Raising of the profit forecast following on the exceptional results in the first half of 2008
14.08.2008 | Salzgitter AG
Raising of the profit forecast following on the exceptional results in the first half of 2008
Against the backdrop of the huge cost increases for raw materials and energy as well as slowing global economic growth, the Salzgitter Group achieved excellent results in the first half of the financial year 2008 owing to the persistently high, stable demand for rolled steel and tube products.
Consolidated external sales soared € 1.51 billion to € 6.23 billion (+32 %; first half of 2007: € 4.72 billion). Along with the very positive selling price trend and the volumes of steel and tubes, the Klöckner-Werke AG companies belonging to the Technology Division and other companies which were not part of the group of consolidated companies in the year-earlier period contributed to the sales growth with € 687.7 million.
Consolidated pre-tax profit of € 646.4 million fell only marginally short of the previous year’s record result (first half of 2007: € 663.6 million). While the producing steel and tubes companies came under pressure from surging costs, steel trading benefited from the rising spot market prices in particular which reflected a steady, pleasing demand for steel. In addition to the higher costs of raw materials and energy, a total of € 59.2 million in additional material costs was taken account of in the Interim Financial Statements for price hikes effective as from the start of the year that will only exert their full influence on the expenses structure of the producing companies in the second half of the year.
The Group’s after-tax profit of € 436.9 million substantially exceeded the previous year’s figure as a result of the reduction in domestic corporate tax rate (first half of 2007: € 398.7 million). Earnings per share came to € 7.64. Return on capital employed (ROCE) from industrial business reached a remarkable 36.8 % in the first six months of 2008; including income from the investment of funds of more than € 2 billion, ROCE amounted to 25.9 % (ROCE in the first half of 2007: 31.4 %).
The still excellent order situation in the Steel Division ensured very good capacity utilization of production facilities and shipments that were 4 % higher. Against the backdrop of rising selling prices, the division’s sales, which also includes deliveries to Group companies, climbed 11 % to € 2.28 billion (first half of 2007: € 2.05 billion) and external sales rose 10 % to € 1.61 billion (first half of 2007: € 1.46 billion). Despite the exorbitantly higher cost of raw materials, energy sources and scrap, which were mostly not compensated by the improvements achieved in selling prices, the Steel Division closed the first half-year with a very satisfying pre-tax profit of € 345.1 million (first half of 2007: € 377.2 million). The strongest returns were achieved with beams and plate. By contrast, the flat steel product segment slowed somewhat.
In the reporting period and despite differences in the various regions, the Trading Division benefited from the selling price uptrend, with shipments remaining virtually constant overall. The sharp increase in the volume of the European companies compensated for the adverse trend in the North American market where selling prices nonetheless also rose. Boosted by the steep increase in spot market prices, the Trading Division’s external sales climbed 30 % to € 2.66 billion (first half of 2007: € 2.05 billion), and the pre-tax profit rose 16 % to a most pleasing € 140.7 million (first half of 2007: € 121.4 million). This was a new record high for a half-year.
The Tubes Division’s external sales grew 22 % to € 1.08 billion (first half of 2007: € 0.88 billion) owing to the extremely high order level and the inclusion of the precision tubes companies which joined the division in July 2007. The mainstays of the expansion were the large-diameter and stainless steel tube activities in contrast to the fiercely competitive line pipe business, which went into a temporary decline. Despite the considerable increases in the price of input materials, which also burdened the tubes business, the division delivered an excellent result in the form of a pre-tax profit of € 152.1 million (first half of 2007: € 138.9 million).
The segment sales of the Services Division advanced by 14 % to € 678.1 million (first half of 2007: € 595.0 million), which was mainly attributable to sales growth of the scrap trading company DEUMU. External sales rose 8 % to € 284.9 million (first half of 2007: € 262.8 million), and the pre-tax result came to € 16.8 million (first half of 2007: € 14.3 million).
The Technology Division that mainly comprises the Klöckner-Werke Group, a majority holding not consolidated in the previous year's period, and SIG-Beverages acquired in April 2008, generated external sales of € 523.4 million in the first six months, with the filling and packaging segment making the greatest contribution. Pre-tax profit stood at € 12.2 million, burdened in the amount of € 2.8 million from the effect of the purchase price allocation.
External sales of the Consolidated and Others segment, which are based on the semi-finished product business with subsidiaries and customers outside the Group, grew to € 80.7 million (first half of 2007: € 65.6 million), driven by higher volumes and selling prices during the reporting period. The pre-tax result was impacted by reporting date-related changes in the value of derivatives and the elimination of interim profit from sales generated internally and posted €-20.5 million in the period under review (first half of 2007: € 11.8 million).
Assessment of the development of the divisions over the remaining course of the year on the basis of current information and the profit forecast:
The good order level and still above-average order intake will ensure full capacity utilization of the Steel Division’s mills in the coming months. Price increases already successfully implemented for the third quarter in all product categories will have a positive effect on the sales trend. The price hikes in raw materials and sources of energy seen in the year as a whole are unlikely to be fully compensated for, also retrospectively, as the selling prices generally agreed in 2007 for the annual contract business will fail to cover the surging costs. All in all, the Steel Division assumes that profit in 2008 will be outstanding, albeit somewhat lower than in 2007.
The excellent business situation of the Trading Division, as yet not influenced by the cooling global economy, is set to persist for the time being. The German and European stockholding steel traders are likely to continue to benefit from robust demand and the high spot market prices for rolled steel products. International Trading is expected to remain at a stable level, despite the slowing economy in North America. The favorable spot market price trend to date will, however, lose momentum due to the discernible easing on the raw materials markets. In view of this most positive environment, the Trading Division anticipates a profit in 2008 which may well exceed the year-earlier figure.
The Tubes Division forecasts dynamic developments in the relevant markets in the second half of 2008 as well. Well-filled order books guarantee high utilization capacity in all mills. The compensation of cost increases, however, will necessitate considerable effort in relation to the extensive order volume, with the result that a repeat of the previous year’s result will be an ambitious goal.
Without taking account of special effects, the sales and pre-tax profit of the Services Division in 2008 are expected to marginally exceed the previous year’s level.
The gratifying development in the Technology Division is likely to persist. It is, however, unlikely that the extremely high previous year’s sales will be achieved again, notwithstanding effects from changes in the group of consolidated companies, given the slowdown in the global machine building activities. The consolidated pre-tax profit of the companies included within the Salzgitter Group and the corresponding figure of all companies is expected to rise as against 2007, the latter figure boosted by the impact of profit improvement measures.
The environment in which the Salzgitter Group currently operates can be described as very satisfactory overall. For this reason, business as a whole should generally hold the level achieved in the second half of the year as well. The high cost of raw materials and energy, however, and the ongoing turbulence in the international financial markets constitute a considerable risk potential for the future economic development. In the financial year 2008, we shall strive to attain notable growth within the Group, 50 % of which will be due to the first-time full-year inclusion of the companies of the Klöckner Group in our new Technology Division. Given our pleasing performance in the first half-year, we consider it justifiable to raise our pre-tax profit forecast for the Group to over one billion euros.
Express reference is made to the fact that opportunities and risks arising from currently unforeseeable trends in sales prices, input materials and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the remaining financial year 2008. The resulting fluctuation in the consolidated pre-tax result may, as experience has shown, be within a considerable range, either to the positive or to the negative.
Disclaimer:
Some of the statements made in this document 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. The company undertakes no obligation to update any forward-looking statements. This document is a translation of the original German-language press release. In case of ambiguity between this document and the German-language press release, the information provided in the latter shall prevail.