The Salzgitter Group records an improvement in results in the third quarter of 2009

Since the general economic conditions started to brighten over the course of the first half year 2009, the Salzgitter Group achieved a notable improvement in results in the third quarter. The impact of the global financial crisis, however, was still evident so that the Group’s broad and equally sound business base has proven extremely advantageous against this backdrop. Positive contributions of the Tubes Division, the Aurubis participation and financial investments were unable to compensate for the results of the Steel, Trading and Technology divisions that were particularly hard hit. The extensive program of short-term cost-cutting measures had a notably easing effect.

Consolidated external sales dropped 38 % to € 5,960.3 million (first nine months of 2008: € 9,638.7 million) in the first three quarters and the pre-tax loss came to € 261.3 million (first nine months of 2008: € +1,013.9 million), with a modest uptrend in the summer quarter. In interpreting the third-quarter pre-tax result (€ -66.1 million), the fact that a number of larger plant in the Steel and Tubes divisions as well were idled for a period of several weeks for planned maintenance and investment measures, along with lower capacity utilization due to market conditions, must be taken into account. From its first-time consolidation in January 2009, the 23 % stake in the copper producer Aurubis AG, a company consolidated at equity, contributed a gratifying € 38.7 million in profit to the consolidated after-tax result of € -232.1 million (first nine months of 2008: € +689.0 million). This brings the loss per share to € -4.33 (first nine months of 2008: € +12.30).

The unfavorable market environment placed the greatest burden on the companies of the Steel Division. In the first half-year, longer periods of significant underutilization of capacity in the mills had to be absorbed. The situation only improved from mid-year onwards after the excessive inventories of steel traders and processors had been pared down. Whereas, at the same time, demand by consumer-related sectors began to recover, stimuli in the capital goods and construction industries were virtually non-existent. The dramatic nosedive of selling prices across all product groups came to a halt, and it was possible to implement price increases in strip steel for the first time again on July 1, an effect only reflected by the figures with a time lag. As a result, external sales halved to € 1,231.1 million (first nine months of 2008: € 2,441.6 million). By contrast, the decline in raw material prices released its full alleviation effect only from the second half-year onwards. The pre-tax loss of € -213.4 million (first nine months of 2008: € +520.3 million) includes valuation adjustments to inventories carried out in the first and second quarter which have an easing effect in the period up until the end of the financial year.

The business performance of the Trading Division was also hugely hampered by the reticent demand of many steel processors, the ubiquitous reduction in inventories and falling selling prices. As from mid-year, product segments with a high inventory turnover showed the first signs of improvement. Consolidated external sales declined 44 % to € 2,397.3 million (first nine months of 2008: € 4,271.6 million). The pre-tax result stood at € -90.5 million (first nine months of 2008: € +222.5 million).

The Tubes Division set a positive note, above all thanks to the continued stable course of the large-diameter tubes business. The manufacturers of HFI-welded tubes and seamless stainless steel tubes also benefited from more lucrative order backlog from 2008. External sales fell by a mere 4 % to € 1,541.6 million (first nine months 2008: € 1,604.1 million) despite the low level of capacity utilization in the precision tube segment. A sound pre-tax profit of € 121.7 million (first nine months of 2008: € 234.1 million) was achieved.

Braked by the economic environment, sales of the Services Division halved owing to lackluster demand of internal and third-party customers (€ 536.7 million; first nine months of 2008: € 1,036.1 million). External sales, the major share of which was generated by DEUMU Deutsche Erz- und Metall-Union GmbH, stood at € 224.7 million (first nine months of 2008: € 428.5 million). With € -1.7 million, the Division almost achieved breakeven in its pre-tax result (first nine months of 2008: € +25.6 million).

The severe reluctance of customers of the Technology Division to invest caused its external sales to contract by just under a third to € 531.6 million (first nine months of 2008: € 787.0 million). Demand began its hesitant recovery only at the end of September, with the result that the extremely difficult market environment and risk provisioning for existing orders delivered a loss of € -75.5 million before tax (first nine months of 2008: € +15.4 million).

The external sales of the Other/Consolidation segment, generated by sharply declining business in semi-finished goods with customers external to the company, stood at € 33.9 million (first nine months of 2008: € 105.9 million). The 23 % stake in Aurubis AG, a company included at equity here since the start of the financial year, contributed a proportionate after-tax profit of € 38.7 million. All in all, the result of the segment came to € -1.9 million (first nine months of 2008: € -4.0 million).

Although an increasing number of sectors are showing signs of recovery from occasionally catastrophic base levels, applying caution is advisable in respect of the sustainability of some of these uptrends. Consequently, our focus remains on securing a sound balance sheet and the financial stability over the long term, an approach which has proven to be a special strength of the Salzgitter Group during the crisis. The swift and consistent introduction of cost-cutting measures across all divisions has eased the burden on the result to the tune of € 195 million in the first three quarters of the financial year 2009; implementation will be pursued, if necessary, into 2010.

We anticipate that the European steel market will continue to stabilize moderately, to varying degrees depending on the product group. Fundamentally speaking, however, the recovery is fragile and might come to a halt, for instance, if there is a renewed incidence of an oversupply in the market as a result of the reactivation of temporarily unused capacity. The Steel Division expects the monthly results to improve in the fourth quarter mainly owing to better capacity utilization of the plants. In addition, the more favorable selling price-related situation in flat steel will exert a positive impact on the result.

The Trading Division is also expecting the situation to brighten but not for all companies, nor to the same extent or within the same timeframe. In stockholding steel trading, comparatively stable selling prices, with procurement prices returning to normal levels, should result in an improvement in gross earnings and bring operating results to breakeven. In contrast, international trading will have to meet the challenge of increasingly difficult general conditions and lack of stimulus for demand.

We do not anticipate that the tubes business will recover over the remainder of the year. Against the backdrop of consistently good business in large-diameter tubes business and the likelihood of the precision tubes market remaining problematic, declining volumes and margins are anticipated for HFI-welded and stainless steel tubes. The results for the year as a whole will nonetheless be very satisfactory, but the record level of 2008 is not achievable.

An improvement in the results of the Services Division can be expected to develop in tandem with those of the Steel Division.

The fourth quarter is unlikely to entail any firm trend reversal for the Technology Division. The slight recovery in orders up until the end of the year will not have any decisive effect owing to project timeframes in the current financial year. The year 2009 will therefore close with a discernibly negative result.

We assume that the consolidated pre-tax result of the last three months of the financial year will continue to move in the direction of breakeven. The moderate uptrend in one of the most difficult financial years in the 150 year history of the Group will therefore persist.

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 still affect the results of the financial year 2009. Additional positive or negative effects may emanate from changes of a structural and methodological nature; this applies especially to measurement under IFRS standards and their treatment. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.

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 conditions pertaining to the companies of the various divisions, 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.