Salzgitter Group posts a positive result in the first nine months of 2015

  • Substantial increase in pre-tax profit year-on-year
  • All business units record an upturn in operating business
  • 'Salzgitter AG 2015' restructuring program as the driving force behind the im-proved earnings

The Salzgitter Group has markedly increased its pre-tax profit year-on-year in the first nine months of the financial year. Against a European steel market impacted by sharp rises in imports and falling selling prices, this improvement was mainly driven by the earnings effects of the groupwide 'Salzgitter AG 2015' restructuring program. The result contains a total of € 77.1 million in burdens stemming from the relining of a blast furnace at the Salzgitter steelworks, which began at the end of August and is proceeding to plan, as well as provisions for pending structural measures. The financial basis of the Group remains very solid, with a 35 % equity ratio as well as an increased net financial position of € 267 million compared to the first half of 2015.

Mainly owing to weaker average selling prices, the Salzgitter Group's external sales came in at € 6,691.7 million, which is just short of the previous year's figure (first 9 months of 2014: € 6,811.5 million). Pre-tax profit rose considerably to € 24.0 million (first 9 months of 2014: € 5.5 million). This figure includes a € 12.8 million negative impact from the Aurubis investment (first 9 months of 2014: € +42.4 million), balance sheet provisions for structural improvement measures worth € 33.1 million, as well as € 44.0 million expenses for the blast furnace relining. The after-tax result stood at € 12.1 million (first 9 months of 2014: € -12.2 million), which brings basic earnings per share to € 0.16 (first 9 months of 2014: € -0.28). The return on capital employed (ROCE) was recorded at 2.0 % (first 9 months of 2014: 1.5 %).

Development of the business units

In the first nine months of 2015 the shipment volume at the Strip Steel Business Unit was almost on a par with comparable year-on-year figures. Over the course of the year, a dramatic increase in imports, particularly from China, and correspondingly intense competition put pressure on the selling prices of most products. The external sales of the segment therefore decreased to € 1,505.6 million (first 9 months of 2014: € 1,607.9 million). Despite the € 44.0 million burden contained within the result from the relining of the blast furnace, the pre-tax result (€ -9.5 million) was only moderately lower than the figure posted in the previous year period (first 9 months of 2014: € -3.9 million). Lower raw materials costs and the first cost reduction effects from the pulverized coal injection plant at the blast furnaces in Salzgitter launched in April provided a counterbalance.

The market environment of the Plate/Section Steel Business Unit lost momentum during the course of the reporting period. While the previous stability on the section market only started to be eroded as from the summer, the plate business was impacted by moderate demand as well as substantial growth in import volumes throughout the period under review. On the back of lower average selling prices, external sales of € 719.0 million did not reach the level of the previous year (first 9 months of 2014: € 845.1 million) despite growth in shipment volumes. Thanks to sustainably effective restructuring and optimization measures, PTG achieved a pleasing pre-tax profit, while the plate producers significantly reduced their pre-tax loss compared to the previous year. The business unit posted a clearly negative result before taxes overall (€ -32.8 million; first 9 months of 2014: € -60.1 million). This primarily reflected the substantial loss of € 41.4 million recorded at HSP Hoesch Spundwand und Profil GmbH, which contained a € 23.1 million provision in connection with the resolved shut down the sheet piling product segment.

In the Energy Business Unit, production for the pipeline project in the Black Sea (former South Stream) which recommenced in June as well as the outstanding capacity utilization of the North American sites were only able to partially offset the still challenging market situation in the European pipe market. Shipment volume and external sales (€ 811.7 million; first 9 months of 2014: € 939.3 million) fell compared to the previous year figures, both discluding the EP Group that is accounted at equity. The Energy Business Unit generated a pleasing profit contribution of € 8.8 million (first 9 months of 2014: € -20.5 million). As part of this, the EP Group was able to markedly reduce its pre-tax loss thanks to the sound business at US companies despite the formation of provisions worth € 10.0 million for restructuring measures at EUROPIPE France S.A.

Demand on the international steel markets remained reticent in the first nine months of 2015 in almost all regions and product segments. The markets were characterized by a lack of project business as well as price pressure due to excess supply. Irrespective of this, shipments increased at the Trading Business Unit. External sales therefore rose to € 2,530.1 million (first 9 months of 2014: € 2,404.8 million). Owing largely to the pleasing result from international trading, the business line posted a pre-tax profit of € 21.0 million, exceeding the figure from the first nine months of 2014 in the process (€ 16.1 million). This result contains almost € 10 million overall in pre-tax profit stemming from the disbursement of multi-year earnings retained from companies formerly not consolidated as well as the companies newly included in the consolidated group.

The order intake recorded by the Technology Business Unit was slightly above the level of the previous year. External sales rose markedly to € 978.1 million (first 9 months of 2014: € 877.2 million), while the presentable € 16.1 million pre-tax profit exceeded the result recorded in the first nine months of 2014 (€ 13.2 million). The KHS Group improved its profit thanks to an improved sales mix. The KDE Group more than doubled its earnings, while the pre-tax profit of KDS came in lower year-on-year.

At € 147.1 million, external sales of Industrial Participations / Consolidation grew compared to the previous year period (first 9 months of 2014: € 137.2 million). Pre-tax profit of € 20.5 million was noticeably down on the figure from the previous year (first 9 months of 2014: € 60.8 million). This amount includes expenses of € -12.8 million from the Aurubis investment (previous year: € +42.4 million). In addition, Group companies not directly allocated to a business unit made a positive contribution to the result overall, exceeding the previous year's figure. Positive effects from foreign exchange transactions further bolstered the result.

Outlook

Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current political and financial environment. The forward-looking statements below on the individual business units assume the absence of renewed recessionary developments.

The Strip Steel Business Unit expects a clearly negative result for the fourth quarter and therefore for the financial year 2015 overall. This is primarily due to the blast furnace relining which commenced in the last week of August at Salzgitter Flachstahl GmbH, and which will lead to roughly € 80 million in one-off costs in the second half of the year. Savings on the cost front, thanks to the commencement of regular operations at the new pulverized coal injection plant among other things, are not expected to offset this completely. Overall, it is assumed that sales will be recorded lower than in the financial year 2014. Without the negative direct and indirect costs of the blast furnace relining, a return to the black would likely have been achieved.

The Plate/Section Steel Business Unit operates in an extremely challenging market environment. The plate mills are forecasting improved earnings, despite the tough pricing competition. Following the turnaround, the primary aim of Peiner Träger GmbH will be to stabilize its business, also under difficult market conditions. The pre-tax result of the business unit is set to tangibly improve over the previous year, even despite the one-off expenses for HSP. However, sales will decline somewhat.

The Energy Business Unit suffered over long periods of 2015 from the consistent weakness of the European large-diameter pipes market. The capacity utilization situation at EUROPIPE in Mülheim has picked up since the summer due to the recommencement of production for the pipeline project in the Black Sea and the recently received order for the Trans Adriatic Pipeline (TAP). The situation in North America remained positive. The existing order backlog ensures capacity utilization far into 2016. The precision tubes companies are expecting stable demand from automotive manufacturers. In the field of seamless stainless steel tubes, results are expected to fall short of the level recorded in the decidedly successful financial year 2014 as a result of the low oil prices. The Energy Business Unit is anticipating sales to fall short of the previous year's level in 2015. Irrespective of the partial shortfall in the capacity utilization of European line pipe production sites, the pre-tax result is expected to improve on 2014 due to the rigorous implementation of the measures introduced under the 'Salzgitter AG 2015' program and the non-recurrence of one-off charges.

In the Trading Business Unit, the stockholding companies continue to be impacted by the currently difficult market conditions. However, overall, positive contributions are anticipated from this area. International trading expects a satisfactory, if reduced operating result compared to the previous quarters for the rest of the year. All in all, we anticipate a lower level of sales for the Trading Business Unit, as well as notably lower year-on-year pre-tax profit due to positive one-off effects in 2014 that were not repeated this year.

In the Technology Business Unit, KHS assumes the continuation of the pleasing development of its service business. The outlook for KDS and the KDE Group is also promising. However, KDS will be unable to sustain the record levels of the previous year. In combination with slowed momentum in project business at KHS, the Technology business unit will find it challenging to maintain the sales and earnings level of the previous year.

The Salzgitter Group is returning to its original earnings forecast issued at the start of the year, primarily as a result of the fall in metal prices and the subsequent influence on the anticipated earnings contribution of the Aurubis investment. We now anticipate:

  • stable sales,
  • a pre-tax profit in the lower double-digit million euro range and
  • a return on capital employed (ROCE) that is higher than the previous year's figure.

Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current European environment. As in recent years, please note 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 and metal prices, may still affect performance in the course of the financial year 2015. Additional positive or negative effects can be brought about by structural and methodological changes; this particularly includes valuation approaches in line with IFRS standards. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.

Disclaimer: Some of the statements made in this release have the character of forecasts or may be interpreted as such. These are made to the best of the Company's knowledge and judgement, 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 with regards to their scope and timing. Notwithstanding prevailing statutory provisions and capital market law in particular, the Company accepts no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.

More information:

Keydata 9 Months 2015

Interim Report 9 Months 2015

Presentation Analyst Conference 9 Months 2015

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