Key data - Sound profit trend in the financial year 2011

The Salzgitter Group reported a gratifyingly sound performance in 2011, a year determined by economic and political uncertainty in many parts of the world. Earnings before tax more than quadrupled on the back of substantial sales growth, which was mainly attributable to the generally favorable economic conditions for rolled steel and tubes products. With an equity ratio of 45.5 % and more than € 500 million available under the net financial position, Salzgitter AG has a sound balance sheet and an exceptionally solid financial footing, also after the completion of an extensive investment program costing € 2 billion.

Having lifted external sales by 19 % to € 9,839.5 million (2010: € 8,304.6 million), the Group closed the financial year 2011 with earnings before tax of € 201.6 million (2010: 48.9 million). This result includes € 39.5 million on balance in non-recurrent burdens on the result. Profit after tax stood at € 236.0 million (2010: € 30.0 million), thereby exceeding the year-earlier results thanks to tax optimization measures that will gradually unfold their effects in the coming years. Basic earnings per share come to € 4.31 (2010: € 0.55).

The Steel Division recorded lively demand for most of its products right through to the fall of 2011. Only from September onwards did temporary restraint in individual customer sectors placing orders set in, which necessitated curtailing the production of flat steel. Nonetheless, the Steel Division's external sales grew to € 2,739.7 million (2010: € 2,268.6 million) thanks to higher average selling prices accompanied by a larger volume of shipments. As a result of better capacity utilization, a higher shipment volume, the lower level of non-recurrent expenses and the rigorous implementation of the streamlining program, the Steel Division lifted its result noticeably and closed the financial year 2011 with a pre-tax profit of € 25.7 million (2010: € –100.6 million).

The generally good capacity utilization situation of the steel processing industries in Germany and in several regions outside Europe also had a favorable impact on the Salzgitter Group's steel trading business. Against the backdrop of this environment - that permitted an increase in selling prices - the division's external sales rose by nearly a third to € 3,903.9 million (2010: € 2,958.2 million). The pleasing earnings before tax of € 60.6 million fell marginally short of the previous year's figure (2010: € 71.4 million) that included above-average windfall effects.

The Tubes Division benefited from processing the backlog of a series of large-diameter pipe projects over extended stretches of the year, a healthy order book for precision tubes, and a recovery in the stainless steel tubes product segment. With external sales remaining virtually unchanged (€ 1,686.8 million; 2010: € 1,736.1 million), the pre-tax profit climbed to € 67.3 million (2010: € 59.9 million), mainly owing to the turnaround staged by the precision tubes segment.

The Services Division's development was determined in 2011 by healthy capacity utilization in the Steel Division. The division's external sales advanced to € 457.3 million (2010: € 413.1 million), driven mainly by higher scrap prices. Earnings before tax declined marginally (€ 19.6 million; 2010: € 26.2 million).

With almost one billion euros in external sales (€ 966.6 million; 2010: € 872.9 million), the Technology Division almost matched the sales levels posted in the pre-crisis years of 2007 and 2008. Competition and prices continued to exert strong pressure on the food and packaging machinery business. Although the quality of margins in contracts recently acquired improved, the settlement of projects mostly from previous years placed a substantial burden on the annual result of the beverages filling plants segment. In contrast, the other companies of the Technology Division generated positive results. The division's overall result (€ –79.1 million; 2010: € –30.3 million) includes restructuring expenses and non-recurrent risk provisioning of € 28.4 million in total relating to foreign holdings.

External sales generated in the Other/Consolidation segment through business in semi-finished products with external parties climbed to € 85.3 million in the financial year 2011 (2010: € 55.9 million), boosted by selling prices and volume. Pre-tax profit stood at € 107.4 million, which is significantly higher compared with a year ago (2010: € 22.3 million). The result includes € 74.2 million (2010: € 34.0 million) in after-tax profit from Aurubis AG (NAAG), a shareholding included at equity.

The annual financial statements for the financial year 2011 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on March 30, 2012.

The following summarizing description of our expectations for the performance of the Group and its divisions in 2012 is based on the planning concluded at the end of 2011 and takes account of current information: In view of the generally good capacity utilization in the relevant steel processing sectors and the increase in deliveries to our Tubes Division, the Steel Division anticipates a general improvement in its order book. The start to the new financial year was, however, burdened by the decline in average selling prices in the fourth quarter of 2011. The Steel Division nonetheless anticipates another, marginally positive pre-tax profit in 2012.

Combined with higher shipment volumes in international trading, the Trading Division predicts an increase in sales. The inclusion of STAHL-METALL-SERVICE Gesellschaft für Bandverarbeitung mbH, a company acquired in 2011, in the Trading Division's group of consolidated companies should make a contribution to achieving this result. Assuming generally stable steel prices, another mid-double-digit million profit would appear to be feasible.

The Tubes Division is cautiously optimistic about its development in the current financial year and anticipates making a contribution to profit in 2012 as well. Whereas demand for precision tubes should largely be buoyed by strong demand from the automotive industry and the mechanical engineering sector, the stainless steel tubes products segment is set to benefit from uptrending activities in the oil and gas sector. In the case of large-diameter pipes, the result in the first quarter will be impacted by a temporary gap in capacity utilization. In contrast, the order placed in mid-February for an offshore project in Australia confirms the generally positive prospects of this division.

The Services Division is set to participate again in the generally good capacity utilization of the steel companies.

Sales and profit are likely to settle around levels achieved in 2011. KHS as part of the Technology Division will be endeavoring to achieve another increase in its order intake based on a stable global market for filling and packaging technology. The Fit4Future program, introduced and rigorously implemented in the past year, is geared to enhancing innovation and customer benefit as well as to performance and cost optimization. As result, a substantial improvement in the 2012 result compared with 2011 is expected. The Desma mechanical engineering companies anticipate ongoing profitable performance.

A recent deterioration in Europe's debt crisis is unquestionably the major risk for macroeconomic development in 2012. Making reliable statements on the development of the business situation in the coming quarters is as impossible as giving a sound, detailed earnings forecast for the Salzgitter Group at the current point in time. If, however, one assumes that there will be no drastic recessionary developments, we anticipate that, based on the expectations of the individual divisions, sales will remain stable at minimum, and that a positive earnings before tax can be delivered in 2012. From today’s standpoint, delivering a repeat of the previous year’s results will be challenging, as the start to the new year appears to be marked by dampening effects on the course of business in the Steel and Tubes divisions.

As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input materials and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2012. The resulting fluctuation in the consolidated pre-tax result may 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 Steel, Trading and Tubes divisions, an average € 25 contraction 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 volatilities and shorter contractual durations, both on the procurement and 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. The company undertakes no obligation to update any forward-looking statements.