The Salzgitter Group reports sound profit trend in the current financial year

The Salzgitter Group achieved a considerable increase in its profit in the third quarter of 2011 compared with the year-earlier period. Its presentable performance in the first nine months of the current financial year was due first and foremost to the generally favorable economic environment for rolled steel and tubes products. Reporting an equity ratio of 44 % and a positive net financial position of more than € 500 million, Salzgitter AG is well positioned, both in terms of a sound balance sheet and strong financial position, also after virtual completion of its extensive investment program which cost around € 2 billion.

The Group's external sales rose 18 % to € 7,331.4 million (9 Months 2010: € 6,192.6 million). This development was mainly borne by the brisk activities of the Steel, Trading and Technology divisions. As a result, earnings before tax climbed steeply to € 169.1 million (9 Months 2010: € 5.7 million). This figure comprises € 52.9 million in profit contribution from the participation in Aurubis AG which is included at equity (9 Months 2010: € 31.8 million). The result after tax stood at € 114.7 million (9 Months 2010: € 3.9 million). Return on capital employed (ROCE) came to 5.8% (9 Months 2010: 0.8%).

Demand for most of the products of the Steel Division continued to run at a high level well into the third quarter. Reticence in the order patterns of a number of customer sectors was only felt as from September, necessitating a moderate alignment of flat steel production. Boosted by higher selling prices, especially for strip steel and plate, the division's external sales, which posted € 2,071.4 million, were nonetheless almost 25 % above the year-earlier figure in the first nine months of 2011 (9 Months 2010: € 1,672.4 million). Earnings before tax climbed by around € 100 million to € 35.9 million (9 Months 2010: € – 67.6 million).

The robust order situation of the steel processing industries also benefited the Salzgitter Group's steel trading business. Shipment volumes and selling prices developed steadily in domestic business, particularly over the course of the first half-year, and international trading continued its uptrend. The Trading Division reported an increase in external sales, which rose 26 % to € 2,810.6 million (9 Months 2010: € 2,230.5 million). The division delivered very pleasing earnings before tax of € 53.3 million. The year-earlier figure was impacted by exceptionally high windfall effects (9 Months 2010: € 63.9 million).

The Tubes Division was boosted by healthy demand in most sub-segments during the period under review. External sales remained stable (€ 1,299.6 million; 9 Months 2010: € 1,304.0 million). Earnings before tax, which came in at € 59.3 million, were more than three times the result posted in the first nine months of 2010 (9 Months 2010: € 17.7 million). Particularly cold finished precision tubes and stainless steel tubes contributed to this figure, both staging an impressive turnaround and delivering clearly positive results.

The activities of the Services Division were buoyed by the good capacity utilization of the steel companies. Boosted above all by higher scrap prices, external sales increased to € 355.7 million (9 Months 2010: € 301.7 million). Earnings before tax almost achieved the level of the first nine months of 2010 (€ 14.6 million; 9 Months 2010: € 18.8 million).

The Technology Division delivered external sales of € 728.4 million, thereby exceeding the year-earlier figure by almost 13 % (9 Months 2010: € 645.5 million). The main drivers here were the recovery in the project and service activities of KHS, along with the dynamic trend in orders placed in the plastics-injection mold machinery business. However, this contribution was unable to compensate for the negative figures of the KHS Group, resulting in a loss of € – 36.5 million (9 Months 2010: € –21.0 million). While a notable improvement in the quality of margins in orders recently acquired by KHS was in evidence, settlement of projects originating for the most part in previous years exerted notable pressure on the result.

External sales of Other/Consolidation, generated through business in semi-finished goods with external companies, soared by more than 70 % to € 65.6 million (9 Months 2010: € 38.5 million). Earnings before tax came to € 42.5 million (9 Months 2010: € – 6.1 million). This figure includes a very pleasing after-tax profit of € 52.9 million from the Aurubis AG participation (9 Months 2010: € 31.8 million) that takes account of the obligatory purchase price allocation required under IFRS (€ –4.8 million).

The Salzgitter Group's internal sales rose by almost € 400 million to € 1,973.6 million (9 Months 2010: € 1,575.7 million).

At present the economic climate is deteriorating more swiftly than the actual economic environment, due primarily to the uncertainties related to finding a sustainable solution to the euro financial crisis dominating the news. According to current opinion, this gives rise to a certain risk that the processing industry could be exposed to severe burdens. From our standpoint, however, there are still no concrete signs of a significant downturn in the order situation of steel processing companies in the euro area. Nonetheless, stockholding steel traders in particular have adopted a very cautious stance in the face of ongoing imponderables and due to imminent year-end closing. However, the order intake of the Steel Division in October was, not as poor as the general sentiment would suggest. In the near future, commodity prices are unlikely to fall as swiftly as in recent weeks, which should have a calming effect on the market environment for rolled steel products. Capacity utilization in the Steel Division will remain relatively stable through to the end of the year.

The Trading Division anticipates that shipments will remain at a consistent level for the remainder of 2011, that margins in stockholding steel trade will return to a normal level and that the recovery in the project business of international trading will hold steady. A very presentable result is anticipated for the year as a whole.

The positive trend to date in Tubes Division is expected to persist in the coming months. These circumstances are mainly attributable to good capacity utilization in the large-diameter pipes segment through to year-end and beyond and the gratifying business situation of the precision tubes segment which is benefiting from brisk order intake from the automotive and mechanical engineering industries. The division therefore anticipates sound earnings before tax in the fourth quarter as well.

The Services Division should generally continue to develop well in tandem with the capacity utilization of the steel companies.

The Technology Division predicts a continuation of the good situation of the special machinery engineering business of the KDE Group and Klöckner DESMA Schuhmaschinen GmbH. In recent months, business with beverage filling plants has reported remarkable booking volumes with a positive trend in margins. The profit improvement measures of KHS were also stepped up. The division expects an improvement in its operating results in the fourth quarter. However, it will be unable as yet to reach breakeven.

The euro crisis has resulted in greater macroeconomic risks since the summer. Demand in many product segments is nonetheless comfortable, albeit at a more modest level. Taking account of new orders placed in recent weeks, which give rise to cautious optimism, we affirm our forecast for the Salzgitter Group's earnings before tax of around € 200 million in the financial year 2011.

As in previous years, we make special reference to the fact that opportunities and risks from unforeseeable trends in selling prices, input materials and capacity utilization developments, as well as changes in currency parities and metal prices, may still affect performance considerably in the financial year 2011. Additional positive or negative effects may also emanate from structural or methodological changes, which specifically includes valuation methods defined under IFRS standards and their treatment. The resulting fluctuations in consolidated earnings before tax maybe within a considerable range, either to the positive or negative.

Disclaimer:

Some of the statements made in this report possess the character of forecasts or may be interpreted as such. They are made to the best of knowledge 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.