Sales and profit set new benchmarks

Key data of the financial year 2006

In 2006, the global market for steel products was once again extremely robust, with economic momentum in some segments even stronger than in the two preceding years. Against this favorable background, Salzgitter AG set new benchmarks for sales and profit with its rolled steel and tubes products.

In the financial year 2006, consolidated sales of the Salzgitter Group rose to € 8.45 billion which is 18 % higher than the previous year’s figure (€ 7.15 billion). All divisions contributed to this pleasing growth. Pre-tax profit came in at € 1.85 billion, thereby again exceeding the exceptional figure of € 940.9 million in 2005 by a considerable measure. Similarly, operating profit before tax, net of the proceeds from the sale of the Vallourec participation, posted € 947.9 million which was a significant improvement on the previous year’s figure of € 802.7 million, similarly adjusted for Vallourec-induced effects.

Consolidated profit after tax stood at € 1.51 billion (2005: € 842.0 million), and earnings per share came to € 26.50 (2005: € 14.09). Return on capital employed (ROCE) climbed to 47.8 % (2005: 38.9 %), thereby far outperforming the average target ROCE of 12 % set by the company itself for the steel economic cycle which began in 2001. Also remarkable is the fact that the equity of the Salzgitter Group increased by no less than 72 % to € 3.46 billion in 2006. This opens up a number of options for internal and external growth which, up until now, would not have been realizable in this dimension. Nonetheless, we continue to adhere to the criterion that only those projects will be realized that are suitable for enhancing the value of the Group, not only in the current steel market boom phase, but also on a sustainable basis in the future.

Total sales generated by the Steel Division advanced +12 % to € 3.35 billion as compared with the previous year (2005: € 2.99 billion); external sales also rose 12 % to € 2.44 billion (2005: € 2.18 billion). The main driver of this development was the uptrend in the shipment of beams and flat steel products which benefited from brisk domestic demand in particular. Despite the recent increase in the cost of raw materials, the Steel Division’s pre-tax profit of € 433.8 million nonetheless exceeded the outstanding result of the previous year (2005: € 430.7 million). While the profit situation of flat steel, and plate in particular, was exceptionally healthy, the beams segment saw a very gratifying increase in profit.

Buoyed primarily by the boom in the pipeline business, the Tubes Division lifted overall sales by 13 % to € 2.19 billion (2005: € 1.95 billion). The Division’s external sales grew 7 % to € 1.51 billion (2005: € 1.41 billion) due to the greater use of the Group’s own distribution channels. Following the sale of the Vallourec participation at mid year 2006, the pre-tax profit of € 262.9 million fell short of the previous year’s level (€ 302.4 million); the 2005 figure, however, still includes the proportionate contribution of € 185.1 million made by Vallourec S.A. and Vallourec & Mannesmann Tubes S.A. Net of the amounts generated by the former cooperation with Vallourec, there was a significant increase in the pre-tax profit of the other operating activities which rose to € 189.9 million, up from € 117.3 million. The manufacturing of large-diameter tubes made the major contribution to this result.

The Trading Division benefited from the booming global demand for steel, as well as from stronger utilization of the Division as a sales channel for steel and tubes products produced by the Group. The Division’s total shipments of 6.75 million tonnes represent additional sales of one million tonnes over 2005. Owing to the greater volume shipped by international trading and firmer selling prices in the domestic and foreign markets, external sales soared by € 727 million (+22 %) to reach a record high of € 3.97 billion (2005: € 3.24 billion). Compared with the figure of € 2.03 billion posted in the financial year 2003, the external sales of this Division have therefore virtually doubled in only three years. The pre-tax profit of the Trading Division climbed to a new record figure of € 200.9 million (2005: € 88.1 million), boosted by an increase in sales and positive margin-induced effects.

At € 425 million, the external sales of the Services Division in 2006 rose 31 % year on year (2005: € 324 million). The encouraging growth is primarily attributable to the excellent performance of the commodities trading company Deutsche Erz- und Metall-Union GmbH.Pre-tax profit of the division improved to € 15.4 million (2005: € 9.4 million).

The new structure of the Group was the reason for external sales of € 101 million being recorded for the first time in the Other segment relating almost exclusively to the sale of semi-finished goods which was formerly part of the Tubes Division. Profit from Consolidation and Other rose sharply to € 941.8 million in 2006, mainly due to the sale of the stake in Vallourec. The comparable figure in 2005 came to € 110,3 million, including proceeds from the sale of the V&M participation and a 5.4 % share in Vallourec totaling € 138.2 million and allocated to the Tubes Division in 2005.

The annual financial statements will be submitted to the Supervisory Board for ratification at its next meeting and published in their full version on March 28, 2007.

The following description of the business trend of the Group and of its divisions in 2007 is based on the corporate planning concluded at the end of 2006 and takes account of current insights into the development of the financial year 2007:

In 2007, the sales of the Steel Division are likely to be higher in a year-on-year comparison. Against the background of stable shipping volumes on a generally high level, the price increases agreed, in particular in relation to long-term contracts for flat steel, will have a positive effect. For this reason, the Steel Division anticipates that pre-tax profit in 2007 will be virtually the same as in 2006, despite the higher costs of raw materials.

The Tubes Division expects to see demand for steel tubes remain brisk in 2007 as well and further sales growth, with the mainstays being the large-diameter and stainless steel tubes. The division forecasts a pre-tax profit in 2007 which remains very ambitious in a historical comparison, but is likely to fall short of the 2006 figure. The fact that the contribution of Vallourec (2006: € 73.0 million) will for the first time no longer be made in 2007 must be considered here.

The Trading Division which, by the nature of its business, is most exposed to short-lived trends in the market anticipates that its sales volume in 2007 will remain more or less unchanged as against the outstanding financial year 2006. Its current forecast envisages, however, a substantially lower, year on year pre-tax profit which should, despite the decline, still be far in excess of the long-standing average. The main reason behind this development is the probability of lower gross earnings, mainly due to the fact that the cost price of inventories carried have reached a high level owing to the increase in replacement costs.

The Services Division expects sales in 2007 to remain more or less unchanged from the previous year's figure. The pre-tax profit of this division in 2007 is set to outstrip that of the previous year, a development anticipated for the most part from an improvement in automotive activities.

Taking the sum total of the individual plans of the subsidiaries and including the holding company, inevitable consolidation effects and the current business data of the first months of 2007, the following overall conclusion can be drawn on the estimated development of the Group:

Given external sales that remain virtually unchanged, we expect operating pre-tax profit for the current financial year 2007 to be again in the more ambitious triple-digit million euro range. In view of the end of the operating contribution from Vallourec coupled with trading margins returning to a normal level it would, however, appear too ambitious at this time to expect a repeat of the previous year’s level (€ 947.9 million).

We make express reference to the fact that opportunities and risks arising from selling price, input material price and capacity utilization trends, which are currently not foreseeable, as well as changes in exchange rates may exert a considerable impact on the course of business in the financial year 2007. The resulting fluctuation bandwidth of consolidated pre-tax profit can, as seen in previous years, be of considerable dimensions, in both a positive and negative sense.

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.