Key data for the financial year 2014

2014 earnings forecast achieved – consolidated result raised by almost € 500 million

• Strong impact on earnings by the "Salzgitter AG 2015" program
   
• Sound balance sheet: equity ratio of 34 %; net credit balance exceeds € 400 m
   
• Guidance for the financial year 2015: pre-tax profit in the lower double-digit million euro range

Against the backdrop of a challenging environment in the European steel market, the Salzgitter Group raised its pre-tax result by almost €500 million in the financial year 2014 and closed – in line with the forecast – with a result close to breakeven. The groupwide "Salzgitter AG 2015" restructuring program made a considerable contribution to this result. Achievements particularly noteworthy in this context included the turnaround at Peiner Träger GmbH (PTG) and the sustained positive earnings development achieved by the Salzgitter Mannesmann Precision Group. The program is increasingly bearing fruit in many other Group companies as well. A gratifying increase was reported in the cash flow from operating activities that lifted the net financial position as of December 31, 2014 to € 403 million, corresponding to an improvement of one third compared with the year-earlier reporting date. Together with an equity ratio of 34 %, Salzgitter AG enjoys a very sound balance sheet and the financial structure.

Owing to weaker average selling prices for most steel products, the Salzgitter Group's external sales that came in at € 9,040.2 million fell marginally short of the previous year's figure (2013: € 9,309.8 million). The pre-tax result rose to € –15.2 million, representing an increase in a year-on-year comparison (2013: € –482.8 million). This figure comprises € 31.2 million in profit contribution from the Aurubis investment, as well as a balance of € –43.0 million largely from non-recurrent accounting-related effects.

^{1)When considering year-on-year comparisons, it should be noted that the key data of the financial year 2013 have been restated to take account of the new Group organization structure and changes in the consolidation methods applied to participating interests under IFRS 11.}

The after-tax result stood at € –31.9 million (2013: € –490.0 million), which brings basic earnings per share to € –0.64 (2013: € –9.11). The now positive return on capital employed (ROCE) rose to 1.8 % (2013: –10.5 %).

Chief Executive Officer Prof. Dr.-Ing. Heinz Jörg Fuhrmann commented as follows: "The results of the financial year 2014 say more than many words. The 'Salzgitter AG 2015' project is being rigorously implemented, and the pre-tax loss in 2014 was less than a thirtieth of the 2013 result. We have halted cash outflow from the Group. This undisputed success should not detract from the fact that we still have our work cut out for us on the way to achieving allround satisfactory financial performance."

Development of the business units

In the financial year 2014, the Strip Steel Business Unit reported a positive shipment trend despite the still fragile state of the European steel market. External sales posted marginal growth to € 2,060.1 million (2013: € 2,017.6 million) due to lower selling prices of most products. Thanks in particular to the notable increase in the result of Salzgitter Flachstahl GmbH (SZFG), the business unit's pre-tax result climbed to € –8.8 million (2013: € –85.0 million).

The market situation in the plate and sections business was also determined by fierce competition over the course of the financial year 2014. Despite lower shipment volumes, the Plate / Section Steel Business Unit's external sales rose slightly to € 1,118.8 million (2013: € 1,088.4 million). The pre-tax loss stood at € 130.0 million, representing a notable improvement compared with the year-earlier result (2013: € –403.4 million). Whereas the 2013 result was burdened by impairment and restructuring costs at PTG, the 2014 financial statements include € 64.4 million overall in connection with restructuring and impairment at HSP Hoesch Spundwand und Profil GmbH (HSP). By contrast, the turnaround at PTG delivered a major part of the business unit's positive earnings trend.

The development of the Energy Business Unit's product segments was very disparate: Healthy business for seamless stainless steel tubes, coupled with the sustained positive earnings trend of Salzgitter Mannesmann Precision Group (SMP Group), was juxtaposed to the challenging situation confronting the European line pipe companies. Accompanied by marginally declining external sales of € 1,226.5 million (2013: € 1,308.9 million), the business unit reported a pre-tax loss of € –40.6 million (2013: € –51.6 million), representing a decrease in a year-on-year comparison. Negative effects from the unsatisfactory capacity utilization of the line pipe companies mainly in the first half of 2014, non-recurrent valuation effects of € 13.1 million at Salzgitter Mannesmann Großrohr GmbH and the EUROPIPE Group, as well as € 5.5 million in provisions for restructuring the SMP Group were the key determinants of the result. The Salzgitter Mannesmann Stainless Tubes Group generated another notable contribution to profit.

The Trading Division's external sales declined to € 3,254.8 million (2013: € 3,574.6 million) in the financial year 2014 due primarily to a downturn in the business volume of international trading. A pleasing pre-tax result was nonetheless achieved: Disbursement of earnings retained over a multi-year period from companies formerly not consolidated and other accounting-related effects totaling € 40.0 million contributed to a pre-tax result of € 60.1 million that was significantly higher than the year-earlier figure (2013: € 31.4 million).

The Technology Business Unit's external sales rose to € 1,198.2 million (2013: € 1,118.2 million), boosted primarily by the KHS Group's growth. The business unit generated a pre-tax profit of € 25.2 million in the reporting period, thereby almost doubling its results compared with the previous year's period (2013: € 12.7 million). This success was due first and foremost to the consistently good capacity utilization of production sites of all companies. KHS Corpoplast GmbH's gratifying result was the dominating factor within the KHS Group. KDS reported the highest profit ever in the history of its company in 2014, while the KDE Group more than trebled its pre-tax result in a year-on-year comparison.

The external sales of Industrial Participations / Consolidation declined to € 181.9 million (2013: € 202.1 million) in the financial year 2014. Earnings before taxes stood at € 78.9 million (2013: € 13.2 million). This development was mainly attributable to the significant swing to the positive of the Aurubis investment that delivered a profit contribution of € 31.2 million (2013: € –17.2 million).

The annual financial statements for the financial year 2014 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on March 27, 2015.

Guidance

Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current political and financial environment. The forward-looking statements below on the individual business units assume the absence of a recessionary development in Europe. Instead, we anticipate a relatively restrained economic recovery in the current financial year, with markets remaining fiercely contested.

Against this background, the business segments anticipate that business will develop as follows in the financial year 2015:

The Strip Steel Business Unit expects business to remain challenging in 2015 as well given the sustained pressure on selling prices in the EU steel market. Moreover, Salzgitter Flachstahl GmbH (SZFG) as by far the largest company of the business unit will have to absorb the considerable costs of the scheduled relining of one of its large blast furnaces. The lower shipment volumes also associated with this measure will result in correspondingly lower sales. Savings on the cost front, also thanks to the new pulverized coal injection plant, will not be able to fully offset the extraordinary charges from the blast furnace relining. Without these burdening effects, a return to the profit zone would indeed be feasible; including the direct and indirect effects of the blast furnace relining, the business unit's pre-tax result will be markedly lower than in 2014.

The Plate / Section Steel Business Unit will also be operating in a difficult market environment in the current financial year. Whereas the plate mills will nonetheless be endeavoring to lift earnings, the primary goal of Peiner Träger GmbH (PTG) will be to stabilize its turnaround. Taking account of the general market environment, in conjunction with the special situations of Salzgitter Mannesmann Grobblech GmbH (MGB), specifically the impact of the suspension of the South Stream project, and of HSP Hoesch Spundwand GmbH (HSP), the development of the business unit's sales and pre-tax result is subject to considerable imponderables. The business unit will nonetheless be aiming at raising the pre-tax result substantially. Sales are likely to increase slightly.

In 2015, the Energy Business Unit is likely to suffer, at least temporarily, from the weakness prevailing in the European large-diameter pipes market, also due to the suspension of the South Stream object, among other factors. This constellation will lead to capacity utilization shortfalls in the European mills. By contrast, the situation in North America is much more positive: Orders on hand ensure capacity utilization in the production sites through to the year 2016. The precision tubes companies expect stable demand from automotive manufacturers, as opposed to the markets of the energy and industry product segments that will remain fiercely contested. After a highly successful year in 2014, the seamless stainless steel tubes anticipate bookings at a good level. Assuming temporary capacity underutilization in Europe's large-diameter pipes production sites, the Energy Business Unit expects sales to remain at the year-earlier level in 2015. Given the rigorous implementation of measures under the "Salzgitter AG 2015" program and the non-recurrence of special items, a significant increase in earnings before taxes is anticipated.

The Trading Business Unit expects sales growth to be constrained in 2015 and anticipates a pre-tax result that will be notably lower in a year-on-year comparison owing to positive one-off effects that will not be repeated. Raising sales and profit in the stockholding steel trade will be based on an increasing concentration on superior and processed products, as well as prices and demand conditions in Europe that are expected to stabilize. Low oil prices should support this trend. International trading expects the result to be satisfactory due to the recovery in project business outside Europe.

Based on a high order backlog, the Technology Business Unit anticipates a moderate increase in sales and an upturn in pre-tax profit. The growth envisaged in profitable product segments, flanked by ongoing expansion in the service business, in conjunction with the enhanced efficiency arising from the "Fit4Future" program, should enable the KHS Group to lift sales and improve profit. The outlook for the KDS and the KDE Group is also very promising.

In Industrial Participations / Consolidation, that is mainly influenced by the costs of the management holding company, reporting-date related valuation effects from foreign exchange and derivatives positions, the results of the services companies assigned to it, and other associated companies, including Aurubis AG (NAAG), a positive pre-tax result is expected, albeit below the extremely good year-earlier level.

Based on planning by the individual business units, and taking account of further positive effects from the "Salzgitter AG 2015" program, we assume the following for the Salzgitter Group in the year 2015:

• an increase in sales to around € 9.5 billion,
   
• a pre-tax profit in the lower double-digit million euro range and
   
• a return on capital employed that is higher than the previous year's figure.

As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input material prices and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2015. The resulting fluctuation in the consolidated pre-tax result may, as current events show, be within a considerable range, either to the positive or to the negative. The dimensions of this range become clear if one considers that, with around 12 million tons of steel products sold by the Strip Steel, Plate / Section Steel, Energy and Trading business units, an average € 25 change in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million. Moreover, the accuracy of the company's planning is restricted by the volatile cost of raw materials and shorter contractual durations, on the procurement as well as on the sales side.

^{Disclaimer: Some of the statements made in this report 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. Notwithstanding prevailing statutory provisions and capital market law in particular, the company undertakes no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.}

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