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Profitability of the Group

Despite the disastrous conditions on the European steel market caused by imports at the start of the year, the Salzgitter Group closed the financial year 2016 with a significant year-on-year increase in earnings before taxes. The company has therefore affirmed its uptrend. The significant impact of internal programs of measures as well as the positive effect of the European Union’s urgently required trade defense measures as from February 2016 onward were major factors contributing to this development. In the second half of the year, the Strip Steel and Trading business units in particular benefited from steel prices firming up. Return on capital employed came in at 2.7 % (ROCE, 2015: 1.9 %). With a net financial position of € 302 million and an equity ratio of 34 %, the company continues to have a sound balance sheet and a comfortable financial basis.

The Group’s external sales declined to € 7,905.7 million (–8 %) due to the downturn in the average selling prices for steel products. The table below shows a breakdown by business unit:

Consolidated sales by business unit

2016 2015
In € m % In € m % Change
Strip Steel 1,815 23 1,922 22 -6 %
Plate / Section Steel 742 9 909 11 -18 %
Mannesmann 999 13 1,063 12 -6 %
Trading 2,855 36 3,211 37 -11 %
Technology 1,300 16 1,309 15 -1 %
Industrial Participations / Consolidation 195 2 204 2 -5 %
Group 7,906 100 8,618 100 -8 %
Discontinued operations 13 117 -89 %
Continuing operations 7,893 8,501 -7 %

The regional distribution of sales revenues remained virtually unchanged: As before, the business activities of the Salzgitter Group were therefore focused on the EU (€ 5.3 billion; 67 % share of sales). Germany remained by far the largest single market with sales of € 3.5 billion, equivalent to a share of 45 %. It should be noted in this context, however, that many of our products are supplied to export-oriented German businesses and therefore ultimately find their way abroad.

Consolidated sales by region

2016 2015
In € m % In € m %
Germany 3,536 45 3,851 45
Other EU countries 1,800 23 1,799 21
Rest of Europe 314 4 281 3
America 972 12 1,196 14
Asia 764 10 789 9
Other regions 520 7 701 8
Group 7,906 100 8,618 100
Discontinued operations 13 117
Continuing operations 7,893 8,501

The Salzgitter Group generated earnings before taxes of € 53.2 million (2015: € 4.1 million). This figure includes a profit contribution of € 19.1 million from the Aurubis investment (2015: € 21.8 million), as well as € –2.3 million on balance in burdens on earnings from special items.

The business units delivered the following results:

The Strip Steel Business Unit lifted its pre-tax result to € –2.3 million compared with the year 2015 (€ –26.0 million) that was burdened by € –41.9 million from the relining of a blast furnace. The result was significantly impacted by insufficient margins in the first half of the year due to the effect of imports. Spot prices that rose as the year progressed, and were gradually reflected in a better selling price quality, were largely able to compensate for the losses accumulated in the first half of the year.

Although the Plate / Section Steel Business Unit improved its performance considerably compared with 2015, it nonetheless delivered another pre-tax loss (€ –32.1 million €; 2015: € –74.1 million). This figure includes order related provisions, expenses of € 6.3 million for measures aimed at structural improvements in the plate companies as well as € 25.0 million in impairment reversals carried out on the assets of Peiner Träger GmbH (PTG).

Despite the improved result of Salzgitter Mannesmann Großrohr GmbH (MGR) and the higher positive contribution to earnings of the EUROPIPE Group (EP Group), a company included at equity, the Mannesmann Business Unit reported a pre-tax loss of € –22.4 million (2015: € +2.2 million). This figure includes € 6.0 million in expenses for structural measures, mainly at Salzgitter Mannesmann Line Pipe GmbH (MLP). In addition, impairment of € –15.0 million was carried out on MLP’s assets.

Although the earnings position of the stock holding steel trade remained weak in the first three months, a temporary widening of margins in the following months up until and including autumn, combined with the result of international trading, led to a very presentable pre-tax profit of € 45.2 million for the Trading Business Unit. This performance therefore represented an improvement on the already gratifying year-earlier result (2015: € 32.2 million).

 

The Technology Business Unit delivered another increase in earnings before taxes that came in at € 28.4 million (2015: € 24.6 million). The result of the KHS Group rose by a third, which was also based on the success of the measures introduced under the improvement programs. Similarly, DESMA Schuhmaschinen GmbH (KDS) also notably outperformed the year-earlier result, as opposed to the pre-tax profit of the KDE Group that was lower year on year.

Earnings before taxes of Industrial Participations / Consolidation stood at € 36.3 million, which is lower than in the year-earlier period (2015: € 45.2 million). This figure includes the contribution of the Aurubis investment amounting to € 19.1 million (2015: € 21.8 million). Interest income resulting from Group cash management as well as positive reporting-date-related valuation effects from foreign exchange and derivatives positions boosted the result. The pre-tax result of the Group companies not directly assigned to a business unit fell short of the figure achieved in 2015.

Results by business unit and consolidated net income/loss for the year

In € m 2016 20151)
Strip Steel -2.3 -26.0
Plate / Section Steel -32.1 -74.1
Mannesmann -22.4 2.2
Trading 45.2 32.2
Technology 28.4 24.6
Industrial Participations / Consolidation 36.3 45.2
EBT Group 53.2 4.1
Discontinued operations 11.8 -52.1
EBT from discontinuing operations 41.4 56.2
Taxes -3.6 60.1
Consolidated net income/loss for the financial year2) 56.8 -56.0

Special items / EBT business unit and Group (including discontinued activities)

EBT Restructuring Impairment/ Reversal of impairment Other EBT without special effects
In € m 2016 20151) 2016 2015 2016 2015 2016 2015 2016 20151)
Strip Steel -2.3 -26.0 -41.9 -2.3 15.9
Plate / Section Steel -32.1 -74.1 -6.3 -29.4 25.0 -7.0 -50.8 -37.7
Mannesmann -22.4 2.2 -6.0 -10.0 -15.0 -1.4 12.2
Trading 45.2 32.2 27.0 45.2 5.2
Technology 28.4 24.6 28.4 24.6
Industrial Participations / Consolidation 36.3 45.2 -12.5 36.3 57.7
Group 53.2 4.1 -12.3 -39.4 10.0 0.0 0.0 -34.4 55.5 77.9

Development of selected income statement items
The consolidated income statement is explained in detail in the “Notes to the Consolidated Financial Statements”. Selected items are explained in the following.

Sales that declined in a year-on year comparison are offset in particular by the lower cost of materials due especially to price reductions in raw materials, semi-finished goods and steel products sourced externally. The result of the companies included at equity increased significantly. The 25 % investment in Aurubis AG (NAAG) made a particularly gratifying contribution.

Adjusted for € 3.6 million in tax expenses, a consolidated net income of € 56.8 million was recorded. The after-tax result exceeded pre-tax profit above all due to the higher expected use of tax loss carryforwards in the future.

Multi-year overview of earnings

In € m 2016 20151) 2014 20132) 2012 2011 2010 2009 2008 2007
EBT 53.2 4.1 -15.2 -482.8 -29.4 201.6 48.9 -496.5 1,003.4 1,313.9
EBIT I3) 96.6 69.5 63.9 -422.7 59.8 264.7 102.9 -468.1 1,072.1 1,350.7
EBIT4) 119.2 81.9 97.9 -393.2 98.0 304.5 159.8 -411.3 1,026.9 1,312.4
EBITDA5) 476.4 422.6 483.6 138.1 462.7 666.8 539.7 156.9 1,317.2 1,543.1
EBT margin 0.7 0.1 -0.2 -5.2 -0.3 2.1 0.6 -6.4 8.0 12.9
EBIT margin4) 1.5 1.0 1.1 -4.2 0.9 3.1 1.9 -5.3 8.2 12.9
EBITDA margin5) 6.0 4.9 5.4 1.5 4.5 6.8 6.5 2.0 10.5 15.1
ROCE % 2.7 1.9 1.8 -10.5 1.3 5.6 2.2 -10.5 21.9 28.0

Reconciliation EBIT/EBITDA

In € m 2016 20151)
EBT 53.2 4.1
+ Interest expenses 94.6 113.2
– Interest income -28.6 -35.4
= EBIT 119.2 81.9
+ Depreciation/amortization2) 357.2 340.7
= EBITDA 476.4 422.6

The EBIT and EBITDA earnings ratios are merely indicative of the operating strength of a company set apart from its capital structure. These ratios allow management, the shareholders and interested third parties to carry out an additional analysis and assessment of a company’s results, as well as facilitating approximate comparability with its peers at an operating level. Differences in taxation specific to the respective country, as well as special features concerning the structure of financing and property, plant and equipment of the individual company, can therefore be disregarded.

Value added in the Salzgitter Group

The operational value added of the Group amounted to € 1,784 million in 2016, thereby providing full coverage for personnel expenses (€ 1,707 million). The public sector received –0.2 % in the form of taxes and levies (previous year: 3.4 %). Lenders accounted for a portion of 1.4 % which was lower than the year-earlier figure (1.6 %). Value added worth 1.2 % is available for the shareholders (including treasury shares) for the financial year ended (previous year: 0.9 %). An amount of € 2.9 billion from the value added has remained within the Group since 2003. In 2016, funds of € 35 million were contributed to the Group.

Value added

2016/12/31 2015/12/311)
In € m % In € m %
Sources
Group outputs 8,246 100.0 8,888 100.0
Inputs 6,462 78.4 7,135 80.2
Value added 1,784 21.6 1,753 19.8
Appropriation
Employees 1,707 95.7 1,723 98.2
Public sector -4 -0.2 60 3.4
Shareholders 21 1.2 15 0.9
Lenders 25 1.4 27 1.6
Remaining within the Group 35 2.0 -72 -4.1
Value added 1,784 100.0 1,753 100.0
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