Well equipped for the future – outstanding results in all divisions
14.11.2008 | Salzgitter AG
Well equipped for the future – outstanding results in all divisions
In an environment characterized by growing uncertainty about future economic developments, the Salzgitter Group set a new pre-tax record result in the first three quarters of the financial year thanks to the high volume of orders placed for rolled steel and tubes in the reporting period. Owing to its exceptionally solid financial position and sound strategic alignment, Salzgitter AG is well equipped to meet the challenges ahead.
Consolidated external sales rose by € 2.14 billion to € 9.64 billion (+ 29 %; 9M/2007: € 7.50 billion). Along with the higher selling prices of steel products, mainly the companies of Klöckner-Werke AG, which are part of the Technology Division, together with other companies which, in the previous year’s period, did not yet belong to the group of consolidated companies, contributed € 1.02 billion to revenue growth.
The Group’s pre-tax profit of € 1.01 billion, generated in the first three quarters of 2008, was marginally higher in a year-on-year comparison (9M/2007: € 980 million). This increase was attributable, on the one hand, to better selling prices, which had a considerable impact on the tubes business and also led to a temporary widening of margins in the steel stockholding companies of the Trading Division, and on the other hand, to the profit contribution of the Technology Division which was more than € 25 million higher as against the year-earlier figure.
Profit after tax, which came in at € 689.0 million, exceeded the figure posted in the first nine months of 2007 (€ 594.9 million) by 16 %, mainly due to the lower domestic corporate tax rate. Earnings per share stood at € 12.30. Return on capital employed (ROCE) from industrial business posted 32.1 % and, taking account of cash funds of more than one billion euros, ROCE came to 28 % (9M/2007: 29.0 %).
A very comfortable order situation of the Steel Division until the end of the reporting period allowed virtually full capacity utilization of production facilities and was reflected in shipments which rose by 3 %. Against the backdrop of rising selling prices, the division’s revenues, which also include deliveries to Group companies, climbed 13% to € 3.43 billion (9M/2007: € 3.02 billion), and external sales also advanced 13 % to € 2.44 billion (9M/2007: € 2.17 billion). Only in the third quarter were we able to finally compensate the soaring prices of raw materials through a series of increases in selling prices for the short-term business, bringing the pre-tax profit in the first nine months of 2008 to € 520.3 million, which was only 9 % down on the excellent previous year’s figure (9M/2007: € 569.4 million). Plate and beams were the products which generated the highest margins.
The huge hikes in the selling prices of steel products boosted the activities of the Trading Division in the first three quarters of 2008. The sales trend of the European companies was able to offset the decline in the business volumes of North America. The sharp increase in spot market prices was not only responsible for an improvement in external sales, which climbed 31 % to € 4.27 billion (9M/2007: € 3.26 billion), but also delivered a record pre-tax profit of € 222.5 million, which corresponds to an increase of 26 % as against profit recorded in the first nine months of 2007 (€ 176.5 million).
The Tubes Division recorded external sales of € 1.60 billion in the reporting period, which is an increase of 19 % as against the year-earlier figure (9M/2007: € 1.34 billion). ). The main drivers of this development were the large-diameter and stainless steel activities; also the inclusion of the precision tubes companies, which had been bought in July 2007, into the group of consolidated companies. The medium-line pipes segment suffered a temporary decline in the wake of the fiercely competitive environment at the start of the year. Although the Tubes Division had to absorb drastic increases in the cost of input materials, good selling prices ensured another outstanding pre-tax result of € 234.1 million (9M/2007: € 210.2 million).
The segment sales of the Services Division climbed 17 % to € 1.04 billion (9M/2007: € 888 million), a development which was mainly attributable to sales growth of the scrap trading company DEUMU. Consolidated external sales improved by 10 % to € 428.5 million (9M/2007: € 390.3 million). The pre-tax result posted € 25.6 million, thus falling 46 % short of the year-earlier level (9M/2007: € 47.6 million), which, however, had also included special effects which came to € 25 million.
The Technology Division, which consists primarily of the majority holding in the Klöckner-Werke Group, only included in the group of consolidated companies in the second half of 2007, and the former SIG Beverages Group, acquired in April 2008 and meanwhile integrated into Klöckner-Werke, recorded external sales of € 787 million in the reporting period. Pre-tax profit stood at € 15.4 million, burdened by the effect of the purchase price allocation which came to € 3.8 million.
In the Others segment, external sales, which are based on business in semi-finished products with subsidiaries and external parties, rose to € 105.9 million in the first nine months of 2008 (9M/2007: € 90.8 million). 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 €-4.0 million in the reporting period (9M/2007: €-13.4 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 next few months will be especially influenced by the indirect impact of the crisis in the financial markets, which will reinforce the customary seasonal effects at year end on the order intake of the Steel Division. Along with a number of customers reducing their inventories, demand can be expected to be modest in the short-term business, a development which we will counter by curbing production. Nonetheless, the division should be able to deliver sound performance in the remaining months of 2008 as well. All in all, however, it will not be able to repeat the record result of the previous year.
The current economic development will also have a growing effect on the Trading Division in the coming months, with the main impact being a normalization of the volume and margin of the steel stockholding trade. However, the general reduction anticipated in inventories has not yet reached critical dimensions. At present, international trading is only affected to a limited extent. Consequently, the Trading Division is likely to record another positive result in the fourth quarter which will be very satisfactory in comparison with preceding years and which, in its sum total, may mean that a new record will be set in the financial year.
The impact of the financial crisis on the companies of the Tubes Division has so far been slight, owing to the high level of orders in many of these companies. The large-diameter pipes and stainless steel tubes segments are in a robust condition. The precision tubes subdivision, however, is feeling the effects of business cooling in the automotive sector. Overall, the division is likely to deliver a decidedly positive result the fourth quarter, justifying expectations of a result for the year as a whole which will be almost as good as in the previous year. Adjusted for special effects, the operating profit of the Services Division in the current financial year is likely to marginally exceed the year-earlier figure.
The Technology Division will also not be able to fully disengage from the consequences of the weakening global economy in the next few months. Irrespective of the positive effects of changes in the group of consolidated companies, the very high revenues generated in 2007 will not be repeated. In respect of profit, the optimization measures implemented are having an increasing effect. Accordingly, the pre-tax profit attributable to the Salzgitter Group is likely to be notably higher than the 2007 figure.
The hitherto excellent business environment of the Salzgitter Group has inevitably deteriorated. Order intake of the Group and the selling price situation are still generally satisfactory. However, with raw materials and energy costs running at a high level and the dramatic events in the financial markets, coupled with huge insecurity across all sectors and national borders, there is a considerable risk potential for the future development of the economy and business. The Salzgitter Group is well prepared to rise to temporarily challenging times with its broad-based business, sound financial base, and its profit improvement program which has been stringently implemented even in boom times. The successful corporate strategy is pursued on this basis; all major investments have been and will be realized.
Provided that the conditions in the environment do not change beyond what is currently known and expected up until the end of the year, Salzgitter AG will generate a consolidated pre-tax profit of almost € 1.2 billion in the financial year 2008. Even after contingent accounting measures as part of the annual accounts process, pre-tax profit will range within the previous forecast for the financial year of more than one billion euros.
Express reference is made to the fact that, given the current volatility in the financial and real economy, currently unforeseeable trends in sales prices, input materials and capacity level developments, as well as changes in the currency parity, may affect performance in the course of the fourth quarter of 2008.
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.