Expected Earnings

The corporate planning of Salzgitter AG is basically geared towards the strategic goals and comprises its own set of entrepreneurial measures with action embedded in the general economic environment. It therefore forms the basis for a realistic assessment of profit, but must, at the same time, take adequate account of the long-term aspects relating to investments and the securing of a sound balance sheet and financial stability, also under more difficult circumstances. For this reason, market expectations prevailing at the time when the plan was drawn up, as well as envisaged entrepreneurial measures, are incorporated into this plan. It is drawn up in a process involving the whole Group which is concluded before the start of the new financial year. The individual goals of the subsidiaries are discussed and defined in a combination of a top-down and bottom-up approach between the respective management and the Group’s Executive Board. All individual plans are then aggregated to form a plan for the whole Group. The underlying structure of the Group which was, by definition, the status quo at the time, may not necessarily accord with the structure of the Group at the end of the planning period. The extremely sophisticated planning process of the Group is conducted before the start of each new financial year, generally starting in August and ending with the presentation of the results at the last meeting of the Group’s Supervisory Board in the respective financial year.

As the outlook for capacity utilization in important steel consumer sectors has stabilized at the level of recovery achieved in the second half of 2009 and orders of stockholding steel traders picked up momentum in response to shortfalls in the availability of products, the Steel Division is again anticipating a higher level of new orders in the financial year 2010. With this as a basis, the shipment of rolled steel and processed products should rise in all companies belonging to the division. In conjunction with the accompanying increase in selling prices, the Steel Division expects sales to recover. Following significant declines in the costs of procuring ores and coal in 2009, prices are expected to climb again in 2010. All in all, there is likely to be a rise in manufacturing costs. Consequently, specific gross earnings per ton may not automatically improve.

The steel companies forecast an overall result around breakeven for the year 2010 with its muted prospects. This result should, however, on no account be considered certain. Salzgitter Flachstahl GmbH (SZFG) can return to the profit zone, the main prerequisite here being that capacity utilization stabilizes in the long term. Owing to the selling price trend expected, Ilsenburger Grobblech GmbH (ILG) predicts a downturn in the result which will nonetheless be positive. In contrast, as a result of the recovery in the sections market predicted only in the medium term, Peiner Träger GmbH (PTG) is expecting to write red figures again, even though the loss will be substantially lower.

The Trading Division expects to distribute more steel in 2010 based primarily on higher shipment volumes in international trading. The growth in shipments and improved margins should deliver a positive result.

Given falling average selling price levels, influenced in the previous year by orders still outstanding from the boom phase, the Tubes Division expects a substantial decline in the results. A pre-tax result around breakeven should be achievable provided that raw material price hikes do not exert too much pressure on the profitability of major projects. Profit generated in the large-diameter tubes segment will fall markedly, as the comparatively good capacity utilization will not compensate for the tumbling selling prices predicted. The precision tubes companies are expecting to reduce the amount of pre-tax loss considerably through better capacity utilization. In view of the difficult situation prevailing, there is no trend reversal discernible in the product market for seamless stainless steel tubes. Falling margins will therefore result in a lower pre-tax profit.

An overall better capacity utilization of the steel companies is likely to boost the sales and pre-tax profit of the Services Division in 2010 in a year-on-year comparison.

In the wake of a recovery in the markets and boosted by measures implemented to optimize processes and enhance efficiency becoming increasingly effective, the performance of the Technology Division in 2010 should improve substantially in comparison with the year ended. A pre-tax loss is, however, expected in the financial year 2010 but at a much lower level.

As the tailend effects of the financial crisis are still being felt in the current year and cause jitteriness in the relevant sales and procurement markets, providing a reliable quantified outlook for sales and the result of the Salzgitter Group is naturally not possible. It is, however, foreseeable that there will be an improvement in the economic situation of most of the Group companies. The recovery of these steel companies, which depends on capacity utilization, should be able to partly compensate for a selling price-induced lower result in the Tubes Division.

After a modest start to the first quarter of 2010, we believe there will be a subsequent marginal improvement in the results from the second quarter onwards, although the composition of the components is likely to change as the year progresses. All in all, quarterly results may settle just above breakeven in the best case scenario.

We therefore expect our Group to generate a positive pre-tax result in the double-digit million euro range. There are nonetheless considerable risks, as before: Alongside the foreseeable increase in the cost of raw materials, the recovery of the steel and mechanical engineering markets is still subject to uncertainties.

As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input materials and capacity level developments, as well as changes in currency parities, may considerably affect performance in the course of the financial year 2010. The resulting fluctuation in the consolidated pre-tax result may, as current events show, be within a considerable range, either to the positive or to the negative. The dimensions of this range become clear if one considers that, with around 10 million tons of steel products sold by the Steel, Trading and Tubes divisions, an average € 50 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 500 million.

The medium- and long-term outlook are considered to be relatively intact for all Group companies. On the basis of a steady market recovery for the Steel and Trading divisions in particular, the consolidated sales and the pre-tax result should rise again in 2011. As, at the current point in time, there is no reliable information available about how the relevant framework conditions will develop in the future, no quantifiable outlook can be made for the financial year 2011.