Salzgitter AG : Key data for the financial year 2013

The structural crisis prevailing in the European steel industry presented the Salzgitter Group with special challenges in the financial year elapsed. Increasingly fierce price-led competition in the European market, combined with the drastic capacity underutilization of the large-diameter tubes business, incurred a significant impact on earnings. In addition, impairment at Peiner Träger GmbH, along with non-recurrent restructuring expenses, burdened earnings before taxes in an amount of € 240 million. Against this backdrop, the "Salzgitter AG 2015" program, initiated back in the autumn of 2012 and implemented as from the second half of 2013, will be assigned the highest priority in the future as well. The first measurable successes create additional motivation for forging ahead with the comprehensive measures. An equity ratio of almost 40 % and a net credit balance of € 300 million as of December 31, 2013, form a sound financial basis for this.

The Group's external sales declined to € 9,244.2 million (2012: € 10,397.2 million) owing to lower average selling prices for many steel products and reduced shipment volumes in the Tubes and Trading divisions. All in all, the Salzgitter Group reported a pre-tax result of € -477.8 million (2012: € -29.4 million). This figure includes restructuring expenses of € 54.6 million incurred by the "Salzgitter AG 2015" program, impairment of € 185.0 in the sections business, as well as € -55.4 million in negative after-tax contribution (2012: +€ 55.5 million) by Aurubis AG, a participation included at equity. The after-tax result stood at € -489.6 million (2012: € -99.8 million), which brings earnings per share to € -9.10 (2012: € -1.89). Return on capital employed (ROCE) stood at -10.5 % (2012: 1.3 %).

The individual divisions developed as follows:

Taking the persistently weak market into account, the production capacity of the Steel Division's Peiner Träger GmbH was scaled back to an annual one million tons of crude and rolled steel respectively. Despite satisfactory capacity utilization, the strip steel and plate product segments were also impacted by fierce competitive pressure. Against this backdrop, the Steel Division's external sales, which stood at € 2,388.2 million (2012: € 2,654.7 million), entered a marked price-induced downtrend. The notable pre-tax loss (€ -428.2 million; 2012: € -176.3 million) is due to unsatisfactory margins at the operating level; moreover, it includes extraordinary charges from impairment in the sections business and from the repair work lasting two months on a blast furnace at Salzgitter Flachstahl GmbH. As the main emphasize of the restructuring program is focused on the Steel Division, non-recurrent expenses burdened the result of this division in particular.

Overall, the Trading Division's business developed satisfactorily in 2013. Owing to the initial consolidation of Stahl-Metall-Service Gesellschaft für Bandverarbeitung mbH (SMS), shipment volumes almost matched the figures posted in 2012, thereby virtually compensating for declines in the stockholding steel trade and trading. Under these circumstances, the division's external sales fell short of the year-earlier figures (€ 3,878.6 million; 2012: € 4,646.8 million). Nonetheless, thanks to comparatively robust international trading in this market environment, the division delivered a presentable pre-tax profit of € 25.7 million (2012: € 77.1 million).

The business of the Tubes Division was primarily determined by the extremely weak order and capacity utilization situation of the large-diameter pipes segment. HFI-welded pipes and precision tubes also recorded a decline, albeit to a lesser extent. Conversely, seamless stainless steel tubes repeated the outstanding performance of the previous year. External sales (€ 1,423.4 million) therefore dropped below the year-earlier figure (2012: € 1,559.5 million). Given the unsatisfactory performance of the large-diameter tubes segment, as well as selling prices and margins that remained largely under pressure, the Tubes Division reported a pre-tax loss of € -94.8 million (2012: pre-tax profit of € 7.8 million).

The Services Division's external sales (€ 399.2 million) settled only marginally below the 2012 level (€ 412.4 million). Earnings before taxes of € 5.2 million dropped notably below the year-earlier figure (2012: € 15.9 million) owing to the unsatisfactory result of DEUMU Deutsche Erz- und Metall-Union GmbH (DMU) and Verkehrsbetriebe Peine-Salzgitter GmbH (VPS).

Thanks to the acquisition of a number of major projects by the KHS Group in the filling technology business, new orders of the Technology Division reported a significant increase in 2013 in comparison with the previous year. External sales (€ 1,123.6 million) also rose in comparison with the previous year (2012: € 1,093.6 million). The Division delivered a gratifying pre-tax profit of € 13.9 million in 2013, thereby exceeding the year-earlier figure (2012: € 9.5 million) and strengthening the turnaround achieved in 2012. This performance was largely attributable to the steady, high capacity utilization in its production facilities and the ongoing implementation of the KHS Group's "Fit4Future" program.

External sales of Other/Consolidation generated mainly through business in semi-finished products with external parties remained virtually unchanged at € 31.4 million (2012: € 30.2 million). Earnings before taxes stood at € 0.4 million, which is substantially lower compared with a year ago (2012: € 36.7 million). The result includes € -55.4 million in after-tax loss (2012: after-tax profit of € 55.5 million) from Aurubis AG (NAAG), a participation included at equity.

The annual financial statements for the financial year 2013 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on March 28, 2014.

The following guidance was compiled on the basis of the new Group organization structure that took effect on January 1, 2014. For the purpose of facilitating comparison with the previous year, the figures for the financial year 2013 resulting from preliminary consolidation and included in the annex reflect the new Group structure. Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current environment prevailing in Europe. In addition, the impact on earnings resulting from European and German energy and climate policies is difficult to predict. The forward-looking statements below on the individual business units assume the absence of renewed recessionary development in Europe. Instead, we anticipate a relatively restrained economic recovery in volumes and selling prices in the current financial year, with markets remaining fiercely contested.

Given the pressure on selling prices arising from the ongoing underutilization of capacities in the EU, the Strip Steel Business Unit expects business to remain difficult in 2014. In comparison with the financial year 2013, sales are anticipated around the same level, with somewhat of an improvement in a nonetheless negative pre-tax result.

The Plate / Section Steel Business Unit assumes that sales will rise slightly compared with 2013, while predicting a significant reduction in the pre-tax loss at the same time. This is mainly attributable to the 1 Million Ton concept that has been largely implemented and the non-recurrent charge arising in connection with impairment at Peiner Träger GmbH (PTG) in 2013.

The Energy Business Unit does not anticipate a strong market recovery in 2014 either. EUROPIPE GmbH will again be operating well below capacity in the first quarter and run short-time work. The booking of significant volumes for the major South Stream contract will improve the situation as from the second quarter. The other tubes companies anticipate a generally more positive development of business. Against this backdrop, we anticipate a marginal uptrend in sales and a notably higher pre-tax result in comparison with the previous year.

The Trading Division has budgeted for a slight increase in sales and a pre-tax result around the year-earlier level in 2014. The stockholding steel trade has calculated for growth in sales and the result based on a potential trend reversal in the western and southern European countries and rising prices in Europe. International trading expects a satisfactory result.

Judging by the trend of new orders and the high level of orders on hand, the Technology Business Unit anticipates an increase in sales and a noticeably higher result. The KHS Group is likely to achieve sales growth, as well as being able to command better margins. With the aid of the "Fit4Future" program, launched back in 2011 and consistently implemented, additional cost reductions are expected in the current year, thereby generally lifting the pre-tax result. The prospects for the other companies are also positive.

In Other/Consolidation, that is mainly influenced by the costs of the management holding company, reporting-date related valuation effects from foreign exchange and derivatives positions, the services companies assigned to it, and other associated companies, including Aurubis AG (NAAG), the pre-tax result is expected to settle at the previous year's level.

Based on planning by the individual business units, and taking account of notable successes from measures, as well as structural improvements from the "Salzgitter AG 2015" groupwide project, we assume the following in the year 2014:

As in recent years, we make reference to the fact 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, may considerably affect performance in the course of the financial year 2014. 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 Strip Steel, Plate / Section Steel, Energy and Trading business units, an average € 25 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million. Moreover, the accuracy of the company's planning is restricted by the volatile cost of raw materials and shorter contractual durations, on the procurement as well as on the sales side.

Disclaimer: Some of the statements made in this report 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. Notwithstanding prevailing statutory provisions and capital market law in particular, the company undertakes no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.