Düsseldorf, March 17, 2014

Changes on the Managing Board

Burkhard Dahmen new spokesman of the SMS group

Dr. Joachim Schönbeck, longstanding CEO of SMS Meer GmbH and since July 1, 2013 Spokesman of the Managing Board of SMS Holding GmbH, will leave the SMS group on March 31, 2014. His successor as Spokesman of the Board of Management of SMS Holding GmbH will be Burkhard Dahmen, Chairman of the Managing Board of SMS Siemag AG. Marcel Fasswald, longstanding Managing Director of SMS India, has been appointed a further Member of the Managing Board of SMS Meer GmbH as from April 1, 2014.

Dr. Heinrich Weiss, President of the Supervisory Board of SMS Holding GmbH, said: “I wish to thank Dr. Schönbeck for his successful work and commitment to the SMS group and for his many years of loyal cooperation. I am sorry to see him go and at the same time pleased that he will continue to support us in a consulting role.”

Market situation

The market situation in the metallurgical industry has not changed for the better over the last year. In contrast to earlier crises, there has been no separate development of individual growth markets or special product fields which could have balanced out the downturn.

The recovery expected for 2013 failed to materialize. Positive impulses came mainly from Asian developing countries and above all related to plants for the production of nonferrous products. Once again in 2013, China was the largest market for metallurgical plants. Market activity in Europe and South America remained subdued apart from a few projects.

As in the previous business year, order intake by the SMS group in 2013 – at EUR 3.3 billion (incl. P. Wurth) – was below target. The net result was significantly lower than that of 2012. The SMS group will present the audited figures together with the 2013 Annual Report in the usual detail at its Financial press conference in early June.

Crises in Crimea and Venezuela endanger major projects

The unstable situation in Ukraine is having a detrimental effect on business relations between the western countries and Russia. This puts a strain on the traditionally close relationship between the SMS group and Russia as well as putting at risk the conclusion of major projects in Ukraine.

Similarly, the situation in Venezuela, where the SMS group expects a follow-up order in the three-digit millions, has deteriorated due to unrest in the country. Against this background, negative effects on the major orders currently being processed in both countries can also not be ruled out.

Below-capacity operation expected in various areas

These political events and the general uncertainty about future economic development are impacting on the purchasing behavior of SMS group customers. The trend observed is that initially orders are issued only for the engineering. Then customers cautiously await further market developments before placing the subsequent order for the equipment.

This makes it difficult to plan the utilization of capacities in the group. Although the engineering and production capacities in the main Business Areas of the SMS group are still fully booked into the second quarter of 2014, management anticipates under-utilization of capacity in some areas over the current business year.

For the next few years, the Business Area SMS Siemag expects a much lower business volume than in recent years. For this reason, the company is examining how to adjust its administration, engineering, and production capacities by shedding jobs in a socially acceptable way.

In Business Area SMS Meer, demand remains stable, with orders at the same level as in the previous year. However, competition for orders has also sharpened significantly in this area. This puts pressure on profits. That is why further steps to cut costs must be taken here as well.

Securing quality – cutting costs

To ensure high quality, SMS remains committed to producing selected components of its machinery and plants in Germany. That is why the company invested heavily over recent years in upgrading its facilities in Hilchenbach and Mönchengladbach. Yet, parallel to these measures, it also expanded its production capacity in China. The focus here is on the provision of better customer services locally and the construction of machines specifically designed for the Chinese market. It is a similar picture on the Indian market, where another workshop is currently under construction and scheduled to start operations in 2014.

Overall, the company is working on reducing costs across the board. The SMS group is relying here on designs that optimize manufacturing as well as on higher efficiency in engineering, production, and logistics, along with savings in administrative costs.

Incorporation of Paul Wurth creates synergies

The successful incorporation of Paul Wurth into Business Area SMS Siemag involved the identification of common technological and sales synergies. This further rounds off its range as a supplier of equipment for the entire process chain in metallurgical plant and machinery construction.

One example is the recent conclusion of a licensing contract with Kobe Steel Ltd of Japan for the construction of Midrex direct reduction plants (DRI).

Opportunities in service, modernization, green technology

The SMS group sees the greatest growth opportunities in customer services. It is focusing here on establishing more long-term service partnerships with customers for overall improved efficiency of their production plants. The same goes for small revamps with short return-on-investment periods. There is a vast potential for future growth here.

The SMS group has identified an increasing demand for green technology solutions, meanwhile also a big issue on the Chinese market.

SMS Siemag AG and SMS Meer GmbH are both companies of SMS group which, under the roof of SMS Holding GmbH, consists of a group of companies internationally active in plant construction and mechanical engineering for the steel and nonferrous metals industry.

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