Salzgitter Group improves results in third quarter of 2003

In the third quarter of the financial year 2003, the Salzgitter Group succeeded in improving its results slightly compared with the preceding quarters, in spite of the fact that concrete improvements in the economic situation throughout the EU were not evident up to that point. Moreover, seasonal declines in orders had to be absorbed in several sectors during the summer months.

In the first nine months the Group’s consolidated external sales increased to € 3.7 billion, an improvement of 5 % compared with the prior-year period (€ 3.5 billion) that resulted primarily from the widening of the group of consolidated companies. In addition, a noticeable decline in sales in the Tubes Division was more than offset by a gratifying expansion of the Group’s trading activities. Pre-tax earnings (EBT) amounted to € 16.3 million in the third quarter of 2003, which, com-bined with the pre-tax earnings of € 16.6 million from the first half of the year, results in accumulated EBT of € 32.9 million. This result from the first three quarters of the financial year nevertheless fell short of the Group’s very good prior-year result (9 Months 2002: € 67.9 million EBT), although the latter was achieved against the background of far better general conditions, particularly in the tubes segment. Consolidated ROCE (return on capital employed), including the third quarter, amounted to annualized 5.0 %; it thus remained below its prior-year level of 8.7 % despite a positive trend during the course of the year.

In the first nine months the Steel Division contributed € 1.1 billion to the Group’s external sales, almost the same amount as in the comparable period in 2002. At the same time, aggregate sales increased by 3 % to € 1.5 billion as a result of the increased use of internal distribution channels. Although this Division in particular reported temporary decreases in sales in the third quarter and the trend in procurement prices for scrap as a raw material led to continued cost pressure in the beams segment, pre-tax profits were further stabilized at € 11.9 million. The accumulated result in the first three quarters therefore amounted to € 19.3 million, € 44.6 million higher than in the prior-year period, which closed with a pre-tax loss of € -25.3 million. The results for the third quarter contain profits of € 4.7 million from the reduction in the company’s stake in the US steel company Steel Dynamics Inc., although this was offset by the similar level of expenses that was incurred in the production halts at the Peine and Ilsenburg plants.

While the temporary cutback in production in Peine was caused by the depressed state of the construction industry, the Ilsenburg plant was shut down as planned for maintenance purposes. Apart from that, demand for plates continued to develop positively. It must be emphasized that, despite difficult general economic conditions, the company succeeded in holding selling prices for flat rolled products stable through the summer. The “price before quantity” strategy pursued by Salzgitter AG has thereby proved its viability.

Ordering activity in the international pipes segment showed a modest revival during the third quarter, although this was not yet reflected in the Tubes Division’s results. The results of those companies within the Mannesmannröhren-Werke Group that sell products manufactured in Europe on the global market were adversely affected not only by the still unsatisfactory level of capacity utilization, but also by the weakness of the US-Dollar. The difficult situation that these companies faced was reflected in both the Division’s consolidated external sales, which at € 681 million fell 21 % short of their prior-year level (9 Months 2002: € 859 million), and in its pre-tax earnings, which settled at break-even point in the third quarter, thereby producing a positive accumulated EBT result of € 1.6 million for the first nine months of 2003 (9 Months 2002: € 74.0 million EBT).

The Trading Division increased its external sales by 22 % to € 1.6 billion (9 Months 2002: € 1.3 billion) in the period under review. The primary reasons for this pronounced expansion of business activity in comparison with the prior year were, firstly, the widening of the group of consolidated companies to include Salzgitter International Inc., Houston/USA and, secondly, the positive development of Salzgitter International GmbH, Düsseldorf. The latter benefited not only from higher prices for flat rolled products, but also, and most importantly, from substantial increases in shipments of large-diameter pipes that were required to fulfill the major order from Turkey (Baku-Ceyhan pipeline). The Trading Division’s pre-tax profit of € 10.3 million was markedly better than the result achieved in the comparable period of 2002 (9 Months 2002: € 7.0 million EBT).

Sales in the Services Division increased by 4 % to € 184 million (9 Months 2002: € 177 million). The similarly pleasing pre-tax profits of € 10.1 million exceeded the result achieved in the first three quarters of 2002 (€ 9.4 million EBT).

The Processing Division finished the first nine months of 2003 with external sales of € 173 million and a pre-tax loss of € -12.4 million. The extremely unsatisfactory situation in the domestic construction sector remained an obstacle to a sustained improvement in the commercial fortunes of the construction suppliers in the Division, while the companies that specialize in parts, components and services for the automobile industry held their ground comparatively well.

Following increasing signs that an economic upturn is on the way, the level of orders received in the internationally active Tubes Division has already shown a tendential improvement, while there has hardly been any positive momentum for the domestic construction industry. While the favorable trend in demand for flat rolled products and plates is opening up potential for improved sales prices, the earnings trend over the coming months will also be influenced by higher raw materials and energy prices and exorbitant increases in ocean freight charges. Scrap prices have recovered from their temporary weakness and have started to rise again.

The Group-wide profitability improvement program comprising more than 200 projects is already contributing to cost reduction and quality and productivity improvements in the current year. The effectiveness of these measures will increase again in the financial year 2004.

Salzgitter AG confirms the forecast of pre-tax earnings of around € 35 million, before extraordinary factors, that was previously announced for the financial year 2003.

Disclaimer:

Some of the statements made in this press release are forecasts or can be interpreted as such. They have been made according to the best of our knowledge and belief and naturally apply subject to the condition that the general economic situation and the specific market positions of the companies in the Divisions do not deteriorate and that, correspondingly, the basic assumptions of the plans and forecasts prove, as expected, to be accurate in their scope and their timescale.