Splendid development of the first nine months 2006 – Group equity increased by 64 % to more than € 3 billion
14.11.2006 | Salzgitter AG
Splendid development of the first nine months 2006 – Group equity increased by 64 % to more than € 3 billion
9 Months 2006
In the third quarter, the Salzgitter Group set new benchmarks in sales and profit. The very pleasing performance of operations in the Steel, Tubes and Trading divisions and the high profit from the sale of the 17.2 % stake in the French seamless tubes manufacturer Vallourec S.A. contributed to this result.
During the first nine months of 2006, the Group’s operating divisions benefited from the continuing vigorous demand for rolled steel and tube products and from the resulting upward trend of revenues, so that the Group’s consolidated external sales rose by 15 % to €6.21 billion (9 months 2005: € 5.38 billion).
Including € 907.0 million from the sale of the Vallourec participation, consolidated pre-tax profit came to € 1.57 billion (9 months 2005: € 595.2 million). Operating pre-tax earnings thereby stood at € 661.5 million. In a year-on-year comparison of the results, net of all operating contributions and special effects from the sale of the Vallourec and Vallourec & Mannesmann Tubes (V&M) participations, there was a considerable increase in the pre-tax operating profit of the Salzgitter Group’s operations. The result, adjusted for the aforementioned, climbed 24 % to € 588.5 million (9 months 2005: € 474.6 million).
Earnings after tax stood at € 1.35 billion (9 months 2005: € 556.3 million). Return on capital employed (ROCE) posted 54.9 %; excluding € 907.0 million profit from the Vallourec sale, it came to 30.8 % (9 months 2005: 36.0 %).
The Salzgitter Group's equity advanced to € 3.31 billion, owing in particular to the sale of the Vallourec participation. This figure is almost three times the level reached at the end of the financial year 2004. The strategic room to maneuver resulting from this equity capital will be used in smaller amounts for promising value increasing measures and investments which enhance efficiency, such as the construction of two new power generating units at the Salzgitter plant. In addition, there are a number of acquisition projects that have been carefully reviewed in recent months. As yet, no conclusion is imminent; professionalism and confidentiality agreements with our partners do not permit us to release any details. The criteria for internal and external growth alike are that the enterprise value of the Group is raised on a long-term and sustainable basis.
In the first nine months of 2006, total sales of the Steel Division rose by 9 % following a 13 % expansion of shipment volumes and a gradual improvement of sales prices, to € 2.47 billion (9 months 2005: € 2.26 billion). External sales accelerated 10 % to € 1.79 billion (9 months 2005: € 1.63 billion). Despite the on average lower sales price level in a year-on-year comparison, with the concurrently higher costs of procuring raw materials and energy, another outstanding pre-tax profit of € 301.3 million was generated to follow on from the record result in 2005 (9 months 2005: € 330.6 million).
Driven above all by the excellent performance of the large-diameter tubes segment, external sales of the Tubes Division rose by 12 % to €1.16 billion in the first three quarters of 2006 (9 months 2005: € 1.04 billion). Pre-tax profit of € 184.3 million fell short of the previous year’s level of € 240.6 million, as the latter figure still included € 145.0 million in operating contributions from the formerly associated companies Vallourec S.A. and V&M Tubes S.A. By contrast, this contribution was only € 73 million in 2006. Owing to the sale of the participation on August 8, the result of the third quarter of 2006 no longer included the profit contribution of Vallourec. Net of all the operating results of Vallourec and V&M Tubes, there was a considerable increase in the pre-tax operating profit of the other tubes companies in comparison with the previous year’s period.
The economic recovery, especially in Germany, created an exceptionally advantageous market environment for the European stockholding steel traders. As, on the grounds of the strong demand, price hikes by manufacturers were swiftly passed on to end consumers, the sale of existing inventories commanded temporarily expanded trading margins. The project business of the international trading performed with a similar positive trend. In the first nine months of the financial year 2006, the external sales of the Trading Division climbed 16 % to a new record level of € 2.87 billion (9 months 2005: € 2.47 billion). The excellent results of the Salzgitter Mannesmann Handel Group and plate specialist Universal Eisen und Stahl GmbH boosted pre-tax profit by a significant 149 % to € 149.2 million (9 months 2005: € 59.9 million).
The Services Division also considerably raised its external sales by 32 % to € 316 million in the first nine months of 2006 (9 months 2005: € 240 million). This was mainly attributable to larger sales volumes and firmer revenues generated by DEUMU, a company trading in scrap and raw materials. The Division’s pre-tax profit came to very gratifying € 16.6 million in the period under review (9 months 2005: € 5.7 million).
The result of “Other/Consolidation” rose sharply in the wake of the Vallourec sale to € 917.0 million in the reporting period (9 months 2005: € -41.6 million; in order to facilitate comparison, this figure includes the IFRS-loss of € -24.4 million resulting from the sale of the V&M tubes participation in 2005 which was previously stated in the Tubes Division).
The current general conditions and present business situation of the Salzgitter Group can be regarded as highly satisfactory. The performance of the Steel Division is set to stabilize at the level currently attained in the fourth quarter, secured by orders on hand, the resulting capacity utilization and the sales price increases asserted in recent months. From today‘s standpoint, the market situation at the start of next year will depend on the further development of the economy in Europe, on imports of rolled steel and the inventory levels of steel traders and consumers.
Against the backdrop of orders on hand which have risen further, the Tubes Division should be in a position to generate very gratifying results in the months ahead, as capacity utilization in some companies has been ensured until well into 2007. A sufficient supply of input materials will play a major role in this process in future as well.
In the coming months, the Trading Division is likely to maintain its current dynamics. Nonetheless, the winter months could have a braking effect on stockholding traders in Germany and Europe. In addition, the possibility of a cooling US economy having an impact on the international steel markets cannot be entirely discounted. Positive stimulus is, however, likely to emanate from the international project business in tubes and plate in the months ahead as well. By contrast, rising political tension, especially in the Middle East, may put a damper on international trading activities.
Not least owing to high capacity utilization levels of the production companies of the Group, the positive trend in the Services Division is likely to persist up until year-end and beyond.
On the basis of the information currently available and estimates concerning trends in the procurements and sales markets, as well as the general conditions, and taking account of the effects of the profit improvement program, the Salzgitter Group’s pre-tax operating profit is expected to reach approximately € 800 million in the current year. Including the income from the sale of the Vallourec participation, this would result in a consolidated pre-tax profit of around € 1.7 billion. Express reference is made to the fact that opportunities and risks arising from, for instance, currently unforeseeable developments in revenue, input material prices and capacity levels, as well as changes in the currency parity, may still affect performance in the course of the financial year 2006.
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.