aforementioned statement become clear if one considers that, assuming sales of around 12 million tons of steel products by the Steel, Trading and Tubes divisions, a € 20 per ton fluctuation in the margin is sufficient to cause annual profit to change to the positive or negative by over € 200 million.

Disclaimer:
Some of the statements made in this document possess the character of forecasts or may be interpreted as such. They are made upon the best of information and belief and by their nature are subject to the proviso that no unforeseeable deterioration occurs in the economy or in the specific market situation pertaining to the Division companies, but rather that the underlying bases of plans and outlooks prove to be accurate as expected in terms of their scope and timing. The company undertakes no obligation to update any forward-looking statements. This document is a translation of the original German-language press release. In case of ambiguity between this document and the German-language press release, the information provided in the latter shall prevail.