The Salzgitter Group Comes Through the Economic Trough in The Third Quarter
11/14/2013 - In the first nine months of 2013 the business activities of the Salzgitter Group were burdened by the structural crisis in the European steel industry, reflected by persistently fierce price-led competition.
The resulting unsatisfactory performance of the Steel Division was also deter-mined by impairment and an unexpectedly high outlay for repair work on a blast furnace. At the same time, the large-diameter pipes business continued to suffer from a severe order shortfall. The prevailing unfavorable general conditions underscore the necessity of the extensive "Salzgitter AG 2015" restructuring program with a profit potential totaling more than € 200 million p.a. The program is being vigorously implemented on the basis of the prerequisites that were set in place at group level during the third quarter.
The Salzgitter Group's external sales declined by 10 % to € 7,246.7 million (first nine months of 2012: € 8,015.1 million) mainly due to lower rolled steel selling prices. Earnings before taxes stood at € –363.0 million (first nine months of 2012: € –42.6 million). This figure includes € 185.0 million in impairment in the sections product segment, as well as € 45.9 million (first nine months of 2012: € +44.6 million) in negative after-tax contribution by the 25% holding in Aurubis AG, a participation included at equity. Based on an after-tax result of € –382.2 million (first nine months of 2012: € –48.2 million), basic earnings per share amount to € –7.12 (first nine months of 2012: € –0.95) and return on capital employed (ROCE) stood at –10.8 % (first nine months of 2012: 0.0 %).
With an equity ratio of 39 % and a positive net financial position that increased to € 447 million quarter on quarter, the Salzgitter Group continues to enjoy a decidedly sound financial basis for mastering the current challenges.
The sustained, huge competitive pressure in Europe's steel industry resulted in unsatisfactory selling prices that were in decline in a year-on-year comparison. New orders in the first nine months of 2013, however, were only marginally below the year-earlier tonnage. This was mainly attributable to curtailing production in the sections business owing to changes in the business concept of the Peine site. Production output was scaled back here to one million tons of both crude and rolled steel a year from August onwards. Thanks to an increase in strip steel volumes, rolled steel shipments exceeded the previous year's level. The division's external sales dropped by just under 10% to € 1,853.6 million, pressured by selling prices (first nine months of 2012: € 2,037.6 million). Including € 185.0 million in impairment at Peiner Träger GmbH and an additional outlay of about € 15 million for extensive repair work on a blast furnace at Salzgitter Flachstahl GmbH, the Steel Division's pre-tax result stood at € –330.0 million (first nine months of 2012: € –149.8 million).
The Trading Division's shipments settled at the year-earlier level, largely due to the initial consolidation of Stahl-Metall-Service Gesellschaft für Bandverarbeitung mbH. By contrast, the division's external sales decreased notably to € 3,101.4 million (first nine months of 2012: € 3,659.0 million) due to the downturn in average selling prices. The division delivered earnings before tax of € 23.5 million (first months of 2012: € 42.0 million).
The business of the Tubes Division was determined by the pronounced capacity underutilization of the large-diameter pipe segment in the period under review. For this reason, order intake was significantly lower than in the first nine months of 2012 which, however, included a major pipeline order booked through the Trading Division. With the exception of seamless stainless steel tubes, shipment volumes fell in all product segments. With intragroup business in a discernible downtrend following final completion of the pipeline project, external sales remained virtually stable at € 1,137.8 million (first nine months of 2012: € 1,164.7 million). Against the backdrop of the poor capacity utilization of the large-diameter pipes segment, and given the pressure on the majority of margins, the Tubes Division disclosed a pre-tax loss of € –43.8 million (first nine months of 2012: € 17.2 million).
The Services Division's external sales stood at € 302.3 million, which is slightly lower than the year-earlier figure (first nine months of 2012: € 313.3 million). The division generated a pre-tax profit of € 3.7 million (first nine months of 2012: € 12.5 million). The lower result was largely attributable to a decline in earnings of the raw materials trading company DEUMU Deutsche Erz- und Metall-Union GmbH owing to a downturn in intragroup demand for steel scrap
The Technology Division reported gratifying developments in the period under review. New orders rose appreciably, and external sales climbed to € 827.4 million (first nine months of 2012: € 813.9 million). Earnings before tax amounted to € 5.9 million, thereby exceeding the previous year's figure (first nine months of 2012: € 0.8 million). This success was attributable to the high degree of capacity utilization and the ongoing implementation of the KHS Group's "Fit4Future" program.
External sales of Other/Consolidation that are generated through business in semi-finished products with external parties stood at € 25.0 million and therefore corresponded to the year-earlier level (first nine months of 2012: € 27.5 million). The pre-tax result posted € –22.4 million, which is considerably lower than in the previous year (first nine months of 2012: € 34.8 million). This figure comprises an after-tax loss of € –45.9 million (first nine months of 2012: € 44.6 million) from the holding in Aurubis AG, an investment included at equity, that was large-ly attributable to valuation effects. This was offset by interest income.
Salzgitter intragroup sales remained virtually unchanged during the reporting period (€ 2,170.8 million; first nine months of 2012: € 2,205.4 million).
Guidance
There are growing signs in Europe of an emerging economic recovery. Owing to the considerable imbalance between supply and demand, however, this development is as yet unable to have an effect on the situation in the steel industry. For this reason as well, the implementation of the internal project to safeguard the medium to long-term competitiveness of the Group under the "Salzgitter AG 2015" restructuring program has been given the highest priority.
Some customer sectors in the European steel market have recently reported positive developments. Above all, however, no discernible improvement has materialized yet in the construction industry as the largest steel processing sector. Even if the divide between the northern and southern European markets is unlikely to narrow in the short term, the slight recovery in demand, in conjunction with the low inventory levels of traders and consumers, may cause a cyclical firming up of prices. Moreover, raw materials prices may at best fall marginally below their level to date. Financial year 2013 as a whole the Steel Division anticipates declining sales as against 2012 and a clearly negative pre-tax result.
The Trading Division expects international trading business activities to continue to return to normal levels, a process that set in at mid-year. Opportunities are also still perceived for the stockholding steel trade. Achieving a double-digit million profit still appears feasible on the back of sales that are lower in comparison with 2012.
The substantial capacity underutilization prevailing since the spring in the large-diameter pipes business is set to persist in the fourth quarter as well. No significant recovery in demand for the medium-line pipes and precision tubes product segments is foreseeable over the remainder of the year. By contrast, the seamless stainless steel tubes business is likely to develop well, as before. The Tubes Divisions predicts a downturn in sales compared with the previous year and a pre-tax loss in the high double-digit million euro range for the financial year 2013.
The Services Division anticipates a marginal decline in sales and a lower pre-tax profit for the year as a whole compared with 2012.
Given good capacity utilization, the Technology Division expects the positive sales and profit trend experienced to date to continue in the final quarter.
The Salzgitter Group affirms its guidance for the financial year 2013 of lower sales year on year and a negative pre-tax result in the € 400 million range. As already announced, additional special, initially burdening, non-recurrent effects may still arise as a consequence of implementing the "Salzgitter AG 2015" Group project.
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 2013. Additional positive or negative effects may arise from structural or methodological changes. This includes in particular measurement pursuant to IFRS standards and their application. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.
The Salzgitter Group's external sales declined by 10 % to € 7,246.7 million (first nine months of 2012: € 8,015.1 million) mainly due to lower rolled steel selling prices. Earnings before taxes stood at € –363.0 million (first nine months of 2012: € –42.6 million). This figure includes € 185.0 million in impairment in the sections product segment, as well as € 45.9 million (first nine months of 2012: € +44.6 million) in negative after-tax contribution by the 25% holding in Aurubis AG, a participation included at equity. Based on an after-tax result of € –382.2 million (first nine months of 2012: € –48.2 million), basic earnings per share amount to € –7.12 (first nine months of 2012: € –0.95) and return on capital employed (ROCE) stood at –10.8 % (first nine months of 2012: 0.0 %).
With an equity ratio of 39 % and a positive net financial position that increased to € 447 million quarter on quarter, the Salzgitter Group continues to enjoy a decidedly sound financial basis for mastering the current challenges.
The sustained, huge competitive pressure in Europe's steel industry resulted in unsatisfactory selling prices that were in decline in a year-on-year comparison. New orders in the first nine months of 2013, however, were only marginally below the year-earlier tonnage. This was mainly attributable to curtailing production in the sections business owing to changes in the business concept of the Peine site. Production output was scaled back here to one million tons of both crude and rolled steel a year from August onwards. Thanks to an increase in strip steel volumes, rolled steel shipments exceeded the previous year's level. The division's external sales dropped by just under 10% to € 1,853.6 million, pressured by selling prices (first nine months of 2012: € 2,037.6 million). Including € 185.0 million in impairment at Peiner Träger GmbH and an additional outlay of about € 15 million for extensive repair work on a blast furnace at Salzgitter Flachstahl GmbH, the Steel Division's pre-tax result stood at € –330.0 million (first nine months of 2012: € –149.8 million).
The Trading Division's shipments settled at the year-earlier level, largely due to the initial consolidation of Stahl-Metall-Service Gesellschaft für Bandverarbeitung mbH. By contrast, the division's external sales decreased notably to € 3,101.4 million (first nine months of 2012: € 3,659.0 million) due to the downturn in average selling prices. The division delivered earnings before tax of € 23.5 million (first months of 2012: € 42.0 million).
The business of the Tubes Division was determined by the pronounced capacity underutilization of the large-diameter pipe segment in the period under review. For this reason, order intake was significantly lower than in the first nine months of 2012 which, however, included a major pipeline order booked through the Trading Division. With the exception of seamless stainless steel tubes, shipment volumes fell in all product segments. With intragroup business in a discernible downtrend following final completion of the pipeline project, external sales remained virtually stable at € 1,137.8 million (first nine months of 2012: € 1,164.7 million). Against the backdrop of the poor capacity utilization of the large-diameter pipes segment, and given the pressure on the majority of margins, the Tubes Division disclosed a pre-tax loss of € –43.8 million (first nine months of 2012: € 17.2 million).
The Services Division's external sales stood at € 302.3 million, which is slightly lower than the year-earlier figure (first nine months of 2012: € 313.3 million). The division generated a pre-tax profit of € 3.7 million (first nine months of 2012: € 12.5 million). The lower result was largely attributable to a decline in earnings of the raw materials trading company DEUMU Deutsche Erz- und Metall-Union GmbH owing to a downturn in intragroup demand for steel scrap
The Technology Division reported gratifying developments in the period under review. New orders rose appreciably, and external sales climbed to € 827.4 million (first nine months of 2012: € 813.9 million). Earnings before tax amounted to € 5.9 million, thereby exceeding the previous year's figure (first nine months of 2012: € 0.8 million). This success was attributable to the high degree of capacity utilization and the ongoing implementation of the KHS Group's "Fit4Future" program.
External sales of Other/Consolidation that are generated through business in semi-finished products with external parties stood at € 25.0 million and therefore corresponded to the year-earlier level (first nine months of 2012: € 27.5 million). The pre-tax result posted € –22.4 million, which is considerably lower than in the previous year (first nine months of 2012: € 34.8 million). This figure comprises an after-tax loss of € –45.9 million (first nine months of 2012: € 44.6 million) from the holding in Aurubis AG, an investment included at equity, that was large-ly attributable to valuation effects. This was offset by interest income.
Salzgitter intragroup sales remained virtually unchanged during the reporting period (€ 2,170.8 million; first nine months of 2012: € 2,205.4 million).
Guidance
There are growing signs in Europe of an emerging economic recovery. Owing to the considerable imbalance between supply and demand, however, this development is as yet unable to have an effect on the situation in the steel industry. For this reason as well, the implementation of the internal project to safeguard the medium to long-term competitiveness of the Group under the "Salzgitter AG 2015" restructuring program has been given the highest priority.
Some customer sectors in the European steel market have recently reported positive developments. Above all, however, no discernible improvement has materialized yet in the construction industry as the largest steel processing sector. Even if the divide between the northern and southern European markets is unlikely to narrow in the short term, the slight recovery in demand, in conjunction with the low inventory levels of traders and consumers, may cause a cyclical firming up of prices. Moreover, raw materials prices may at best fall marginally below their level to date. Financial year 2013 as a whole the Steel Division anticipates declining sales as against 2012 and a clearly negative pre-tax result.
The Trading Division expects international trading business activities to continue to return to normal levels, a process that set in at mid-year. Opportunities are also still perceived for the stockholding steel trade. Achieving a double-digit million profit still appears feasible on the back of sales that are lower in comparison with 2012.
The substantial capacity underutilization prevailing since the spring in the large-diameter pipes business is set to persist in the fourth quarter as well. No significant recovery in demand for the medium-line pipes and precision tubes product segments is foreseeable over the remainder of the year. By contrast, the seamless stainless steel tubes business is likely to develop well, as before. The Tubes Divisions predicts a downturn in sales compared with the previous year and a pre-tax loss in the high double-digit million euro range for the financial year 2013.
The Services Division anticipates a marginal decline in sales and a lower pre-tax profit for the year as a whole compared with 2012.
Given good capacity utilization, the Technology Division expects the positive sales and profit trend experienced to date to continue in the final quarter.
The Salzgitter Group affirms its guidance for the financial year 2013 of lower sales year on year and a negative pre-tax result in the € 400 million range. As already announced, additional special, initially burdening, non-recurrent effects may still arise as a consequence of implementing the "Salzgitter AG 2015" Group project.
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 2013. Additional positive or negative effects may arise from structural or methodological changes. This includes in particular measurement pursuant to IFRS standards and their application. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.
