Outlook

The robust expansion of the world economy will continue this year. We expect global economic growth of over 4% in 2006. Major impetus will again come from the dynamic economies of North America and Asia. In the euro zone, the economy will show a moderate recovery, assuming a slight strengthening of the euro against the US dollar. In Germany, the economic prospects have brightened recently. Continuing strong export demand will be joined in 2006 by an improvement in domestic demand driven by capital investment. The economic risks of rising raw material and oil prices will remain high overall.

We expect the following developments on the major markets:

• With the world economic environment remaining favorable and the European economy improving, thanks also to increasing domestic demand, we expect global steel market growth to continue, driven as before by China and other emerging countries. Following stagnation last year, in 2006 we also expect steel consumption to increase in our core Western European market. In addition, positive inventory cycle effects will have an impact. This will result in higher steel production. German crude steel output is expected to clearly pass the 45 million metric ton mark. Steel prices will continue to be largely determined by high raw material and energy costs.
• Demand for flat-rolled stainless products is expected to recover after a generally weak year in 2005. Following declines last year, we anticipate renewed positive trends on the Asian, North American and Western European markets. New capacities will initially make it difficult for prices to stabilize and recover. The market for nickel-base alloys will continue to develop positively.
• World auto production is forecast to grow by 4% in 2006 to over 68 million vehicles. Growth impetus is expected above all from China, and also from India. We expect a slight increase in vehicle production for the North American and Western European markets. German auto production could once again reach 5.7 million cars and trucks in 2006.
• The international mechanical engineering industry will continue to expand in 2006, though at a slowing pace. Particularly high growth rates are expected for the Chinese mechanical engineering sector. In Germany, production growth is expected to slow to 2% due to moderate domestic demand.
• The situation in the international construction sector remains positive overall, but with large regional differences. Demand is expected to remain particularly buoyant in the markets of Central and Eastern Europe and Asia. In Germany, the recent slight recovery in orders could help stabilize construction output.

If these economic forecasts prove accurate, we expect a generally positive performance in the further course of the year. For the full fiscal year 2005/2006 we anticipate sales in the region of €43 billion. Our target for earnings before taxes - excluding major nonrecurring effects - for the current fiscal year is in the region of €1.5 billion.