Salzgitter Reports Results in Difficult Steel Market
08/15/2014 - The Salzgitter Group closed the first half of 2014 with a significant year-on-year improvement in its pre-tax result approximating breakeven.
The effects of the "Salzgitter AG 2015" restructuring program in line with planning across all business units was the main contributing factor, along with the gratifying contribution from the Aurubis investment. With a stronger net financial position (€ 156 million) compared with the previous quarter and an equity ratio of an approximate and unchanged 38%, Salzgitter AG enjoys a sound financial basis.
In the period under review, conditions in the steel market remained difficult overall, as the pressure on the selling prices of most rolled steel products continued unabated due to the persistent capacity surplus in Europe, combined with a downtrend in raw material costs. Owing principally to the largely volume-induced decline in the contributions of the Trading Business Unit, consolidated external sales decreased by 9 % to € 4,549.3 million in the first half of 2014 (first half of 2013: € 4,973.0 million). The pre-tax result, which stood at –€ 4.2 million, nevertheless advanced notably in comparison with the year-earlier figure that was impacted by non-recurrent effects amounting to € 185.0 million (first half of 2013: € –300.8 million). The accounts include € 39.2 million in in-come from the Aurubis investment. The consolidated after-tax result posted at € –15.9 million (2013: € –315.7 million), which brings earnings per share to € –0.33 (first half of 2013: € –5.87) and delivers a positive return on capital employed of 1.1 % again (first half of 2013: –13.2 %).1)
Development of the business units
The Strip Steel Business Unit increased both its order intake and external sales during the reporting period. A generally stable shipment volume was reported, accompanied by some-what lower intra-group business. Boosted by higher capacity utilization and a decline in material costs, the result improved but was nevertheless still a pre-tax loss of € 6.9 million (first half of 2013: € –15.5 million).
Order intake and orders on hand of the Plate/Section Steel Business Unit also exceeded the year-earlier level. Shipments nonetheless dropped owing to the sharp downturn in the shipment volumes of Salzgitter Mannesmann Grobblech GmbH and due to measures consistently implemented to adjust capacity at Peiner Träger GmbH (PTG). External sales declined accordingly. The pre-tax loss of the business unit that came in at € 42.6 million was notably lower compared with the year-earlier figure that was impacted by impairment at PTG amounting to € 185.0 million (first half of 2013: € –265.5 million). A major part of this development emanated from the effects of the swiftly implemented restructuring and operational optimization in Peine.
In the first six months of 2014, the Energy Business Unit's order intake almost matched the year-earlier figure. By contrast, the shipments of Salzgitter Mannesmann Großrohr GmbH declined notably due to the lack of projects. As a result, external sales were also lower in a year-on-year comparison. All in all, the business unit reported a pre-tax loss of € 19.8 million in the first six months of 2014 (first half of 2013: € –14.1 million). This figure was largely determined by the results of the pipeline companies that were negative due to capacity underutilization. The EUROPIPE Group's economic situation, however, has brightened since the beginning of the second quarter on the back of the smooth processing of the South Stream pipeline project. The precision tubes companies almost reached breakeven overall, while the stainless business outperformed the presentable pre-tax profit in the first six months of 2013.
The Trading Business Unit saw shipments decline in the period under review, a development largely attributable to the downturn in international trading volumes. Compounded by the lower price level compared with 2013, this caused external sales to decrease. Against this backdrop, earnings before taxes stood at € 7.0 million, thereby falling markedly short of the year-earlier figure (first half of 2013: € 22.0 million).
New orders of the Technology Business Unit did not match the figure posted in the first six months of 2013 due to lower order intake by the KHS Group. External sales rose, boosted first and foremost by growth at KHS Group. The Technology Business Unit delivered a pre-tax prof-it of € 11.5 million in the first six months of 2014, representing another increase compared with the year-earlier period (first half of 2013: € 4.6 million). The KHS Group's positive performance was attributable to good capacity utilization and improved margins in the project business, as well as further success under the "Fit4Future" program. The KDE Group also contributed to lifting earnings.
The external sales of the Industrial Participations/Consolidation segment posted € 93.2 million, a decline compared with the previous year's period (first half of 2013: € 100.8 million). Earnings before taxes of € 46.6 million were clearly in the black (first half of 2013: € –32.4 million), which was primarily attributable to income of € 39.2 million from the Aurubis investment (first half of 2013: € –54.2 million in at equity contribution), as well as positive contributions to earnings by the other Group companies.
Guidance
The following guidance was compiled on the basis of the new Group organization structure that took effect on 1 January 2014. Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current environment prevailing in Europe. The forward-looking statements below on the individual business units assume the absence of renewed recessionary development in Europe.
Given the barely satisfactory selling price trend in Europe's steel market, combined with the customary seasonal effects, the Strip Steel Business Unit anticipates a somewhat weaker second half-year. In comparison with the financial year 2013, sales are anticipated around the same level, with a marginal improvement in a nonetheless negative pre-tax result.
A change in the overall situation in the section steel business, and thereby stronger demand in core Europe, is not discernible at present. Projects are awarded at extremely short notice. By contrast, the business sentiment for plate has brightened somewhat recently. In comparison with 2013, the Plate/Section Steel Business Unit expects a downturn in sales and a significantly lower pre-tax loss, also due to the full implementation of the 1 Million Ton Concept in Peine.
The Energy Business Unit does not yet expect an extensive recovery in the market in 2014. With the start to the production of the major South Stream order in the second quarter of 2014, good capacity utilization has been secured at EUROPIPE GmbH's Mülheim location well into 2015. The other plants in the line pipe business, however, forecast partly still severe capacity underutilization in the coming months. The precision and stainless steel tubes producers anticipate that business will develop well overall. All in all, revenues are expected to increase slightly, with an appreciable increase in earnings before taxes, compared with the year-earlier figure, that will nonetheless remain negative.
In view of the downtrend in the volume in international trading in comparison with the previous year, the Trading Business Unit assumes that business volume will be lower in the current financial year. Against the backdrop of stagnating price levels, the pre-tax result is likely to fall short of the previous year's level. The stockholding steel trade anticipates an increase in shipments, yet no improvement in earnings due to margins. International trading forecasts a satisfactory result.
In conjunction with continued good capacity utilization, the Technology Business Unit expects sales growth and a discernible improvement in the results. Contributing factors here should also be somewhat better selling prices for beverages filling and packaging machinery. Additional cost reductions are targeted by the consistently implemented "Fit4Future" program. The prospects for the other companies are also consistently pleasing.
Based on planning by the individual business units, and taking account of notable successes from measures as well as structural improvements from the "Salzgitter AG 2015" groupwide program, the Salzgitter Group affirms its guidance to date for the year. We anticipate the following in 2014:
• sales of almost € 10 billion,
• a significant increase in the pre-tax result, approaching breakeven, compared with the financial year 2013 and
• another moderately positive return on capital employed.
As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input material prices and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2014. 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 12 million tons of steel products sold by the Strip Steel, Plate/Section Steel, Energy and Trading business units, an average € 25 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million. Moreover, the accuracy of the company's planning is restricted by the volatile cost of raw materials and shorter contractual durations, on the procurement as well as on the sales side.
In the period under review, conditions in the steel market remained difficult overall, as the pressure on the selling prices of most rolled steel products continued unabated due to the persistent capacity surplus in Europe, combined with a downtrend in raw material costs. Owing principally to the largely volume-induced decline in the contributions of the Trading Business Unit, consolidated external sales decreased by 9 % to € 4,549.3 million in the first half of 2014 (first half of 2013: € 4,973.0 million). The pre-tax result, which stood at –€ 4.2 million, nevertheless advanced notably in comparison with the year-earlier figure that was impacted by non-recurrent effects amounting to € 185.0 million (first half of 2013: € –300.8 million). The accounts include € 39.2 million in in-come from the Aurubis investment. The consolidated after-tax result posted at € –15.9 million (2013: € –315.7 million), which brings earnings per share to € –0.33 (first half of 2013: € –5.87) and delivers a positive return on capital employed of 1.1 % again (first half of 2013: –13.2 %).1)
Development of the business units
The Strip Steel Business Unit increased both its order intake and external sales during the reporting period. A generally stable shipment volume was reported, accompanied by some-what lower intra-group business. Boosted by higher capacity utilization and a decline in material costs, the result improved but was nevertheless still a pre-tax loss of € 6.9 million (first half of 2013: € –15.5 million).
Order intake and orders on hand of the Plate/Section Steel Business Unit also exceeded the year-earlier level. Shipments nonetheless dropped owing to the sharp downturn in the shipment volumes of Salzgitter Mannesmann Grobblech GmbH and due to measures consistently implemented to adjust capacity at Peiner Träger GmbH (PTG). External sales declined accordingly. The pre-tax loss of the business unit that came in at € 42.6 million was notably lower compared with the year-earlier figure that was impacted by impairment at PTG amounting to € 185.0 million (first half of 2013: € –265.5 million). A major part of this development emanated from the effects of the swiftly implemented restructuring and operational optimization in Peine.
In the first six months of 2014, the Energy Business Unit's order intake almost matched the year-earlier figure. By contrast, the shipments of Salzgitter Mannesmann Großrohr GmbH declined notably due to the lack of projects. As a result, external sales were also lower in a year-on-year comparison. All in all, the business unit reported a pre-tax loss of € 19.8 million in the first six months of 2014 (first half of 2013: € –14.1 million). This figure was largely determined by the results of the pipeline companies that were negative due to capacity underutilization. The EUROPIPE Group's economic situation, however, has brightened since the beginning of the second quarter on the back of the smooth processing of the South Stream pipeline project. The precision tubes companies almost reached breakeven overall, while the stainless business outperformed the presentable pre-tax profit in the first six months of 2013.
The Trading Business Unit saw shipments decline in the period under review, a development largely attributable to the downturn in international trading volumes. Compounded by the lower price level compared with 2013, this caused external sales to decrease. Against this backdrop, earnings before taxes stood at € 7.0 million, thereby falling markedly short of the year-earlier figure (first half of 2013: € 22.0 million).
New orders of the Technology Business Unit did not match the figure posted in the first six months of 2013 due to lower order intake by the KHS Group. External sales rose, boosted first and foremost by growth at KHS Group. The Technology Business Unit delivered a pre-tax prof-it of € 11.5 million in the first six months of 2014, representing another increase compared with the year-earlier period (first half of 2013: € 4.6 million). The KHS Group's positive performance was attributable to good capacity utilization and improved margins in the project business, as well as further success under the "Fit4Future" program. The KDE Group also contributed to lifting earnings.
The external sales of the Industrial Participations/Consolidation segment posted € 93.2 million, a decline compared with the previous year's period (first half of 2013: € 100.8 million). Earnings before taxes of € 46.6 million were clearly in the black (first half of 2013: € –32.4 million), which was primarily attributable to income of € 39.2 million from the Aurubis investment (first half of 2013: € –54.2 million in at equity contribution), as well as positive contributions to earnings by the other Group companies.
Guidance
The following guidance was compiled on the basis of the new Group organization structure that took effect on 1 January 2014. Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current environment prevailing in Europe. The forward-looking statements below on the individual business units assume the absence of renewed recessionary development in Europe.
Given the barely satisfactory selling price trend in Europe's steel market, combined with the customary seasonal effects, the Strip Steel Business Unit anticipates a somewhat weaker second half-year. In comparison with the financial year 2013, sales are anticipated around the same level, with a marginal improvement in a nonetheless negative pre-tax result.
A change in the overall situation in the section steel business, and thereby stronger demand in core Europe, is not discernible at present. Projects are awarded at extremely short notice. By contrast, the business sentiment for plate has brightened somewhat recently. In comparison with 2013, the Plate/Section Steel Business Unit expects a downturn in sales and a significantly lower pre-tax loss, also due to the full implementation of the 1 Million Ton Concept in Peine.
The Energy Business Unit does not yet expect an extensive recovery in the market in 2014. With the start to the production of the major South Stream order in the second quarter of 2014, good capacity utilization has been secured at EUROPIPE GmbH's Mülheim location well into 2015. The other plants in the line pipe business, however, forecast partly still severe capacity underutilization in the coming months. The precision and stainless steel tubes producers anticipate that business will develop well overall. All in all, revenues are expected to increase slightly, with an appreciable increase in earnings before taxes, compared with the year-earlier figure, that will nonetheless remain negative.
In view of the downtrend in the volume in international trading in comparison with the previous year, the Trading Business Unit assumes that business volume will be lower in the current financial year. Against the backdrop of stagnating price levels, the pre-tax result is likely to fall short of the previous year's level. The stockholding steel trade anticipates an increase in shipments, yet no improvement in earnings due to margins. International trading forecasts a satisfactory result.
In conjunction with continued good capacity utilization, the Technology Business Unit expects sales growth and a discernible improvement in the results. Contributing factors here should also be somewhat better selling prices for beverages filling and packaging machinery. Additional cost reductions are targeted by the consistently implemented "Fit4Future" program. The prospects for the other companies are also consistently pleasing.
Based on planning by the individual business units, and taking account of notable successes from measures as well as structural improvements from the "Salzgitter AG 2015" groupwide program, the Salzgitter Group affirms its guidance to date for the year. We anticipate the following in 2014:
• sales of almost € 10 billion,
• a significant increase in the pre-tax result, approaching breakeven, compared with the financial year 2013 and
• another moderately positive return on capital employed.
As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input material prices and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2014. 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 12 million tons of steel products sold by the Strip Steel, Plate/Section Steel, Energy and Trading business units, an average € 25 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million. Moreover, the accuracy of the company's planning is restricted by the volatile cost of raw materials and shorter contractual durations, on the procurement as well as on the sales side.
