first nine months of 2014
13.11.2014 | Salzgitter AG
Important intermediate target reached: the Salzgitter Group achieves an impressive turnaround in the first nine months of 2014
- Q3/2014: another increase in quarterly profit
- Net financial position significantly strengthened versus first half
- Earnings guidance for the financial year 2014 affirmed
The Salzgitter Group generated a pre-tax profit in the first nine months of 2014, thereby delivering the first positive nine-month result since 2011. Factors contributing to this impressive turnaround include primarily the impact of the "Salzgitter AG 2015" restructuring program that is increasingly taking effect and the gratifying contribution from the Aurubis investment. Compared with accounts of the first half-year, the net financial position improved notably to € 270 million (June 30, 2014: € 156 million). With an equity ratio of 37%, the Salzgitter Group has a sound balance sheet and financial position for dealing with the ongoing structural crisis in the European steel market, while also continuing to develop its broad-based portfolio of business activities.
The situation of the European steel market was tense throughout the entire reporting period as the supply of many rolled steel products continued to exceed demand. Weaker contributions by the Trading Business Unit, resulting first and foremost from price-and volume-induced effects, caused consolidated external sales to drop 6 % to € 6,811.5 in the first nine months of 2014 (first nine months of 2013: € –7,279.3 million). By contrast, the consolidated result improved to post a pre-tax profit of 5.5 million, which represents significant headway compared with the previous year (first nine months of 2013: € –365.6 million). This amount includes € 42.4 million in contribution from the Aurubis investment. The after-tax result stood at € –12.2 million (first nine months of 2013: € –382.7 million), which brings basic earnings per share to € –0.28 (first nine months of 2013: € –7.13), and the return on capital employed posted 1.5 % (first nine months of 2013: –10.8 %).1
Development of the business Units
The Strip Steel Business Unit reported shipments at the year-earlier level and improved external sales. Owing in particular to a gratifying increase in Salzgitter Flachstahl GmbH's performance compared with 2013, the segment's pre-tax result, that stood at € –3.9 million, almost achieved breakeven (first nine months of 2013: € –49.3 million).
In the reporting period, the Plate/Section Steel Business Unit benefited from order activity picking up momentum in the plate market, as well as from the major South Stream order under which deliveries commenced in April. Shipments declined in year-on-year comparison against the backdrop of capacity adjustments made at Peiner Träger GmbH (PTG) at the end of 2013 and the shipment volumes of Salzgitter Mannesmann Grobblech GmbH (MGB) that were still weak in the first quarter. Nonetheless, the business unit's external sales repeated the 2013 level. At € 60.1 million, the pre-tax loss was significantly reduced (first nine months of 2013: € –313.8 million, including impairment of € 185.0 million at PTG). These improved results in particular reflect the rapidly implemented restructuring measures and operational optimization in Peine.
The Energy Business Unit's order intake ranged marginally below the previous year's level in the first nine months of 2014. Outside the Group's scope of consolidation, EUROPIPE, in which a 50 % stake is held, more than trebled incoming orders on the back of the major South Stream and ETC Rover projects. Given the poor capacity utilization situation of Salzgitter Mannesmann Großrohr GmbH (MGR), shipments fell short of the figure reported for the first nine months of 2013, despite the volume growth achieved by precision and stainless steel tubes. External sales were also lower than in the previous year. The Energy Business Unit reported a pre-tax loss of € 20.5 million in the period under review (first nine months of 2013: € –23.7 million). This performance was largely determined by the results of the line pipe companies that were negative due to capacity underutilization. The precision tubes group reattained breakeven, not least owing to the impact of the initiative programs, while the Salzgitter Mannesmann Stainless Tubes Group made a remarkable contribution to profit.
The downturn in international trading shipments caused the Trading Business Unit’s shipment volume to decline in comparison with the year-earlier period. In conjunction with slipping prices, external sales also contracted. Earnings before taxes of € 16.1 million fell short of the previous year's figure owing to the unfavorable development of margins (first nine months of 2013: € 27.6 million).
Compared with the exceptionally strong development of business in 2013, the KHS Group reported lower order intake in the first nine months of 2014. Despite the increase in new orders received by the DESMA companies, this also applies analogously to the Technology Business Unit. By contrast, external sales rose, boosted especially by growth at the KHS Group. The segment generated earnings before taxes of € 13.2 million, which represents another year-on-year increase (first nine months of 2013: € 4.7 million). At the KHS Group, improved margins in the project business, flanked by contributions under the "Fit4Future" program, underpinned this gratifying trend. The KDE Group, as well as KDS, also contributed substantially to lifting profit.
The sales of Industrial Participations/Consolidation that are generated mainly by business in semi-finished products and services provided for subsidiaries, were lower than the previous year's figure. Earnings before taxes amounted to € 60.8 million (first nine months 2013: € –11.1 million). This figure comprises € 42.4 million in contribution from the Aurubis investment (first nine months of 2013: € –45.9 million in at-equity contribution), as well as a positive contribution to profit by the other Group companies.
Guidance
The Strip Steel Business Unit anticipates a seasonally-induced decline in its business volume over the remainder of the financial year. In conjunction with still unsatisfactory selling prices, sales are expected to be lower than in 2013. The decline in the costs of raw materials and natural gas, as well as better capacity utilization, should, however, result in a marked improvement in the pre-tax result that will nonetheless remain negative.
There is still no evidence of a sustained recovery in the section steel industry. Inquiries from steel construction are running at a low level, and projects are awarded at extremely short notice. By contrast, the plate business reports a moderately positive market development. In comparison with 2013, the Plate/Section Steel Business Unit expects a downturn in sales, as well as a significant reduction in pre-tax loss, also due to the full implementation of the 1 Million Ton Concept in Peine.
Considering that the capacity utilization situation in the Mülheim mill of EUROPIPE, a company included at-equity, eased considerably when production on the major South Stream contract commenced, the situation of the US companies is also set to improve as from the fourth quarter due to the ETC Rover pipeline project. The other German mills in the line pipe segment report a minor improvement in capacity utilization. The precision tubes group anticipates a slight decline in volumes in the final quarter. The healthy development reported by the stainless steel tubes over the course of the year to date is also likely to hold steady in the final months. All in all, the Energy Business Unit expects a notable increase in the pre-tax result, that will nonetheless remain negative, compared with 2013.
The Trading Business Unit anticipates that its overall business volume will remain below the previous year's volume in the current financial year. Against the backdrop of stagnating prices, the pre-tax result is also likely to fall short of the previous year's level. Despite shipment growth, the stockholding steel trade forecast a virtually stable result owing to margins, whereas international trading is expecting the result to remain satisfactory, as before, despite the downtrend in volumes.
The Technology Business Unit anticipates an increase in sales and a higher result on the back of good capacity utilization. Along with the KHS-Group, the generally positive prospects of the other companies will also be a contributing factor.
Not least due to the fact that production and shipment volumes are always lower at year-end, the fourth quarter is likely to be weaker than the earnings trend in the previous quarters. Nonetheless, based on planning by the individual business units, and taking account of notable successes from measures implemented, as well as structural improvements from the "Salzgitter AG 2015" groupwide program, the Salzgitter Group affirms its earnings guidance so far for the year. We have revised our sales guidance downward to take account of declines in rolled steel selling prices caused by lower raw materials prices as well as the downturn in shipment volumes.
Net of non-recurrent effects in the context of drawing up the annual accounts, we now assume the following for the financial year 2014:
- sales of around € 9 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.
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. 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. Additional positive or negative effects may arise from structural or methodological changes. This includes in particular measurement pursuant to IFRS standards. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.
1)When considering the year-on-year comparisons, it should be noted that the key data of the financial year 2013 have been restated to take account of the new Group organization structure and changes in the consolidation methods applied to participating interests under IFRS 11.
Disclaimer: Some of the statements made in this report possess the character of forecasts or may be interpreted as such. They are made upon the best of information and belief and by their nature are subject to the proviso that no unforeseeable deterioration occurs in the economy or in the specific market situation pertaining to the division companies, but rather that the underlying bases of plans and outlooks prove to be accurate as expected in terms of their scope and timing. Notwithstanding prevailing statutory provisions and capital market law in particular, the company undertakes no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.
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