Key data of the financial year 2008

Very satisfactory results in all divisions and sound balance sheet

The Salzgitter Group achieved a pre-tax profit of € 1.0 billion in the financial year 2008 despite the dramatic developments in global economic conditions which unfolded at the end of the year. Accordingly, the profit forecast made before the advent of the turbulences in the market was fulfilled in every respect, even taking the announced accounting measures into account.

Consolidated external sales rose 23% to a new record level of € 12,499.2 million (2007: € 10,192.3 million). Higher steel selling prices, the steady, gratifying development of the Tubes Division business, especially in large-diameter tubes, and booming trading business in the first nine months of the year were the main contributors of this pleasing growth.

Pre-tax profit, which posted € 1,003.4 million, is another excellent result for the Salzgitter Group. The all-time record of the financial year 2007 (€ 1,313.9 million) was not repeated, in line with expectations. The result includes accounting measures pertaining to the valuation of inventories in the Steel and Trading divisions of around € 200 million resulting from the drastic deterioration in market conditions in the fourth quarter of 2008. Consolidated after-tax profit of € 676.9 million settled below the previous year's figure (€ 905.1 million). Earnings per share therefore comes to € 12.11. Return on capital employed (ROCE) from industrial business posts 26.9%; including cash funds of more than one billion euros it comes to 21.9% (2007: 28.0%).

The Steel Division’s performance varied over the course of the last financial year: the steel boom, which culminated and subsequently tailed off in the first three quarters, enabled the steel companies to generate record sales and an extremely satisfactory set of results. External sales grew to € 3,002 million (2007: € 2,852 million). The considerable hikes in the cost of raw materials were not fully compensated by the higher-than-expected selling price trend. Also due to the notably weaker fourth-quarter and negative influences from inventory valuations, pre-tax profit, which posted € 545.6 million (-27%) fell short of the previous year's record result (2007: € 749.4 million).

Seen as an average for the whole financial year, the excellent selling price level boosted the external sales of the Trading Division, which were accompanied by a moderate growth in shipments, by 28% to € 5,622 million (2007: € 4,385 million). The decline in the fourth quarter and inventory valuation measures at year-end caused the pre-tax profit of € 150.8 million to fall below the 2007 figure (€ 212.5 million).

Higher shipments of large-diameter tubes in the Tubes Division, a full-year contribution of the new precision tubes companies and record deliveries of seamless stainless steel tubes raised external sales to € 2.172 million (+20%) as against the previous year (€ 1,815 million). The significant increase in the cost of input materials was largely passed on to the markets. As a result, pre-tax profit came to € 311.8 million, thereby exceeding the excellent 2007 result (€ 302.5 million).

The Services Division achieved a new record in external sales of € 519 million (2007: € 504 million). More than two thirds of the sales were accounted for by DEUMU Deutsche Erz- und Metall-Union GmbH, a raw materials trading company. The division generated a pre-tax profit of € 23.9 million (2007: € 40.4 million, including € +21.4 million in special effects).

The Technology Division achieved external sales of € 1,038 million, primarily owing to the filling and packaging technology segment. Pre-tax profit stood at € 3.8 million in 2008. The result was negatively impacted by the obligatory purchase price allocation of € 4.4 million prescribed under IFRS accounting standards. This was the result of the purchase of a majority holding in Klöckner-Werke and the acquisition of the SIG Beverages Group (now called PET Group).

The external sales of the Other/Consolidation segment are generated through business in semi-finished products with external parties. In the reporting year, the segment lifted its results to € 146 million due to both volumes and selling prices (2007: € 124 million). The pre-tax result came to € -32.5 million in the reporting period (2007: € 5.2 million).

In the 2008 financial year, the internal sales of the Salzgitter Group rose 22% to € 3,913 million (2007: € 3,196 million), boosted by the consistently brisk use of intra-Group sales channels.

The annual financial statements for the financial year 2008 are to be submitted to the Supervisory Board for adoption at its next meeting and published in its full version on March 26, 2009.

Despite its broad-based business, which is sound from every angle, the Salzgitter Group will be unable to decouple in the financial year 2009 from the consequences of the worst recession seen since the end of World War II.

It is highly probable that the order intake of the steel companies will fall significantly below the level of 2008. There is likely to be a discernible decline in the shipment of rolled steel and processed products, particularly in the flat steel, beams and sheet piles segments. By contrast, there are also signs that plate, as a product that lags economic cycles, will also suffer from more moderate but nonetheless negative demand-related influences. The sales and earnings of the Steel Division will therefore be considerably lower than in the previous year.

The Trading Division also assumes that shipment volumes and gross earnings will decline. Significant price decreases in the spot markets are also likely to erode sales. Consequently, it is assumable that the sales and earnings of the trading companies in Germany and abroad will fall considerably short of the levels achieved in the financial year 2008.

By contrast, we believe that the outlook for business in the Tubes Division will remain positive in 2009, mainly owing to orders on hand. The sales and earnings of the Tubes Division are likely to be in decline in comparison with the previous-year's figures but will nonetheless settle at a comparatively high level.

The lower production levels of the steel companies will probably cause the sales and pre-tax profit of the Services Division to fall in 2009.

The Technology Division is also preparing itself for weak demand in large parts of the mechanical and plant engineering sectors. The results of the division are expected to fall short of the 2008 figures owing to the lower volume of sales.

In view of the drastic deterioration in the business environment in the first quarter of 2009, we assume that there will be initial stagnation through to and beyond the second quarter, and that the second half year of 2009 could see a hesitant uptrend at a low level. Our estimates for shipment volumes and the selling price trend are much more pessimistic than in 2008, and we anticipate a notable decline in sales for the Salzgitter Group.

In the financial year 2009, we will be confronted with unprecedented imponderabilities. Against this background, it would be irresponsible at the current point in time to provide a quantified forecast for a 2009 consolidated result. The first half-year is unlikely to close at breakeven for the Group, as the critical development in the rolled steel market cannot be cushioned by the other activities of the Salzgitter Group. In the event of a notable recovery, especially in the rolled steel markets and in demand from the automotive industry, attaining more or less breakeven in the pre-tax result should be possible in 2009.

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 2009. 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 10 million tons of steel products sold by the Steel, Trading and Tubes divisions, an average € 50 contraction in the margin per ton is sufficient to cause annual profit to diverge by more than € 500 million.

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.