Respectable consolidated profits

Thanks to its balanced portfolio, the Salzgitter Group has succeeded in achieving a highly respectable result in the first quarter of the financial year 2002 - in spite of the difficult economic climate.

Consolidated sales at € 1.17 billion were 3 % up on the same period in 2001 (€1.14 billion). The continuing positive development in business at the Tubes Division was sufficient to compensate for a downturn in sales and results at other Divisions.

Pre-tax profits amounted to € 20.1 million. This figure was somewhat down on the same period in the previous year (€ 46.6 million), but nonetheless relatively satisfactory, especially in view of the significant deterioration in the market situation facing the Steel Division. Profit after tax amounted to € 21.0 million against € 36.0 million in the first quarter of 2001. The most important indicator of the financial success of Salzgitter AG, the return on capital employed (ROCE), put on an acceptable performance to reach 7.5 %.

With external sales of € 383 million, the Steel Division fell some 10 % short of its equivalent figure for the first quarter of last year. The negative pre-tax result of € 13.9 million is a consequence of the difficult trend that has further deteriorated since autumn 2001. Low steel prices, particularly all in the area of flat rolled products, contrasted with exchange rate-boosted energy and raw materials prices. Even with active cost reduction measures in place it was not possible to entirely offset these effects. Meanwhile, business came under an additional strain imposed by the increasing constriction of world steel trading.

On the other hand, performance at the Tubes Division had a stabilizing effect on Group results. In particular, demand for oil field and line pipes for the energy sector remained buoyant. The Division recorded consolidated sales of € 277 million, up 36 % on the first quarter of last year. Pre-tax profits amounted to € 25.2 million, representing a rise of all of 76 % over the previous comparative period.

The Trading Division recorded a positive benefit from the expansion of the group of consolidated companies to include the holdings in two steel trading companies acquired or extended in the financial year 2001. While the volumes achieved in international business activities remained satisfactory despite the restrictions on global steel trading, there was a noticeable decline in the quantities sold by European stockholders. The Division achieved external sales of € 432 million, up 3 % on the previous year’s figure (€ 419 million). Pre-tax profits amounted to € 4.0 million, representing a 60 % improvement over the same period in 2001 (€ 2.5 million).

The Services Division reported sales of € 56 million and a pre-tax result of € 2.2 million, and as such was not quite able to match its results in the preceding year. The Processing Division suffered under the weakness of demand from the German construction industry and ended the quarter with a slight loss of € 1.1 million.

Given the positive signals emitted by the international economy and the modest optimism in some of the important steel-processing industries, it would appear that the turning point for the steel sector has at last been reached. The negative development in prices that had persisted for around a year was at last reversed at the beginning of the second quarter and increases in returns in the order of 10 % have been implemented, with further rises in prospect. The improvements in orders received and in hand underscore this positive trend. As a result of the traditionally high proportion of longer-term delivery agreements, it is likely to be a matter of months before the turnaround in the return on flat rolled products is reflected in the results at the Steel Division. From the second half of 2002 onwards, however, a return to the profit zone can be anticipated.

Likewise developments at the Tubes Division are to a large extent dependent on a further revival in the economy, and in particular on movements in the oil price over the coming months. A positive note was sounded recently by the avoidance of impending anti-dumping action in the USA, which would have led to import restrictions on seamless tubes. Nevertheless, with the order situation in particular lagging behind last year’s outstanding performance, a decline in profits, too, must be anticipated in the second half.

Subject to the strength and sustained endurance of the overall economic recovery, the Company considers consolidated pre-tax profits in the order of € 90 million to be achievable for 2002. This would equate to profits after tax of at least € 75 million, corresponding to earnings per share of € 1.20. Thus despite the significantly worsened economic climate, both pre-tax and after-tax profits would be at a level comparable with the 1999/2000 financial year.