First quarter of 2014
15.05.2014 | Salzgitter AG
"Salzgitter AG 2015" program progressing well – tangible success in the first quarter of 2014
- Year-on-year improvement in consolidated result
- Peiner Träger GmbH and precision tubes group achieve breakeven in quarterly results
- New, lean Group organization structure effective since January 1, 2014
- Guidance for the financial year 2014 results affirmed
The situation on the European steel market remained tense at the beginning of 2014. The persistent imbalance between supply and demand continues to put great pressure on margins. The market environment for steel products, also unfavorable outside the EU, combined with significant capacity underutilization in the large-diameter tubes segment that eased only in April, determined the course of business in the first quarter of 2014. Nonetheless, the Salzgitter Group improved its earnings, with the "Salzgitter AG 2015" restructuring program, that has set profound processes of change in motion within the Group since mid-2013, making a major contribution. The tangible success in the sections business as well as in the precision tubes group affirms the expediency of this course of action and strengthens our motivation to vigorously forge ahead in implementing the extensive package of measures in all Group companies. As of March 31, 2014, the Group's net financial position stood at € 104 million. The decline in this position resulted mainly from the higher levels of operating activity and partly due to changes in the consolidated group in the con-text of reporting-date related effects. The equity ratio of approximately 38% remained at a sound level.
When considering the following 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.
In the first quarter of 2014, the Group's external sales dropped below the year-earlier figure (€ 2,300.9 million; first quarter of 2013: € 2,448.5 million), owing mainly to the downtrend in the Trading and Plate/Section Steel business units caused by lower volumes and selling prices. Earnings before taxes amounted to € –8.7 million (first quarter of 2013: €–16.1million), influenced by a positive contribution from the Aurubis investment. Earnings after taxes of € –13.3 million were recorded (first quarter of 2013: € –17.1 million), which brings earnings per share to € –0.26 (first quarter of 2013: € –0.33). The return on capital employed (ROCE) posted 0.4% (first quarter of 2013: 0.3%).
Development of the business units
The Strip Steel Business Unit reported an order intake that remained virtually unchanged from the previous year and growth in its external sales. Thanks to a slight increase in the result of Salzgitter Flachstahl GmbH, that was also attributable to the lower cost of raw materials, the pre-tax result improved to € –2.2million (first quarter of 2013: € –7.3 million).
The shipments of the Plate/Section Steel Business Unit dropped, owing in particular to the huge downturn in the shipment volumes of Salzgitter Mannesmann Grobblech GmbH, that was still producing plate for a major order of EUROPIPE GmbH in the first quarter of 2013, as well as due to the deliberate capacity adjustments at Peiner Träger GmbH (1 Million Ton Model). External sales also declined accordingly. Although the loss of the two plate producers exceeded the previous year's level, the business unit's pre-tax result improved by almost one third to € –22.4 million (first quarter of 2013: € –32.0 million). This trend largely reflects the success of the measures consistently implemented under the "Salzgitter AG 2015" program at Peiner Träger GmbH that generated a small pre-tax profit for the first time since 2008.
The Energy Business Unit's shipments exceeded the year-earlier level, with all product segments contributing. The increase in external sales (€ 338.9 million; first quarter of 2013: € 318.1 million) was mainly attributable to the precision tubes business. All in all, the Energy Business Unit reported earnings before taxes of € –12.3 million in the first quarter of 2014 (first quarter of 2013: € –11.1 million) largely determined by the negative at-equity contribution of the EUROPIPE Group that was affected by capacity underutilization. By contrast, the precision tubes group achieved breakeven.
The Trading Business Unit saw shipments decline in the first quarter of 2014, due first and fore-most to lower shipment volumes in international trading. In conjunction with the weaker price levels compared with 2013, external sales also dropped to € 774.6 million (first quarter of 2013: € 961.7 million). Earnings before taxes, though still satisfactory at € 4.9 million, fell short of the previous year's figure (first quarter of 2013: € 11.4 million).
While the new orders of the Technology Business Unit, borne mainly by the major projects of the KHS Group, did not match the year-earlier level, external sales rose notably (€ 313.0 million; first quarter of 2013: € 269.7 million). Earnings before taxes of € 9.2 million increased significantly (first quarter of 2013: € 2.8 million). At the KHS Group, high capacity utilization, the gratifyingly lively service business, and further success under the "Fit4Future" program underpinned this positive trend. The KDS and KDE Group also contributed to raising profit.
The external sales of the Other segment came in at € 47.2 million and almost repeated the year-earlier level (first quarter of 2013: € 49.2 million) although earnings before taxes were lower in a year-on-year comparison (€ 14.1 million; first quarter of 2013: € 20.1 million). The result comprised a total of € 8.2 million in income from the Aurubis investment (first quarter of 2013: € +5.8 million in at-equity contribution).
Guidance
The following guidance was compiled on the basis of the new Group organization structure that took effect on January 1, 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. In addition, the impact on performance of European and German energy and climate policies is also currently still difficult to predict. The forward-looking statements below on the individual business units assume the absence of renewed recessionary development. Instead, we anticipate a relatively restrained economic recovery in volumes and selling prices in the current financial year, with markets remaining fiercely contested.
Given the pressure on selling prices arising from the ongoing underutilization of capacities in the EU, the Strip Steel Business Unit expects business to remain difficult in 2014. In comparison with the financial year 2013, sales are anticipated around the same level, with somewhat of an improvement in a nonetheless negative pre-tax result.
The Plate/Section Steel Business Unit assumes declining sales compared with 2013, while predicting a significant reduction in the pre-tax loss at the same time. This is mainly attributable to the 1 Million Ton concept that has been largely implemented and the non-recurrent charge arising in connection with impairment at Peiner Träger GmbH (PTG) in 2013. By contrast, business sentiment for plate has clouded.
A strong market recovery is not yet anticipated for the Energy Business Unit in 2014. With the start to production of the major South Stream order, an adequate, basic level of capacity utilization has been secured as from April through to 2015 at the Mülheim site of EUROPIPE GmbH. The Group's other European large-diameter pipe mills will, however, experience capacity underutilization, at least still during the next few months. The other tubes companies anticipate a largely more positive development of business. Overall, we anticipate a moderate uptrend in sales and a notably higher pre-tax result in comparison with the previous year.
The Trading Business Unit expects sales to hold steady in the current financial year. Against the backdrop of the moderate price level, the pre-tax result is likely to fall short of the previous year's level. Although the stockholding steel trade anticipates sales growth, it does not, however, expect to raise earnings due to margins. International trading anticipates a satisfactory – albeit also lower – result.
On the back of continued, good capacity utilization, the Technology Business Unit expects an increase in sales and a marked improvement in the results. Contributing factors here should also be somewhat better price conditions for beverages filling and packaging machinery. Additional cost reductions are targeted with the aid of the rigorously implemented "Fit4Future" program. The prospects for the other companies are consistently pleasing.
Based on planning by the individual business units, and taking account of significant effects from measures as well as structural improvements from the "Salzgitter AG 2015" groupwide project, we assume the following in the year 2014:
- sales of almost € 10 billion,
- a significant increase in the pre-tax result, approximating 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 € 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.
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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