Salzgitter Group delivers first positive annual result since 2011

  • 'Salzgitter AG 2015' program achieves decisive impact on earnings
  • Sound balance sheet: equity ratio of 35 %; net financial position rises to € 415 million despite adverse market conditions and non-recurrent burdens
  • Guidance for the financial year 2016: o operating pre-tax result around breakeven and o marginally positive return on capital employed (ROCE)

Against the backdrop of a persistently challenging environment in the European steel market that deteriorated continuously over the course of the year due to the massive rise in Chinese imports at dumping prices, the Salzgitter Group generated a positive pre-tax result for the first time since 2011. Despite an amount of € -73.8 million on balance in burdens on earnings from non-recurrent effects, the company therefore raised its result by almost € 30 million compared with the year-earlier period and closed - as forecasted - with a pre-tax profit in the lower double-digit million euro range. Above all, the groupwide 'Salzgitter AG 2015' restructuring program, of which more than two thirds had been implemented by the end of 2015, contributed to improving the result. The already very sound balance sheet and financial structure was strengthened further by the growth in the equity ratio to 35% and the higher net financial position that rose to € 415 million.

The Salzgitter Group's external sales (€ 8,618.4 million; 2014: € 9,040.2 million) declined due to the downturn in average selling prices for steel products. Earnings before taxes climbed to € 12.6 million (2014: € -15.2 million). This figure includes a profit contribution of € 21.8 million from the Aurubis investment (2014: € 31.2 million), as well as € -73.8 million on balance in bur-dens on earnings from the relining of a blast furnace in the Salzgitter steelworks and non-recurrent accounting-related effects. Earnings after tax stood at € -45.5 million (2014: € -31.9 million). This figure includes € 26.5 million in tax expenses due to potential burdens arising from a ruling by the German Federal Fiscal Court (BFH) on securities lending from January of 2016. Earnings per share therefore stood at € -0.89 (2014: € -0.64) and return on capital employed came in at 2.1 % (ROCE 2014: 1.8 %).

Chief Executive Officer Prof. Dr.-Ing. Heinz Jörg Fuhrmann commented as follows: 'The first positive pre-tax result delivered since 2011, generated in an extremely adverse market envi-ronment, marks a milestone. The Salzgitter Group has provided impressive proof of the effec-tiveness of its self-help measures launched in and ongoing since 2012. In the new financial year, the challenges remain tremendous given the steel imports flooding into the European Union and the still potential tightening of framework conditions under energy and environmental policies. We will therefore unceasingly press ahead with our endeavors to further optimize the Salzgitter Group. The urgently necessary EU trade defense measures already implemented and partly decided a short while ago, the first signs of recovery in the large-diameter tubes business, as well as the recent halt called to the declining prices of many steel products gives us the basis for looking to the future with cautious optimism.' Development of the business units The market environment of the Strip Steel Business Unit saw a massive increase in imports from China, accompanied by slipping raw material prices, which exerted huge pressure on selling prices and margins. In conjunction with a marginal decline in shipments, this situation resulted in external sales dropping to € 1,922.5 million (2014: € 2,060.1 million). The business unit's pre-tax result (€ -26.0 million; 2014: € -8.8 million) declined compared with the previous year's figure owing to the non-recurrent burden on earnings from relining the blast furnace at Salzgitter Flachstahl GmbH (€ -41.9 million). Excluding this effect, the business unit would have delivered a pre-tax profit. In the period under review, the Plate / Section Steel Business Unit also operated in a markets exposed to very fierce competition, with the plate segment in particular coming under pressure from imports. The business unit's shipment volume remained stable as opposed to lower exter-nal sales due to the downturn in selling prices (€ 908.8 million; 2014: € 1,118.8 million). The segment considerably improved its performance compared with 2014, but nevertheless deliv-ered another clearly negative pre-tax result (€ -68.0 million; 2014: € -130.0 million). This out-come primarily reflects the loss of € -56.9 million sustained by HSP Hoesch Spundwand und Profil GmbH that includes special burdens of € -29.4 million from winding down the business in December 2015. Moreover, the business unit's result comprises € -7.0 million in costs assigned to Ilsenburger Grobblech GmbH from relining the blast furnace. The situation on Europe's pipe and tube ¬¬market remained challenging in 2015. As a result, the Energy Business Unit's external sales decreased to € 1,062.6 million (2014: € 1,226.5 million). The segment nonetheless generated a positive pre-tax result, having still disclosed a clear loss in the previous year (€ 2.2 million; 2014: € -40.6 million). Thanks to the healthy business of the US companies, and despite provisions of € 10.0 million earmarked for restructuring measures at EUROPIPE France S.A., the EUROPIPE Group delivered a profit. Shipments of the Trading Business Unit grew first and foremost on the back of the robust de-velopment of international trading compared with the previous year. External sales reported a price-induced decline compared with the year-earlier figure (€ 3,210.7 million; 2014: € 3,254.8 million). The segment delivered a relatively pleasing profit before taxes of € 32.2 million (2014: € 60.1 million), boosted mainly by the good pre-tax result of international trading as well as an overall amount of € 27.0 million in dividend income from non-consolidated subsidiaries and non-recurrent accounting-related effects. The Technology Business Unit's external sales grew significantly year on year (€ 1,309.4 million; 2014: € 1,198.2 million), primarily due to the performance of the KHS Group. The KDE Group reported considerable growth on the back of the recovery of the automotive sectors' investment activity, as opposed to KDS that was unable to repeat the record level achieved in 2014. In an persistently competitive environment, the segment generated a pre-tax profit of € 24.6 million, thereby delivering a presentable result around the level of the previous year (2014: € 25.2 mil-lion). The external sales of Industrial Participations / Consolidation climbed to € 204.5 million in the financial year 2015 (2014: € 181.9 million). Earnings before taxes stood at € 47.5 million, which is lower than in the year-earlier period (2014: € 78.9 million). This figure includes the contribution of the Aurubis investment amounting to € 21.8 million (2014: € 31.2 million). Lower interest income from cash management within the Group, as well as provisions of € 12.5 million to cover the interest rate risk arising from the potential non-recognition for tax purposes of securities lending carried out in former years incurred a countereffect. The annual financial statements for the financial year 2015 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on Friday, March 18, 2016. 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 re-newed recessionary developments. Instead, we anticipate a relatively moderate economic re-covery for our persistently contested main markets in the current financial year. Against this backdrop, the business segments anticipate that business will develop as follows in the financial year 2016: The activities of the companies of the Steel Business Unit are subject to extremely challenging framework conditions in the current financial year. Customer demand for passing on favorable raw materials procurement prices, on the one hand, and the steep uptrend in the volume of cheap imports from China into the European steel market since the second half-year of 2015, on the other, have exerted considerable pressure on prices. Salzgitter Flachstahl GmbH (SZFG), by far the business unit's largest company, expects selling prices to stabilize as from the second half of 2016, depending on when anti-dumping measures by the European Union (EU) enter into force. EU anti-dumping measures for cold-rolled strip have meanwhile already been decided, while a ruling on the respective measures against hot-rolled strip and plate imports at dumping prices is expected in the second half of the year. Assuming that demand remains satisfactory and with support from further cost savings, we anticipate virtually stable sales and a slight deterioration in the pre-tax result in comparison with 2015. The fact that the previous year's sales and result were burdened by relining one of the large blast furnaces in Salzgitter must be taken into account.

The Plate / Section Steel Business Unit is also exposed to a difficult market environment in the current financial year. The plate mills in particular are confronted with partly ruinous price de-clines due to the flood of imports. Anti-dumping measures applied for in connection with this product segment are only likely to ease the situation to a certain extent in the second half of the year at the earliest. In addition, the capacity utilization of Salzgitter Mannesmann Grobblech GmbH depends to a large degree on realizing further large-diameter pipes projects. Extensive measures to reduce costs and raise efficiency are necessary for both mills. In connection with scrap prices returning to normal levels, Peiner Träger GmbH expects another somewhat lower, but nevertheless positive pre-tax result. Along with non-recurrent losses from HSP Hoesch Spundwand GmbH, whose operations were discontinued at year-end 2015, this is, however, unlikely to be sufficient to compensate for the plate mills' deficit. We nonetheless anticipate a significant reduction in the business unit's pre-tax loss. Owing above all to selling prices, cou-pled with the discontinuation of the sheet piling business, notably lower sales are anticipated.

The companies of the Energy Business Unit will continue to operate in markets with varying potential in 2016. The awarding of major projects in Europe's large-diameter pipes market also depends on geopolitical considerations. Moreover, the currently low levels of oil and gas prices are hampering customers' investment propensity worldwide. The first orders already securing capacity utilization were nevertheless acquired in 2016. In the medium line pipes segment, de-mand is likely to remain reticent owing to the low energy prices; preparations for capacity ad-justments and cost reductions are currently under way and are to be implemented over the course of the year. The precision tubes companies expect stable demand from automotive manufacturers in contrast to the markets of the energy and industry product segments that will remain exposed to tough competition. In the seamless stainless steel tubes segment, we antic-ipate that all product segments will stage a recovery in the second half of the year. Weaker sell-ing prices will result in a marginal sales downturn overall; the pre-tax result is expected to re-main at the year-earlier level.

In 2016, the Trading Business Unit forecasts a stabilization of the price level and a recovery in demand. International trading is likely to increase shipments on the back of a revival in project awards. In the stockholding steel trade, raising the processing capacities and expanding the customer base in the context of stepping up the digitalization of sales is likely to generate growth momentum. Special items that boosted the result in 2015 will not repeat in 2016, which is likely to be reflected in a notably lower pre-tax result. Adjusted for these effects, the segment anticipates a slight upturn in sales overall and an appreciable improvement in the underlying result. Additional support will be provided here by the foreseeable success of restructuring at Salzgitter Mannesmann Stahlhandel GmbH and the strategic realignment of Universal Eisen und Stahl GmbH toward high-margin individual transactions.

Based on a high order backlog, the Technology Business Unit expects stable sales and profit trends. In an environment of persistently price-led competition for project business, growth in profitable product segments is to be generated, as well as by a further expansion of the service business. Accordingly, the KHS Group expects a result around the year-earlier level at minimum. Above all further efficiency enhancing measures under the 'Fit4Future 2.0' program are set to develop their full impact. The outlook for Klöckner DESMA Schuhmaschinen GmbH (KDS) and the KDE Group is similarly promising.

In Industrial Participations / Consolidation that is mainly determined by the costs of the management holding company, reporting-date related valuation effects from foreign exchange and derivatives positions, the results of the services companies assigned to it, and other associated companies, including Aurubis AG, a positive pre-tax result is expected, albeit around one third below the comparatively high year-earlier level.

Against the backdrop of the currently conditions, particularly in the rolled steel and pipe market, and taking account of further positive effects from the 'Salzgitter AG 2015' program, flanked by additional programs of measures for the individual companies, we assume the following for the Salzgitter Group in the year 2016:

  • sales virtually stable at around € 8.6 billion,
  • an operating pre-tax result around breakeven - depending on when anti-dumping measures take effect and net of non-recurrent expenses for specific measures aimed at structural improvements within the Group - as well as
  • a marginally positive return on capital employed (ROCE).

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, may considerably affect performance in the course of the financial year 2016. 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 €10 change in the margin per ton is sufficient to cause a variation in the annual result of more than € 120 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.

Salzgitter AG issued this content on 26 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 26 February 2016 06:53:19 UTC

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