Record result for the Salzgitter Group

Thanks to the continuation of the favorable business environment for rolled steel and tubes, Salzgitter AG concluded the 2005 financial year posting new record sales and profit levels.

Pre-tax profits of € 940.9 million (2004: € 322.8 million) were achieved on consolidated sales that grew 20 % to € 7.15 billion (2004: € 5.94 billion), allowing the previous record values of the year 2004 to be exceeded once again by a considerable margin. This exceptional result was, in turn, mainly determined by the far above average operating results of the three large divisions, Steel, Tubes and Trading. In addition to this, a total of € 138.2 million of profit contribution came from the reduction and streamlining of the exposure to the seamless tubes segment. These measures, which have been completed in the meantime, comprised not only the disposal of the 45 % shareholding in Vallourec & Mannesmann Tubes S.A. to the French partner Vallourec S.A. in the first half of 2005, but also a cautious lowering of the Salzgitter shareholding in Vallourec S.A. in the fourth quarter. The Group profits also include a positive effect of € 90 million from the conversion of inventory valuations in accordance with current IFRS accounting principles, compared with application of the LIFO method that was employed until 2004, as well as charges in a similar amount for the relining of a large blast furnace in Salzgitter, balance sheet provisions and extraordinary write-offs.

Group profit after taxes, including the capitalization of € 137 million of positive tax effects, amounts to € 842.0 million (2004: € 246.7 million). Return on capital employed (ROCE) increased to 38.9 % (2004: 24.4 %). As a result, the company's own target of an average 12 % over the steel cycle which began in 2001, has been exceeded by a significant margin.

In the interest of better comparability of the 2005 financial year results, the 2004 figures below have been reported as pro forma values corresponding to the new Group structure implemented on January 1, 2005.

Total sales of the Steel Division, which has been expanded to include three companies from the former Processing Division, grew by 14 % compared with the previous year (2004: € 2.62 billion) to € 2.99 billion, while external sales rose by 12 % (2005: € 2.18 billion; 2004: € 1.95 billion). Year-on-year declines in shipment volumes for flat steel products and sections were offset by higher average sales prices for these products. Besides an extremely pleasing earnings situation for flat steel and plate, the turnaround in the sections area also contributed to the outstanding pre-tax earnings of the division of € 430.7 million (2004: € 174.3 million).

In the course of the continuing boom in the tubes business, the Tubes Division increased shipments and improved the sales prices for its products, also thanks to a firmer US dollar. As a result, external sales of the segment grew by 39 % to € 1.41 billion (2004: € 1.02 billion). With pre-tax profits of € 440.5 million, the previous year's record (2004: € 117.1 million) was by far exceeded. The result includes not only the operating profits of the consolidated companies, but also the profits contribution from associated companies, in particular in the seamless tubes segment; in addition to this, disposal gains of € 138.2 million arose from the streamlining of the seamless tubes shareholding structure. The shareholding in the world market leader for seamless steel tubes, Vallourec S.A., was reduced to 17.2 %, while a voting share of 29.9 % was retained – due to the increase of double voting rights in accordance with French stock corporation law. As a result, Salzgitter AG is by far the most significant shareholder in this company.

Despite a cooling-off in global steel markets that had occurred in the meantime, shipments and sales of the Trading Division increased again in the past financial year. The principal reasons for this were various major project acquisitions carried out by the international trading branch and the higher average price level. Finally, the expansion of sales activities for tube products also had a very positive effect. External sales of this division grew by 23 % to € 3.24 billion (2004 € 2.64 billion) and pre-tax earnings, at a very pleasing € 88.1 million, almost reached the record level of the previous year (2004: € 98.9 million).

At € 324 million, external sales of the Services Division in 2005 were slightly below the level of the previous year (2004: € 338 million). The decline in sales was primarily due to lower shipment volumes and average prices at the raw materials trading company DEUMU. As a result of various non-operating effects, pre-tax earnings fell slightly to € 9.4 million (2004: € 13.3 million).

Compared with the previous year's results that were characterized by major waivers of receivables with Group companies, the result from consolidation and other items improved to € -27.8 million (2004: € -80.8 million).

The annual financial statements will be presented to the Supervisory Board for approval at its next meeting and will be published in their complete version on March 30, 2006.

Following on the record year 2005, the business position of the Salzgitter Group is expected to normalize in the current year. All in all, however, the general conditions and the situation of the Group can be regarded as very satisfactory. We are anticipating the following development for the individual divisions:

For the Steel Division in 2006, a decline in pre-tax earnings to a lower level is expected, which, however, will still stand far above the average achieved over many years. Further increases in raw materials and energy costs, as well as the partly significantly lower price level, will not be fully compensated by better capacity utilization, higher shipments as well as the discontinuation of crude steel purchases.

After the excellent year 2005 for steel tubes and an outstanding result that was also driven by one-off effects, the Tubes Division in 2006 is expecting a markedly lower profit. However, it is also anticipated to be well above the average achieved over many years and to stand at a three-digit million figure. Business activity in the seamless tubes area is forecasted to remain at an extremely pleasing level. However, the change in shareholding relationships will lead to a reduced operating profits contribution from associated companies.

Although profits in the Trading Division in 2006 are likely to decline, a very satisfactory result, viewed from a historical perspective, is expected.

As a result of increased steel production and the foreseeable turnaround at Salzgitter Automotive Engineering, profits at the Services Division will improve in 2006.

The prospects outlined above have been incorporated before the start of the financial year into the overall Group budgeting process, along with planned corporate measures and further, particularly market-related, assumptions. On the basis of this information, we are forecasting for the current 2006 financial year a distinctly lower pre-tax profit compared with the previous year, amounting to a three-digit figure in millions of euros. We would expressly like to point out that opportunities and risks arising from currently unforeseeable sales price, pre-material cost and capacity utilization developments, as well as changes in foreign exchange parities, may significantly affect particularly the course of the second half of the 2006 financial year. The margin of error resulting from this affecting the Group pre-tax profits may assume considerable proportions, as has also been demonstrated by the 2005 financial year.

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. This document is a translation of the original German-language press release. In case of ambiguity between this document and the German-language press release, the information provided in the latter shall prevail.