Excellent performance in the first half of 2007, with new records set for sales and profit
09.08.2007 | Salzgitter AG
Excellent performance in the first half of 2007, with new records set for sales and profit
1st Half 2007
Stable economic growth, particularly in Germany but also in the rest of Europe and many parts of the world, ensured extremely positive conditions for rolled steel and tubes products also in the second quarter of 2007. Against this background, the Salzgitter Group exceeded the record levels it has set to date for sales and operating profit in a half-year.
All divisions of the Salzgitter Group, especially Steel and Trading, contributed to the 17 % increase in external Group sales of to € 4.72 billion (first half-year of 2006: € 4.03 billion). Earnings before tax (EBT) of € 663.6 million, generated solely through operations, significantly exceeded last year’s already exceptionally high figure of € 437.9 million (net of special effects).
Profit after tax in the first half of 2007 came to € 398.7 million (first half of 2006: € 130.0 million); earnings per share stood at € 6.94 (first half of 2006: € 2.27). Return on capital employed (ROCE) posted 31.4 % (first half of 2006: 16.6 %).
Sales price hikes in the spot market business and for annual contracts, as well as record shipments, lifted the total sales of the Steel Division by 24 % to € 2.05 billion (first half of 2006: € 1.65 billion). External sales climbed 22 % to € 1.46 billion (first half of 2006: € 1.20 billion). Boosted by the outstanding performance of the flat steel, plate and beams segments, the pre-tax profit of the Steel Division, which came to € 377.3 million, clearly outperformed the previous year’s figure (first half of 2006: € 203.6 million) and set a new record for the producing steel activities of the Salzgitter Group.
The similarly favorable conditions for tubes products were reflected by the outstanding development of the Tubes Division’s business. Despite shipment volumes being somewhat lower owing to projects and the accounting cut-off date, external sales of the Tubes Division rose 7 % to € 884 million due to improved selling prices (first half of 2006: € 828 million). Thanks to the sharp increase in profit of all companies, especially the large-diameter and stainless steel tubes businesses, the pre-tax result of the consolidated Tubes companies doubled to € 138.9 million (comparable figure of the first half of 2006: € 65.0 million; € 138.0 million profit of the first half 2006 included a € 73.0 million contribution attributable to the Vallourec shareholding which was divested at a later date).
The Trading Division also took advantage of the generally upbeat economic environment and the prospering domestic economy to generate excellent results. With shipments growing 7 %, buoyed by robust domestic business as well as the expansion in international trading activities, the division’s external sales had risen 16 % to € 2.05 billion by June 30, 2007 (first half year of 2006: € 1.76 billion). Pre-tax profit soared 55 % to an all-time high of € 121.4 million (first half of 2006: € 78.4 million).
Driven by a brisk demand for raw materials and services, not only on the part of the Group’s producing companies but also by external customers, the Services Division generated total sales of € 603 million in the first six months of 2007 (first half of 2006: € 506 million), thereby setting a new record figure. This development is principally attributable to the very good performance delivered by the raw materials trading company DEUMU Deutsche Erz- und Metall-Union GmbH. At the same time, external sales advanced by 28 % to reach € 263 million (first half of 2006: € 206 million), and EBT climbed 18 % to € 14.3 million (first half of 2006: € 12.1 million).
In the Others/Consolidation Segment, external sales, which are based on business in semi-finished products with external parties, rose to € 66 million in the first six months of 2007 (first quarter of 2006: € 43 million). Successful asset management and interest income on a much higher volume of financial assets contributed to a positive pre-tax result of € 11.8 million. The result of the first quarter of 2006, which came to € -233.3 million, was burdened by special expenses of € 239.1 million for a hedging transaction which was closed at a later date.
As before, the current general conditions for the companies of the Salzgitter Group can be considered excellent. Accordingly, if the healthy economy in Germany and Europe persists, the business activities of the Group should remain at their current level. As in every year, however, seasonal effects, such as downtime for scheduled maintenance and repair work on our plants is likely to have an effect on capacity utilization in the third and fourth quarter.
For this reason, the shipment volumes of the Steel Division in the second half-year will probably be slightly lower compared with the first six months; sales prices should remain stable, with further hikes possible in some segments. Irrespective of the aforementioned seasonally-induced effects, the capacity utilization of production facilities is set to remain at a very satisfactory level, underpinned by brisk demand for rolled steel.
The high capacity utilization level of the plants of the Tubes Division is secured through the extremely high volume of orders on hand until year-end and, in the large-diameter tubes business, even through to the first half-year of 2008. Due to scheduled repair and maintenance downtime, however, shipment volumes can be expected to be somewhat lower.
In the course of the current year, the business activities of the Trading Division are likely to benefit from the consumption of steel expanding in Germany, Europe and the rest of the world. Gross earnings will, however, return to a normal level owing to the increase in replacement costs. Significant risks remain inherent in the US economy weakening further, as well as the persistently high volume of steel imports into Europe and the possibility of political tensions escalating, in particular in the Middle East.
The very gratifying condition of the Services Division is likely to continue in 2007 due to strong demand from internal and external customers.
Furthermore, the integration of Klöckner-Werke AG and Vallourec Précision Etirage in Salzgitter’s group of consolidated companies in the second half of 2007 is likely to generate an increase in sales and earnings.
All in all, on the basis of current information and in view of expectations of the development of the procurement and sales markets, as well as of the general conditions, and taking account of the effects of the Profit Improvement Program, we expect the Salzgitter Group to generate an operating EBT which clearly exceeds the one billion euro threshold in the current year.
Express reference is made to the fact that opportunities and risks arising from currently unforeseeable trends in sales prices, input materials and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the remaining financial year 2007. The resulting fluctuation in the consolidated pre-tax result may, as experience has shown, be within a considerable range.
In view of the persisting outstanding performance in the past years, also in a sector-specific comparison, the Management Board of Salzgitter AG has decided to raise the return target over the average of the steel cycle to a ROCE (return on capital employed) of 15 %. At the same time, the medium-term target for consolidated Group sales has been set to a range from € 13 to 15 billion. For further information see Interim Report published today.
Disclaimer:
Some of the statements made in this document 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. The company undertakes no obligation to update any forward-looking statements. This document is a translation of the original German-language press release. In case of ambiguity between this document and the German-language press release, the information provided in the latter shall prevail.