Difficult economic situation and accounting measures impact the result of the first quarter
In the first quarter of the financial year 2009, the Salzgitter Group stood under the pressure exerted by recessionary trends in the businesses of the Steel, Trading and Technology divisions. By contrast, the sustained, positive result of the Tubes Division, coupled with income from the Aurubis AG participation and financial investments, had a considerably stabilizing effect. Consolidated external sales fell by 24 %, which is indicative of the substantial decline in the business activities of all divisions, to the exception of the Tubes Division. Salzgitter Group closed the period with a pre-tax loss. This result includes accounting measures relating to inventory valuation in the Steel Division. The after-tax result was negative too.
In the reporting period it was the Steel Division which was hardest hit by the global recession. Capacity utilization of the Salzgitter and Peine mills came to only around 50 % of the capacity available. At the same time, the spot market prices of a large part of steel products tumbled. External sales fell accordingly. The current downtrend in the price of raw materials was only reflected to a minor extent in the current results owing to the high level of inventories purchased at prices prevailing a year ago, but nonetheless induced us to adjust inventories downwards. These measures are therefore likely to have factored in all major negative influences from inventory-related valuations in the Steel Division as far as the currently available information is concerned. Including these accounting measures, the pre-tax result was negative.
The external sales of the Trading Division also reflected the difficult business environment. Many steel processors and downstream traders focused on scaling down inventories. First and foremost weak demand from the domestic market, therefore, caused the pre-tax result to be in the red.
In the first quarter of 2009, business in the Tubes Division was consistently robust as the large-diameter tubes, HFI-welded tubes and seamless stainless steel tubes product segments generated positive contributions which more than compensated for the unsatisfactory level of capacity utilization in the precision tubes segment.
The companies of the Services Division suffered mainly from the sharp downturn in the business activities of the steel companies, which caused demand for raw materials and services to slacken.
The Technology Division, with its core businesses in filling and packaging technology and special machine engineering was severely affected by the recessionary trends in its global sales markets.
The external sales of Others/Consolidation, which are generated through business in semi-finished products with external parties, fell 73 % in the first three months. Since the start of the financial year, the 23 % participation in Aurubis AG has been consolidated at equity here and contributed to stabilizing the consolidated result in the period under review.
Forecast: As from the third quarter, the reduction in the price of raw materials will filter through to manufacturing costs to an increasing extent. Subsequently, we believe, also taking account of valuation adjustment measures already carried out on inventories, that, given a notable recovery in the rolled steel market and in demand from the automotive industry, achieving breakeven in the pre-tax result in 2009 should still be possible. This is, however, contingent upon a strong and sustained turnaround of the situation in the steel market. As in recent years, we make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input materials and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2009.
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