Salzgitter Group achieves gratifying profit development in the first quarter of 2004

14.05.2004 | Salzgitter AG


Salzgitter Group achieves gratifying profit development in the first quarter of 2004

Against the backdrop of turbulent developments on the global steel and raw materials markets, the positive sales and results trend at the Salzgitter Group has continued.

In the first quarter of 2004 consolidated Group sales came in at € 1.30 billion, representing a 3% gain over the first quarter last year (€ 1.27 billion). This increase is mainly attributable to the good business developments in the Trading division that more than compensated the sales decline in the tubes segment. Pre-tax Group profit amounted to € 26.2 million, thereby significantly exceeding the results recorded in the first quarter of 2003 (€ 6.2 million). The relative increase in profit after tax to € 20.1 million was even more pronounced (first quarter of 2003: € 2.9 million). At an annualized 9.3% return on capital employed (ROCE) reached a considerably enhanced value over the 3.4% reported at the end of the same quarter last year.

The contribution of the Steel division to external Group sales was recorded at € 401 million, and is slightly below the previous year's figure of € 406 million due to the fact that products were increasingly moved via the group’s own sales channels. Total sales rose slightly to € 561 million (first quarter of 2003: € 555 million). While turnover of flat steel, beams and heavy plate increased thanks to improved sales prices, shipments and turnover at Salzgitter Großrohr GmbH were notably lower against last year's figures. The pre-tax result improved to € 11.5 million (first quarter of 2003: € 2.1 million). In this context, it must be noted that the procurement prices of energy and raw materials increased markedly in the new business year, especially scrap. The price increases for rolled steel products introduced on January 1, 2004 only gradually showed their effects, as more than half of the sales volume did not benefit directly due to medium and long term price agreements concluded with customers. The beam sector in particular suffered from the continuous rise in scrap prices that can only be passed on in the following month due to the successfully introduced scrap surcharge. The quarterly results of the Steel division include € 4.5 million from the sale of shares of the US steel company Steel Dynamics Inc.

The Tubes division posted external sales of € 206 million, thereby falling 14% short of the previous year's figures (€ 240 million). The main reasons were the more intensive utilization of the group’s own sales and distribution channels, product mix changes and currency effects; a considerable share of large and medium diameter line pipes is sold on markets dominated by the US dollar. By comparison, turnover of non-consolidated seamless tubes manufacturers were up due to a gratifying rise in sales volume. Although all companies were impacted by the continuation of increased ingoing material costs, the Tubes division generated a pre-tax result of € 5.6 million, which is a significant improvement over the first quarter last year (€ 0.2 million).

In 2004, the Trading division, which was subject to considerable pressure on margins over the past months, was able to largely pass on the rising manufacturer prices to customers for the first time. External sales of € 569 million represent a 14% gain (first quarter of 2003: € 500 million). Pre-tax profits more than tripled to € 11.2 million (first quarter of 2003: € 2.4 million).

Posting € 77 million external sales, the Services division achieved an 18% gain (first quarter of 2003: € 65 million), as the sales generated by the DEUMU trading company in business with third party customers benefited from the increased scrap and alloying material costs. Pre-tax profit moved up to € 4.8 million (first quarter of 2003: € 3.0 million).

Due to the stagnating construction industry and increasing competitive pressure in the automotive supplier industry, both in connection with increases in ingoing material costs, the new business year has not entailed any momentum for the Processing division. The quarter closed with external sales declining to € 47 million (first quarter of 2003: € 55 million) and pre-tax losses of € 10.7 million (first quarter of 2003: € -3.5 million).

From today's viewpoint, there are many indications that the recovery of the global markets will continue over the coming months, as the strong growth emanating from the United States and China will continue to act as a driving force. The discontinuation of a phase of expansionary monetary policies may slow down the pace of the global upswing. The EU markets are likely to continue to profit from export activities. There are, however, still no convincing indications that weak domestic demand will take a turn for the better. Viewed in total, the general conditions for the activities of the Salzgitter Group have developed in a positive direction.

In connection with an overall favorable order situation for rolled steel products, further rises in sales prices are likely to be introduced in the third quarter of the ongoing business year. Against the backdrop of the extremely high procurement prices for raw materials and scrap, as well as the exorbitant hikes in freight charges, these prices increases are absolutely essential. Virtually all of the iron ore, coking coal and coke supplies as well as the necessary transport capacities have been secured by long term contracts. The slight dip in scrap prices is not likely to result in any significant and lasting easing of the situation. Due to the long planned maintenance work to be conducted at a blast furnace in Salzgitter that has been planned far in advance, the availability of slabs for the rolled steel production will be restricted in the second quarter of 2004 – in spite of advance production and bought in material. Regardless of this situation, the Steel division expects a continuation of the positive ongoing developments.

At the Tubes division, the gratifying order intake registered in the quarter under review will once again ensure a solid capacity utilization at all plants. Not least in view of the continuing high levels of oil and natural gas prices, a further improvement in the business situation over the coming months is possible. An essential precondition for this, however, is the assertion of price hikes compensating the negative impact on earnings due to the weak US dollar and the increased ingoing material prices.

While the Trading and Services divisions are likely to benefit from the more favorable environment, the Processing division anticipates a gradual improvement of the current situation. The key factor here is the persisting difficult situation of the domestic construction industry.

Based on the current information and expectations regarding the developments of procurement and sales markets, as well as the general conditions and with due consideration to the planned internal measures, the Salzgitter Group anticipates a pre-tax result in the upper double digit million range. The bandwidth of opportunities and risks on the sales and procurement markets is considerably wider than in the previous years that were far less impacted by such events.

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 further 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 in terms of their scope and timing.