Economic Situation

Profitability Improvement Program

Our strategic goals of independence, growth and profitability allow the individual divisions to exploit every potential for optimization. This includes the targeted adaptation to changing conditions, the active participation in market trends, as well as the continuous improvement of the Group and its companies.

We keep ourselves fit for the future by exercising sustained discipline in the nurturing of success potential with the help of the targeted monitoring of action programs and projects. By fully integrating our most important resource, which is our people, we continue to systematically reap the benefits of our second-generation profitability improvement program (PIP 2).

The PIP was initiated in financial year 1995/96. Relaunched as PIP 2 in 2001, it has in recent years proven to be a continuously successful and effective instrument. In the course of the integration of Mannesmannröhren-Werke GmbH, a variety of plant- and company-specific programs have been incorporated into the PIP.

The Basic Strategy defined in the year 2003 for the Group as a whole has added new momentum to the PIP. Company-specific targets developed throughout the Group have been formulated as action plans and integrated into PIP 2, provided always that they meet the program's strict criteria. As part of the updating process, all projects have again been subjected to close inspection. Thus PIP 2 now provides Salzgitter AG with a uniform Group-wide management tool.

By the end of the year the sustained annual improvement which we had targeted for PIP 2, the so-called full year effect (FYE) amounting to a net € 166 million, had been achieved. In comparison with the preceding year, this represented a significant increase in the FYE of € 28 million.

in € mil.	FYE
Total earnings	+141
Savings on expenses	+97
Depreciation/interest/investment expenditure	-72
Effect-induced result before tax	+166

There are currently 297 projects under way which are aimed at improving sales and costs. Activities focused on the marketing of products with higher value added and the expansion of sales channels in order to boost sales currently yield an annual contribution of € 141 million. In the course of optimizing production and administration processes and reducing the consumption of materials and third-party services, we anticipate potential cost savings in the order of € 97 million. The cost of the implementation of these projects, including annual depreciation for investments, interest and materials, amount to € 72 million.

The decisive factor behind the success of PIP is the whole-hearted commitment of our people. There has been a great willingness on the part of our workforce to make use of the institutions and structures of this program as a means by which to contribute their own ideas and suggestions on how to continuously improve results. Our decentralized Group structures allow available knowledge to be applied directly and thereby increase the competitiveness of Salzgitter AG, now and in the future.

The PIP program is an established element of corporate management within the Group and will be carried forward and supplemented on a goal-driven basis in the next financial year.