Investments

The main focus of the Salzgitter Group investment program in 2005 was once again on the Steel Division.

Additions to fixed assets totaled € 537 million (2004: € 329 million). In contrast to 2004, the volume of investments in tangible fixed assets, which came to € 262 million, was again higher than the corresponding depreciation of € 206 million.

Due in particular to adjustments in at-equity valuations, the acquisition of further shares in Hüttenwerke Krupp Mannesmann GmbH and the participation in the capital increase of Vallourec S.A., additions in financial assets came to € 275 million.

Investments/Depreciation¹⁾

Of the amounts invested in tangible and intangible assets during this financial year, € 190 million was accounted for by the Steel Division, € 23 million by the Tubes Division and € 9 million by the Trading Division. The Services Division invested € 40 million.

Investments in Fixed Assets¹⁾²⁾by Divisions

Depreciation and Amortization of Fixed Assets¹⁾²⁾³⁾by Divisions

Investment activities in the Steel Division in the financial year 2005 were primarily aimed at securing the supply of slabs and continuing to close the structurally-induced crude steel gap, as well as improving performance in segments and keeping plant and equipment technically up to date.

The preparatory work for the relining of Blast Furnace A with the corresponding extension of the hearth diameter was concluded on time so that the furnace was blown down and shut down in June. The relining of the blast furnace proceeded on schedule and it was blown again on September 25, 2005, after only 89 days. Within the space of a few days, it had reached its target capacity with full stability; all performance tests were successfully carried out and concluded.

The relining of the Blast Furnace B stack still pending has been planned for the start of 2007 after another critical review of its wear profile and adjustment for slab requirements and for market expectations.

In the cold mill, a new coil crane with an inventory management system was purchased with improved workflows on the respective shopfloor areas and lessened damage to coils through transport.

Projects initiated in 2004 aimed at expanding capacity and at improving performance, such as the new turbogenerator of the power plant and the shuttle coater for the strip coating line 2, were on track. The shuttle coater is to become operational in the first quarter and the turbogenerator in the third quarter of 2006.

In 2005, newly initiated projects geared toward securing operations and developing performance, such as ensuring the supply of electricity at the Salzgitter plant, renewing the converter information system, securing the performance of the hot strip mill with focus on the water supply and the roll changing of the finishing line, the construction of a second continuous pickling line, the replacement of the electrical and automation technology in the cold rolling mill and the improvement of dispatch logistics, are proceeding as planned.

Investments in the flat steel segment are still aimed at securing and expanding the company's position as a top supplier for flat steel products in the most important and profitable market segments.

With this in mind, projects have been commissioned for the renovation of the power plant technology (”Kraftwerk 2010”) and the steel gas generation for the production of electricity, the replacement of the materials tracking system across the production chain of SZFG, a new hot strip cut-to-length line and automating the coil packaging lines.

Investments in the sections segment were concentrated on the modernization of the continuous bloom casting line of the Peine steel mill. Following an only 28-day period, during which the line was shut down for conversion work, it became operational again in August 2005. The modernization of the electrical and mechanical equipment of the steel and tubing construction as well as the casting technology ensures the availability of the continuous caster in the years ahead.

In the universal section mill the driving motors of the finishing line were modernized. In this process, three more rolling stands were adapted to a new electrical systems technology, bringing the number of stands now modernized to seven out of nine.

In the heavy section mill, work begun on renewing the supply of electricity to the electrical feeding of the finishing line and the back roller table between the finishing line and the saw. The aim of this project is to achieve a higher weight per meter and larger rolling lengths as well as accelerated rolling speeds. The measures will be implemented in the summer of 2006.

Investments at the Ilsenburg plate mill focused on an accelerated cooling line behind the four-high rolling stand and a new cold plate leveler. With these two new facilities, the process sequences are to be optimized and the mechanical properties of the plates improved. The newly constructed logistics building with its integrated CNC-cutting machines for plates has delivered proof of its value. Processes were optimized to improve dispatching logistics and to be in a better position to accommodate customer requirements for greater dimensional accuracy and quality in plate processing.

In addition to the aforementioned large-scale projects, the steel companies also implemented a number of small and medium projects to further enhance technical plant facilities in a sustained manner, thereby taking account of their customers' product requirements and actively developing their products.

In the Tubes Division, investments were made with the primary intention of optimizing production workflows and raising product quality. Additional funds were invested in replacement equipment to safeguard operational availability.

MHP channeled its investments into the ongoing modernization and performance enhancement of the facilities for the production of short lengths for the automotive industry. At the Hamm plant, a new high-speed saw with processing station was installed. At the start of 2006, two new REIKA cut-off and processing machines became operational at the Wickede plant.

At DMV the main emphasis in the year 2005 was on concluding the first phase of its investment strategy launched in 2002 aimed at specializing production at each plant. In this context, the redesigning of the material flow, including the installation of an eddy current testing facility at the Montbard plant in France, as well as of a new vacuum degreasing line in Houston, USA, deserve special mention.

MLP made investments primarily with the aim of safeguarding production, productivity and quality assurance. A project was initiated for a new roller table featuring technology enabling the fusionbonded epoxy coating necessary for heavy corrosion protection. Depending on capacity utilization levels, commissioning has been planned for the second half of 2006.

The bulk of RGF's investments were committed to the optimization of the online connection of the coating facility with the welding line, which is expected to help minimize costs considerably.

EP pressed ahead with the streamlining of production. At the Mülheim plant, for instance, the installation of a grinding machine for the seam at the end of the pipe was fully automated. At the Dunkirk mill, the automation of transport between the internal ultrasonic testing and the expander was carried out.

The MRM plate mill commissioned a new plate edge marking machine for the automated signature of plate edges which facilitates tracking the plates in the production process. The optimization of the ultrasonic testing facilities for plate bodies contributed further to streamlining costs.

The investments made by SZGR were primarily aimed at fulfilling high-grade specification requirements, improving the quality of tube surfaces and cutting logistics costs.

In the Trading Division, the French steel service center RSA installed a stamping line at its Le Thillay plant in the summer of 2005. This investment is intended to facilitate the production of high-grade stamped blanks, destined mainly for the French automotive industry. This measure enables the RSA joint venture to maintain its successful development.

HAN, a company which is part of the Services Division, commissioned the new coal stockyard and the fourth discharge crane in the spring of 2005. The new place of transshipment will serve to expand the capacity of imported coal for the supply of power stations in northern Germany. Completion of this investment project makes HAN the largest and most efficient port of transshipment for bulk cargo on the German coast.

The chart below gives an overview of the investment volume by division.

Investments in Fixed Assets by Divisions