first nine months of 2016
10.11.2016 | Salzgitter AG
Salzgitter Group delivers sound earnings performance in the first nine months of 2016
- Internal restructuring projects and the EU’s anti-dumping initiatives take effect
- Salzgitter Group continues its upward trajectory
- Sales and profit forecast for the financial year 2016 affirmed
The positive earnings trend of the Salzgitter Group has stabilized, despite the ruinous price situation for rolled steel products due to the flood of imports through to the spring. This performance is based on the profound success of the restructuring projects and the first effects of the EU anti-dumping measures. The summer quarter that is customarily impacted by planned maintenance and repair downtime and the seasonal decline in customer demand developed somewhat more modestly, in line with expectations. In the third quarter, the Strip Steel Business Unit nevertheless generated a positive pre-tax result for the first time again in more than a year.
The external sales of the Salzgitter Group declined to € 5,860.5 million (9M 2015: € 6,691.7 million) in the first nine months of 2016. Determining factors included the effect of the heavily subsidized Chinese imports, lower volumes in international trading, as well as the discontinuation of the sheet piling business. The gratifying pre-tax profit of € 21.1 million (9M 2015: € 15.6 million) comprises a total of € 7.2 million in expenses¬ incurred by measures aimed at structural improvements (9M 2015: € –33.1 million) and € 16.8 million from the positive contribution by the Aurubis investment (9M 2015: € –12.8 million) that, due to the revaluation of a convertible bond, had dropped € 9.3 million compared with the figure posted in the first half of 2016. Based on an after-tax profit of € 14.6 million (9M 2015: € 3.6 million), earnings per share amount to € 0.21 (9M 2015: € 0.00). The return on capital employed (ROCE) stood at 2.1 % (9M 2015: 1.8 %).
Chief Executive Officer Prof. Dr.-Ing. Heinz Jörg Fuhrmann commented as follows:
“Thanks to our energetically pursued self-help program, flanked by the European Union anti-dumping initiatives that are as welcome as they are urgently needed, the Salzgitter Group remains on track. Due to longer-term contractual relationships, steel prices that began to rise in the spring are not yet fully reflected in the current results. Nevertheless, the starting point for the coming financial year is the most encouraging for some long time. With the recently approved ‘Salzgitter AG 2021’ strategy, we have set the key building blocks in place for taking the development of our company further.”
Development of the business Units
During the first nine months of 2016, the Strip Steel Business Unit reported stable shipments compared with the prior year period. External sales declined to € 1,389.0 million (9M 2015: € 1,505.6 million) due to lower selling prices. Accordingly, the segment delivered an accumulated pretax loss of € –27.4 million (9M 2015:€ –9.5 million) despite the positive result in the summer quarter.
In the Plate / Section Steel Business Unit, the discontinuation of the sheet piling product segment and the developments experienced by heavy plate producers that were particularly hard hit by subsidized cheap Chinese imports, were reflected in a significantly lower shipment volume compared with the year-earlier period. As a result, the segment’s external sales also declined, impacted by selling prices and lower volumes, to € 535.9 million (9M 2015: € 719.0 million). Despite the notably negative results of the heavy plate companies, the division’s pre-tax result improved to € –24.7 million (9M 2015: € –41.3 million) on the back of the profit contribution of Peiner Träger GmbH and the non-recurrence of losses from the sheet piling business. This result includes € 1.5 million in expenses for the first measures for structural improvements at Ilsenburger Grobblech GmbH.
Sales of the Mannesmann Business Unit dropped below the year-earlier figure posted due to the lower shipment volumes of Salzgitter Mannesmann Line Pipe GmbH (MLP). The segment’s external sales of € 727.1 million dropped below the level achieved in the first nine months of 2015 (€ 811.7 million) due to declines in the precision and stainless steel tubes and medium-diameter line pipes businesses. Supported by a notably higher, positive contribution to earnings by the EUROPIPE Group, the business unit generated a pre-tax profit of € 2.4 million (9M 2005: € 8.8 million). This figure includes expenses of € 5.7 million incurred by measures aimed at structural improvements, mainly at MLP.
The Trading Business Unit reported lower year on year shipments. Together with the steep decline in annual average selling prices, this caused external sales to decline (€ 2,109.1 million; 9M 2015: € 2,530.1 million). While the earnings situation of the stockholding steel trade remained weak during the first quarter, the following months through to and including September saw margins rise, accompanied by similarly positive results from international business, which resulted in a pleasing pre-tax profit of € 31.7 million (9M 2015: € 21.0 million).
Order intake of the Technology Business Unit rose sharply compared with the previous year’s figure. At € 954.2 million, external sales almost achieved the prior-year level (9M 2015: € 978.1 million). The segment delivered a presentable pre-tax profit of € 17.1 million that, thanks to the increased earnings of the KHS Group and KDS, outperformed the result of the first nine months of 2015 (€ 16.1 million).
The external sales of Industrial Participations / Consolidation (€ 145.2 million) settled at the level of the reference period (9M 2015: € 147.1 million), while pre-tax profit (€ 22.0 million) exceeded the year earlier figure (9M 2015: € 20.5 million). This figure includes € 16.8 million in earnings from the Aurubis investment (9M 2015: € –12.8 million). The Group companies not directly assigned to a business unit made an overall contribution to profit that nevertheless fell short of the figure achieved in the first nine months of 2015.
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 recessionary developments in Europe. Instead they are based more on the assumption of a moderate economic recovery in our persistently contested main markets.
The Strip Steel Business Unit anticipates a marginally negative result in the fourth quarter of 2016. Although selling prices for flat steel products will continue to rise, a shortfall in shipment volumes in December for seasonal reasons and due to the scheduled downtime of a facility will prevent breakeven from being achieved. Against this backdrop, a downturn in sales and a certain deterioration in the pre-tax result compared with the previous year has been assumed.
In the Plate / Section Steel Business Unit the ruinous price competition, triggered by the flood of imports in the first half of the year that the plate companies had to contend with appears to have been halted for the time being. This is clearly insufficient for the closing quarter to compensate for the losses sustained in the first nine months. A stabilizing effect emanates from the section steel segment despite the persistently difficult market environment. Also thanks to the non-recurrence of losses from the operations of HSP Hoesch Spundwand und Profil GmbH that were wound down at year-end 2015, we anticipate a significant reduction in the business unit’s pre-tax loss compared with the previous year. Sales are anticipated at a notably lower level due above all to selling prices.
The companies belonging to the Mannesmann Business Unit report heterogeneous performance: While capacity utilization in the large-diameter pipe mills is good, order bookings in the segment of medium line pipes continue to be unsatisfactory as a result declining energy prices. As regards the precision tubes companies, the demand of automotive manufacturers remains stable; the markets of the energy and industry product segments, however, show signs of weakening. In the business segments of stainless steel tubes, the anticipated market recovery is likely to be delayed, particularly in the oil and gas sector. All in all, lower sales and a slight pre-tax loss are anticipated compared with the previous year.
The Trading Business Unit predicts an ongoing stabilization of price levels and demand over the remaining months of the year. All in all, the segment anticipates lower sales compared with 2015, which is mainly due to the decline in international trading’s shipment tonnage and the notably weaker annual average selling prices. The temporary widening of the margins in the stockholding steel trade is nevertheless likely to lead to a higher pre-tax profit.
The Technology Business Unit expects a stable sales and profit trend supported by a high order backlog. In view of the continued fierce competition in the global project business, the KHS Group intends to generate innovation driven growth in profitable product segments, as well as through the additional expansion of its service business. The outlook for the two suppliers of special machinery for processing plastics is also very promising.
Against this backdrop, the Salzgitter Group affirms its forecast to date and continues to assume the following for the financial year 2016:
- a decline in sales to between € 8.0 billion and € 8.5 billion (previous year: € 8.6 billion),
- an increase in the pre-tax profit compared with the previous year (€ 4.1 million) to between € 30 million and € 60 million, and
- a return on capital employed that is marginally higher year on year (previous year: 1.9 %).
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.
Disclaimer:
Some of the statements made in this report possess the character of forecasts or may be interpreted as such. These are made to the best of the Company’s knowledge and judgment, 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 with regards to their scope and timing. Notwithstanding prevailing statutory provisions and capital market law in particular, the Company accepts no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.
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