Düsseldorf, June 04, 2014

Customers remain reluctant to place orders

Result declining – Cost-cutting steps being taken – Sales and order intake increased with Paul Wurth – Further expansion in the growth fields of modernization, electrics and automation, service, energy and green technology

The SMS group generated an order intake in business year 2013, taking into account Paul Wurth for the first time, of EUR 3.309 billion (2012: EUR 2.835 billion). Sales reached EUR 3.495 billion (2012: EUR 3.237 billion).

That produced a pre-tax profit of EUR 178 million (2012: EUR 258 million), 31 percent below the previous year’s level.

Business Area SMS Siemag including Paul Wurth increased its order intake by EUR 525 million to EUR 2.044 billion (EUR 1.708 billion without Paul Wurth / 2012: EUR 1.519 billion).

Business Area SMS Meer recorded a 4 percent reduction in orders to EUR 1.104 billion (2012: EUR 1.152 billion).

Finally, the elexis group contributed EUR 181 million (2012: EUR 180 million) to the order intake of the SMS group.

This is how order intake broke down according to global regions: Europe including Russia, Ukraine 29 percent (2012: 32 percent), Asia 45 percent (2012: 43 percent), North and South America 25 percent (2012: 23 percent), Africa 1 percent (2012: 2 percent).

The order backlog totals EUR 4.997 billion (2012: EUR 5.377 billion).

In 2013, the year-average number of employees including apprentices in the group worldwide was 13,856 (2012: 11,822). Instrumental in bringing about this increase is the first inclusion of Paul Wurth.

Despite the cost-reduction programs, the SMS group will uphold its commitment to training young talents. It faces up to its responsibility in this vital social area, as it has done in the past. Furthermore, in the face of demographic change, this is the only way to ensure that the group can draw on a pool of sufficiently qualified skilled employees in the future.

Future prospects

Burkhard Dahmen, Spokesman of the Managing Board of SMS Holding GmbH: “As recently as the beginning of this year, we expected a boost to our business due to our customers’ hopes that the steel market had bottomed out. However, due to full capacity utilization, the global industry is still struggling with over-capacities, and the situation has only improved slightly. This in turn depresses the willingness of our customers to invest. Moreover, political uncertainty in our major sales markets Russia, Ukraine, and Venezuela is also disrupting our activities there.

Due to these factors, we expect a slight decrease in order intake in the current business year compared to the previous year.

We are responding to this by adjusting our capacities. That includes implementing an extensive cost-cutting program with even more process improvements. However, we will continue to expand our growth fields of modernization, electrics and automation, service, and energy and green technology.

Looking at sales, we expect to achieve a level similar to 2013 by working through our satisfactory order backlog.”

Market situation

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

Positive dynamics 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.

Below-capacity operation expected in some areas

The general uncertainty about future economic development is influencing the willingness of customers to invest. Although the engineering and production capacities in the main Business Areas of the SMS group are fully booked into the third quarter of 2014, the management anticipates under-utilization of capacity in some areas.

For the next few years, the Business Area SMS Siemag in particular expects a lower business volume than in recent years. That’s why the company is adjusting its administration, engineering, and production capacities to the future market volume. Details are currently under discussion with the employees’ representatives to make job losses as socially acceptable as possible.

This, together with other cost-cutting measures, is how the SMS group plans to remain competitive and responsive to market demands in the coming years. That will give it the necessary scope for investments that will benefit the group in the future.

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.

Securing quality – cutting costs

To ensure high quality, SMS remains committed to producing selected components of its machinery and plants in Germany. That’s 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 providing 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 a new workshop is currently under construction and scheduled to start operations in the second half of 2014.

Overall, the company is working on reducing costs across the board. This involves relying on designs that optimize manufacturing as well as on higher efficiency in engineering, production, and logistics.

Incorporation of Paul Wurth creates synergies

Paul Wurth was successfully incorporated into Business Area SMS Siemag. The identification of common technological and sales synergies further expands the SMS group’s range as a supplier of equipment for the entire process chain in metallurgical plant and machinery construction.

That includes for example the conclusion of a licensing contract with Kobe Steel Ltd. of Japan in early 2014 for the construction of Midrex direct reduction plants (DRI).

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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