Key data of the financial year 2010

Having staged a successful turnaround, the Salzgitter Group returns to a stable uptrend

The Salzgitter Group benefited notably from the economic upswing in 2010. As a result, capacity utilization across all product segments returned to a high level and the selling prices of many products gradually recovered. Steady progress was made with the extensive 1.7 billion euro investment program of the Steel Division, with all major projects being lead to completion. The programs implemented to optimize costs and raise performance had a gratifying impact. Acting on the basis of an extremely sound financial position and a healthy balance sheet, with an equity ratio of 44 % and € 1.3 billion in net cash, the Salzgitter Group – having achieved turnaround this year – considers itself to be well equipped to exploit market opportunities to the full and master future challenges successfully.

Having boosted external sales to € 8,304.6 million (2009: € 7,818.0 million; +6 %), the Group closed the financial year with a pre-tax profit of € 48.9 million, and has thus resumed its successful path (2009: -496.5 million). Adjusted by an overall € 14.9 million for effects from impairment, streamlining costs and other non-recurrent income and expenses, the result net of special items comes to € 63.8 million. Profit after tax stood at € 30.0 million (2009: -386.9 million), and undiluted earnings per share therefore came to € 0.55.

The recovery in the capacity utilization of the Steel Division varied widely, however, depending on the product segment: Capacity utilization in the flat steel and plate product segments regained good capacity utilization levels and also recorded an uptrend in selling prices from mid-2010. In contrast, the only hesitant recovery in the construction and civil engineering sector generated virtually no stimulus for the section and sheet piling segment. External sales, which posted € 2,268.6 million, climbed by 36 % (2009: € 1,673.6 million). This division's result came in at € -100.6 million (2009: € -373.5 million), affected by impairment of € 80.0 million in the sections product segment and by other non-recurrent effects. Excluding special measures, the 2 division delivered a relatively small loss. The unscheduled impairment will serve to ease the burden on future periods.

The favorable economic environment had an extremely positive impact on the activities of the Trading Division. The strong recovery in the stockholding steel trading business was able to almost fully compensate for the downturn in international trading. External sales of € 2,958.2 million were therefore marginally below the year-earlier figure (2009: € 3,038.7 million). The increase in shipment volumes in particular and the sharp widening of margins in the European stockholding trade in the second quarter resulted in a very pleasing pre-tax profit of € 71.4 million (2009: € -128.0 million).

The Tubes Division had to absorb drastic increases in input materials due to raw materials price hikes, which put pressure on the margins of orders booked in the previous year at fixed prices. Only in the second half of the year these higher costs were successfully priced into new order bookings. External sales dropped to € 1,736.1 million (2009: € 2,044.6 million). The division nonetheless delivered a presentable pre-tax profit of € 59.9 million (2009: € 104.0 million), generated entirely by the large-diameter tubes business. This result includes a balance of € 6.1 million in income from non-recurrent effects and expenses for streamlining measures.

Supported by the return of the steel companies’ production activity to normal levels, the Services Division also made a notable recovery. External sales climbed by 36 % to € 413.1 million (2009: € 302.9 million) as against the previous year. Pre-tax profit grew to € 26.2 million (2009: € 8.2 million).

The companies of the Technology Division have recovered from the crisis in the German mechanical engineering sector in 2009. Competition for new projects nonetheless remained fierce. The improved situation in the market, based mainly on strong international demand, was reflected in external sales which rose by 22 % to € 872.9 million (2009: € 717.6 million). The pre-tax result, which came in at € -30.3 million, also improved significantly (2009: € -210.4 million). The overall result includes a gain of € 11.0 million which is the balance of write-ups of receivables from WCM AG and non-recurrent expenses for risk provisioning in respect of shareholdings.

Sales in the Other/Consolidation segment, which are mainly based on business in semi-finished products with subsidiaries and external parties, posted a selling-price induced increase to € 55.9 (2009: € 40.6 million). Pre-tax profit stood at € 22.3 million (2009: € 103.3 million), and included € 34.0 million in contributions from the Aurubis holding, offset by the compounding effect from the issuance of the convertible bond.

The annual financial statements for the financial year 2010 are to be submitted to the Supervisory Board for adoption at its next meeting and published in its full version on March 25, 2011.

The anticipated development of the Group and its divisions in the financial year to 2011 described in the following is based on the corporate planning, which was concluded at the end of 2010, and reflects the current status of knowledge:

In view of most economic research institutes’ predictions for a sustained economic recovery, and given a considerable increase in the volume supplied to the Tubes Division, the Steel Division is anticipating a higher level of orders in 2011. The production of crude steel, flanked by the start to the parallel operation of the two electric arc furnaces in Peine, is expected to expand and both shipments and sales should rise. At the same time the restructuring program in the section product segment will be continued consistently. All in all, the division is expecting to generate a positive pre-tax profit again in 2011.

The Trading Division anticipates rising shipment tonnage in both stockholding steel trading as well as in international trading, with the corresponding increase in sales. Beyond this, a swift acceleration in selling prices at the start of the year should secure higher gross earnings, above all in the stockholding steel trading business.

Irrespective of expectations for a greater shipment volume and better selling prices in a number of individual product segments, the Tubes Division anticipates a decline in its result. Lower average selling prices in the large-diameter pipes business may not be fully compensated by the momentum gained by the division's other activities.

The Services Division is also set to benefit again from the generally good capacity utilization of the steel companies in 2011. Consequently, sales and pre-tax profit will be around the level achieved in 2010.

In connection with brisker project business, accompanied by an aspired recovery in margins, the rising volume of the replacement parts and service business, and the increasing effect of measures implemented to improve processes and enhance efficiency, the earnings situation of the Technology Division should continue to recover in comparison with the year ended. A return to breakeven appears possible in the financial year 2011.

The accuracy of the Salzgitter Group’s planning is restricted by the extreme volatility of the cost of raw materials and shorter contractual durations, both on the procurement and on the sales side. Moreover, the risks remain considerable, as before: alongside the foreseeable increase in the cost of raw materials, the sustainability of the uptrend in the steel and mechanical engineering markets is still subject to uncertainties. Based on the developments forecast by the individual divisions for our Group, we anticipate an increase in consolidated sales of between 15 % and 20 % and a pre-tax profit which is more than double in 2011 - both figures in comparison with 2010.

As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input materials and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2011. 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 Steel, Trading and Tubes divisions, an average € 25 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million.

Disclaimer:
Some of the statements made in this report possess the character of forecasts or may be interpreted as such. They are made to the best of knowledge and belief, and by their nature are subject to the proviso that no unforeseeable deterioration occurs in the economy or in the specific market conditions pertaining to the companies of the various divisions, but rather that the underlying bases of plans and outlooks prove to be accurate as expected in terms of their scope and timing. The company undertakes no obligation to update any forward-looking statements.

Related files  

• Salzgitter Group in Figures (pdf)