Outstanding start into the new financial year 2007
15.05.2007 | Salzgitter AG
Outstanding start into the new financial year 2007
1st Quarter 2007
Thanks to the robust constitution of the global economy and the sustained upswing in Germany and Europe, demand for steel and tubes products continued to run at a high level, also in the first quarter of 2007. Buoyed by these excellent general conditions, the Salzgitter Group set new record figures in Group sales and operating profit for a 3-month period in the first quarter of 2007.
The 20 % increase in consolidated external sales to € 2.38 billion reflects the current excellent condition of all divisions (first quarter of 2006: € 1.98 billion). The largest contributions were made by the Trading and Steel divisions. Profit before tax of € 325.4 million, generated exclusively by operations, substantially exceeded the former record figure for a quarter (without taking account of special effects), which was generated in the final quarter of the financial year 2006 when a pre-tax profit of € 286.3 million was recorded.
Profit after tax came to € 196.6 million in the first quarter of 2007 (first quarter of 2006: € 35.7 million); earnings per share are calculated at € 3.41 (first quarter of 2006: € 0.62). Return on capital employed (ROCE) stood at 30.8 % (first quarter of 2006: 8.8 %).
A high shipment volume and price increases, both in annual contracts and in the spot market business, served to substantially raise the total and external sales of the Steel Division 21 % to € 1.01 billion (first quarter of 2006: € 0.84 billion). External sales, which rose by +19 %, experienced similar dynamics (first quarter of 2007: € 723 million; first quarter of 2006: € 607 million). Boosted by the stronger sections business and the highly gratifying profit generated by flat steel and plate activities, pre-tax profit reached a new record high of € 181.5 million (first quarter of 2006: € 104.4 million).
The favorable business environment for tubes products also held steady in the reporting period. A marginal increase in shipping volumes, in conjunction with a firmer selling price trend, delivered very presentable results. The external sales of the Tubes Division climbed 8 % to € 428 million (first quarter of 2006: € 398 million). Owing to the substantial improvement in the results of all product segments, profit before tax, which came to € 65.5 million, very clearly exceeded the previous year’s comparable result of € 31.2 million. The total amount of profit of the Tubes Division in the first quarter of 2006, which amounted to € 62.2 million, comprised € 31.0 million of the Vallourec participation which was disinvested at a later date. In the current reporting period, especially the large-diameter pipes and stainless steel product segments contributed to the gratifying increased performance.
Driven by the booming demand for steel, the first quarter of 2007 ran a decidedly successful course for the Trading Division. Shipments and sales remained at the excellent level of the third and fourth quarter in 2006. Domestic steel stockholders in particular benefited from the high demand for steel and a firm price trend. As against the first quarter of 2006 (€ 0.87 billion), the external sales of the Trading Division advanced 24 % to € 1.07 billion in the first quarter of 2007. Pre-tax profit of € 64.8 million doubled as against the previous year’s period (first quarter of 2006: € 30.1 million).
Concurrent with the excellent capacity utilization of the producing Group companies, the companies belonging to the Services Division delivered pleasing results in the first quarter of 2007. The main contributing factor here was again the excellent performance of Deutsche Erz- und Metall-Union GmbH, a company trading in raw materials. External sales attained € 131 million (first quarter of 2006: € 93 million) and earnings before tax improved to € 8.1 million (first quarter of 2006: € 5.7 million).
In the segment Others/Consolidation external sales, which are based on business in semi-finished products with external parties, rose marginally in the first quarter of 2007 to € 25 million (first quarter of 2006: € 20 million). Successful asset management, in conjunction with higher interest income from money investments which have gained substantially in value, lifted profit before tax notably (first quarter of 2007: € 5.6 million). The pre-tax result of the first quarter of 2006, which came to € -152.3 million, was burdened by special expenses of € 148.7 million for a hedging transaction which was later closed out.
The current general conditions for the Salzgitter AG companies can continue to be regarded as excellent. Accordingly, the business activities of the Salzgitter Group, underpinned especially by the sustained upswing in Germany and Europe, should remain at their current level. However, as in every year, seasonal effects, such as downtime for scheduled maintenance and repair work on our plants or interruptions in customer operations could still impact on the production in the third and fourth quarter.
In the Steel Division, the price hikes implemented as per April 1 compensated for the increase in the cost of raw materials and energy. Brisk demand in the rolled steel product segments is set to guarantee high capacity utilization of production facilities in the months ahead.
Good capacity utilization should also persist in the Tubes Division in the coming quarters. The record level of orders has secured capacity utilization in most of the plants up until and into the fourth quarter of 2007, while in some companies, capacity utilization extends even beyond the fourth quarter.
In the course of the current year, the business activities of the Trading Division are likely to benefit from the expanding consumption of steel in Germany, Europe and the rest of the world. However, gross margins may well normalize owing to the increase in replacement costs. In addition, significant risks are harbored in the steady weakening of the US economy, as well as in the potential for political tensions escalating, particularly in the Middle East.
The very gratifying condition of the Services Division is likely to persist in 2007 thanks to the strong demand emanating from internal and external customers.
All in all, on the basis of currently available 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 a pre-tax profit of around one billion euro in the ongoing financial 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.
Further information on the financial year and the acquisitions currently targeted can be found in the Interim Report on the first quarter of 2007 to be 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.