Positive trend holds steady in the first half-year of 2006
10.08.2006 | Salzgitter AG
Positive trend holds steady in the first half-year of 2006
1st Half 2006
Against the backdrop of a very firm market for rolled steel and tubes, the divisions of Salzgitter AG which operate in production and trading generated exceptionally high results in the first half of 2006.
The growth of consolidated group sales, which reached a new record high for a half-year of € 4.03 bn (first half of 2005: € 3.63 billion), also reflected the positive general conditions.
Operating earnings before tax, net of special effects from the Vallourec hedging transactions, came to € 437.9 million and fell only marginally short of the record figure of € 463.4 million in the first half of 2005. Including expenditure of € 239.1 million, requiring disclosure under International Financial Reporting Standards (IFRS), for the part hedging of an increase in the value of the 17.2 % participation in Vallourec S.A., which came to more than € 1.3 billion on the reporting date and cannot be disclosed under consolidated assets, the Group’s pre-tax profit stood at € 198.8 million in the reporting period. After-tax profit thus reached € 130.0 million (first half of 2005: € 332.7 million). Return on capital employed came in at 16.6 %; excluding the aforementioned special effect, a laudable 35.3 % was achieved (first half-year of 2005: 41.6 %).Owing to an increase in shipments of 15 %, total sales of the Steel Division in the first six months of 2006 rose 6 % to € 1.65 billion (first half of 2005: € 1.55 billion), with average sales prices partly falling substantially below the previous year's figures. External sales, which posted € 1.20 billion, also grew by 6 % (first half of 2005: € 1.13 billion). Compared with the record result of 2005, the lower selling price level and the increase in the higher cost of procuring raw materials and energy pared down pre-tax profit to a still sizeable € 203.6 million (first half of 2005: € 282.3 million).
The sustained buoyant demand, above all for pipeline tubes of the large-diameter pipes segment, led to business activities of the Tubes Division expanding in the first half of 2006. The external sales of the division grew 17 % to € 828 million as compared with the already excellent figure of € 705 million in the first half of 2005. The pre-tax result was boosted especially by profit generated by Europipe and Vallourec, an associated company consolidated at equity. It came to € 138.0 million, including around € 20 million in risk provisioning, mainly for production downtime occurring since the start of the year at the semi-finished goods supplier Hüttenwerke Krupp Mannesmann GmbH (HKM). The previous year’s figure of € 157.7 million still includes a positive, offset amount of € 66.1 million from operations and from the sale of a 45 % stake in Vallourec & Mannesmann Tubes S.A. (V&M). Excluding these components and the risk provision, there has been a remarkable increase in the operating result. The companies of the Trading Division also capitalized on the positive market environment in the first half of 2006. As of the end of the first quarter, the strong economic recovery in Germany, particularly in the important customer sectors of the construction industry and mechanical engineering, was driving the perceptible increase in business momentum of German stockholding steel traders. At the same time, brisk order activity in international trading as well caused temporary shortfalls of some products. This market situation enabled the steel trading sector to pass on manufacturer price increases across the entire product range. The external sales of the Trading Division rose in the first six months of the financial year 2006, climbing 8 % to a new record high of € 1.76 billion (first half of 2005: € 1.63 billion). Owing especially to the very presentable results of Salzgitter Mannesmann Handel Group and Universal Eisen und Stahl GmbH, pre-tax profit improved significantly in the period under review to € 78.4 million (first half year of 2005: € 44.1 million).
With a plus of 28 % to € 206 million, the Services Division lifted its external sales considerably (first half of 2005: € 161 million). The main contributing factors were an increase in shipments and the higher sales prices of the raw materials trading company DEUMU. The pre-tax earnings of the segment came to a most pleasing € 12.1 million in the first six months of 2006 (first half of 2005: € 3.7 million).
The result of "Other/Consolidation", which was burdened in the amount of € 239.1 million from expenditure in connection with hedging transactions, came to € -233.3 million in the reporting period (first half of 2005: € -24.4 million). The current general conditions and the situation at present of the Salzgitter Group can be deemed as decidedly satisfactory. The upbeat economic trend in Germany and in Europe is likely to ensure pleasing performance by all divisions in the second half of the financial year 2006 as well.
The price increases implemented by the Steel Division as per July 1 should filter through to invoiced sales prices in the course of the third quarter, with the increase in the cost of raw materials and energy being compensated for the most part. The current order volume suggests that good utilization of production facilities is ensured. For seasonal reasons, the production and shipment volumes will be lower both in the third and fourth quarter in comparison with the first half-year.
Orders on hand, which have climbed again in the Tubes Division, guarantee full capacity utilization of most of the plants until the end of the year and, in some cases, into the new year. The production downtime in July at HKM, in which a 30 % participation is held, is likely, however, to lead to bottlenecks in input materials, shipment delays and to burden profit.
Owing to brisk business in Germany and abroad, the Trading Division is expecting the trend to remain very satisfactory, as sales and profit should benefit from strong demand and stable trading margins in the second half of the year as well. If, however, the political tension in the Middle East rises, this might hamper the activities of international trading.
The Services Division should be able to repeat the generally satisfactory performance of the first half of 2006 as the high capacity utilization level of the producing Group companies should have a positive impact on most of the companies.
On the basis of the information currently available and expectations concerning trends in the procurement and sales markets, as well as the general framework conditions, and taking account of the effects of the profit improvement program, the Salzgitter Group expects to post for the current year an operating pre-tax result of at least € 650 million plus an additional profit of around € 900 million from the sale of its Vallourec participation. 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 2006. The fluctuation in the consolidated pre-tax result accruing from conceivable influences in their entirety may, as experience has shown, be within a considerable range.
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.