Tubes Division

		Q3 2009	Q3 2008	9M 2009	9M 2008
Order bookings	€ million	188.3	591.6	807.1	1,702.0
Order backlog as of 30/09/	€ million			967.3	2,129.0
Sales1)	€ million	515.3	713.1	1,851.9	2,181.4
External sales	€ million	433.8	527.1	1,541.6	1,604.1
Earnings before tax (EBT)	€ million	25.7	82.0	121.7	234.1

1) Incl. sales to other corporate divisions

The business activities of the international steel tubes industry were greatly hampered by the impact of the global economic crisis. Following the difficulties confronting consumer-oriented tubes processors since the fourth quarter of 2008, there was a time lag before the tense economic environment impacted the infrastructure and capex goods sectors. Consequently, the causes of ailing demand set in one after the other over the course of time. On the supply side, the process of adjusting inventories in European steel tubes trading had an additionally negative effect, which meanwhile appears to have come to an end. New orders are, however, only accepted with much caution due to weak demand by end consumers. Inventories in the USA in particular, especially oil field pipes, are still at a clearly inflated level. Prices and margins in the Western industrial nations are therefore still under great pressure and have been counteracted by sharp cuts to production. In contrast, the production volume in China rose again, buoyed mainly by domestic demand and higher exports supported by economic stimulus packages. As a result, the strong contrast as against the decline in the tubes production of Western industrial nations continued over the reporting period.

The tight situation in the steel tubes market caused order intake by the Tubes Division to halve in the first nine months of the financial year 2009 as compared with a year ago. All product segments were affected. By the end of September 2009, consolidated orders in hand had fallen by the same amount, with HFI-welded tubes and stainless steel tubes suffering the relative sharpest declines.

Although a considerable volume of orders from the previous year were delivered in the first half-year, due to the order trend the division’s shipments dropped by comparison with shipments seen in the first three quarters of 2008. The leading cause was the precision tube business, which had been problematic from the start.

Segment sales declined by 15 % as against the year-earlier period. Whereas sales in the large-diameter tubes segment remained stable, the precision and stainless steel tubes segment suffered declines. In contrast, HFIwelded tubes raised sales for the period on the back of lucrative orders.

Therefore, the Tubes Division’s external sales fell by only 4 %. Pre-tax profit of the Tubes Division came to a gratifying € 121.7 million in the period under review. Compared with the excellent result of the first nine months of 2008, however, this is a decline of just under 50 % which is mainly attributable to the ailing market of the precision tubes segment which was hit particularly hard.

Business performance of the product segments:

As against the year-earlier level, order intake of the large-diameter tubes segment had more than halved by September 30, 2009, owing to the lower number of contracts signed in conjunction with the rapid deterioration of selling prices. This resulted in the previously high level of orders being greatly eroded. In view of the very comfortable capacity utilization due to major projects booked in the previous years, the reduction in shipments has been relatively low up until now, and sales remained virtually stable in the first nine months. Despite the start-up costs incurred by the new plant for spiral-welded large-diameter tubes in the USA, the exceptionally positive profit of the previous year was almost matched primarily owing to a pleasing increase in the profit of Salzgitter Mannesmann Großrohr GmbH (MGR) on the back of cheaper input materials.

The HFI-welded tubes segment had to meet the challenge of demand running at extremely low levels in the reporting period. Against the backdrop of the delivery of larger project volumes and weak order intake, the order book had fallen to an extremely low level by the end of September 2009. This resulted in fluctuations in capacity utilization: Whereas, in the first months of 2009, capacity utilization benefited greatly from project volumes as part of orders placed in 2008, adjustments had become necessary by the second quarter onwards. Sales and pretax profit, boosted by the high selling price quality of orders booked in 2008, nonetheless exceeded the yearearlier figures despite lower shipment volumes.

The precision tubes segment also recorded order activities and an order book which halved during the first three quarters of 2009 in comparison with the year-earlier period. Following the automotive and supplying industries’ recovery from drastic production shortfalls thanks to the stimulus provided by the government scrapping premium for old cars, the effect of slack capacity utilization in the mechanical engineering sector and in the energy sector began to filter through. The lower level of capacity utilization in all precision tubes plants caused the corresponding declines in shipments and sales. Despite the implementation of countermeasures to adjust costs, the lack of profit contributions covering fixed costs resulted in a considerably negative pre-tax result.

The unfavorable general conditions also burdened activities in the seamless stainless steel product segment. Order intake had plummeted 60 % by September 30, 2009, as against the previous year's reporting date. Consequently, the order book had reached a historically low level at the end of the reporting period, which necessitated partial adjustments to capacity utilization. Along with lower shipments, which had initially been supported by existing orders, the falling price of alloy components caused sales to decrease. The pre-tax result was nonetheless gratifyingly positive even though it did not reach the excellent level in the first nine months of 2008.