Steel, Tubes and Trading post record sales and excellent results in the first quarter of 2006
12.05.2006 | Salzgitter AG
Steel, Tubes and Trading post record sales and excellent results in the first quarter of 2006
1st Quarter
2006 Boosted by a market for rolled steel, which developed much more favorably than envisaged a few months ago, and the persistently robust demand for tubes, the Salzgitter Group raised the operating results of its divisions in the first three months of 2006 as against the last quarter of 2005.
Consolidated external sales of € 1.98 billion generated in the first quarter of 2006 were 12 % higher as compared with € 1.77 billion in the first quarter of 2005 and, at the same time, set a new record high for quarterly sales.
The operating pre-tax result amounted to € 198.9 million before a special effect arising from hedging transactions. The greatest contributors to profit were the Steel Division, followed by the Tubes and Trading Divisions. Including expenditure of € 148.7 million, requiring disclosure under the international accounting standards, for the partial hedging of an increase in the value of the 17.2 % participation in Vallourec S.A. (which came to more than € 1 billion on the reporting date and may not be disclosed under consolidated assets) the Group’s pre-tax profit stood at € 50.2 million in the first quarter (Q1 2005: € 253.5 million).
After-tax profit came in at € 35.7 million (Q1 2005: € 173.5 million). Return on capital employed amounted to 8.8 % and, net of the afore-mentioned special effect, stood at a remarkable 31.9 % (Q1 2005: 52.0 %).
Owing to the gratifying increase in the volume of shipments, total sales of the Steel Division climbed to € 836 million in the first three months of 2006, which is an increase of 6 % year on year (Q1 2005: € 786 million). External sales also rose by 6 % to a current € 606 million (Q1 2005: € 574 million). Sales prices were on the rise again for the first time since the more challenging second half of 2005. Earnings before tax posted € 104.4 million in the first three months of 2006, thus falling short of the record profit of the first quarter of 2005 (€ 166.4 million), but nonetheless exceeding the very satisfactory figure of the previous quarter (Q4 2005: € 100.1 million).
The unabated boom in the tubes business also helped to perceptibly lift the shipment volume of the Tubes Division, especially in large-diameter and medium line pipes. As a result, external sales of the segment climbed 27 % to € 398 million (Q1 2005: € 313 million). Owing to the further improvement in the operating result of the consolidated tubes companies, in particular of both large-diameter pipe manufacturers, as well as brisk business in the seamless tubes business of the associated company Vallourec S.A., pre-tax earnings in the first quarter of 2006 came in at € 62.2 million, which was again an excellent result (Q1 2005: € 77.2 million, including € 42.9 million from the shareholding in Vallourec & Mannesmann Tubes S.A., which was sold at the end of June 2005). On a comparative basis, the profit of the tubes business was thus considerably boosted.
In the first three months of 2006, the Trading Division benefited from the great demand for steel of the Middle East countries. Accordingly, international trading expanded the volume of shipments to this region. In Europe, the recovery in the construction industry resulted in a perceptible improvement in the shipment of sections, which was reflected in the pleasing increase in the deliveries and revenues of stockholding traders. In the first quarter of 2006, the external sales of the Trading Division grew 9 % to € 866 million (Q1 2005: € 797 million), while pre-tax earnings, which posted an outstanding € 30.1 million, even outperformed the already high figure of the year-earlier quarter (Q1 2005: € 26.3 million) by 14 %.
The Services Division also performed well: External sales of € 93 million were 14 % higher than the previous year’s figure (Q1 2005: € 81 million), primarily a result of an increase in the shipment volume and improved sales prices at the raw materials trading company DEUMU. Pre-tax earnings of the segment came to a sound € 5.7 million in the first three months of 2006 (Q1 2005: € 3.4 million).
The result of "Consolidation and others", which was burdened by € 148.7 million from expenditure in connection with hedging transactions, amounted to € -152.2 million in the reporting period (Q1 2005: € -19.8 million). As before, both the current general environment and the situation of the Group can be regarded as very satisfactory. The economic recovery in Germany and Europe is likely to have a positive impact on the individual segments in the next few quarters of 2006.
The sales price increases in the Steel Division implemented on April 1, and those announced for July 1, will to a large extent compensate for the impact of the rises in raw material and energy prices in the current year, and in some cases for the residual effect of last year’s cost surges. The sales prices of rolled steel products, however, are still currently below the level of the first half of 2005. Brisk demand in all rolled steel product segments should ensure good plant capacity utilization in the months ahead.
Capacity in the Tubes Division is also expected to continue running at a good level. The high order level has secured capacity levels in some plants even until the end of the year and, in some cases, beyond.
The Trading Division is also set to develop well in the coming months. Stimulus will come from an increase in domestic and international demand for rolled steel and tubes products and, in addition, from synergies relating to procurement and shipment which are being developed further within the Salzgitter Group.
The Services Division is likely to maintain its generally satisfactory performance seen in the first quarter.
On the basis of the information currently available and estimates concerning trends in the procurements and sales markets as well as the general framework conditions, and taking account of the effects of the profit improvement program, the Salzgitter Group’s operating pre-tax result is expected to reach at least € 600 million in the current year. This forecast is, of course, net of the special effects arising from hedging transactions which are, by nature, not foreseeable as they depend on the development of the share price of Vallourec S.A. 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 2006. The resulting fluctuation in the consolidated pre-tax result may, as experience has shown, be within a considerable range.
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.