Yield at Salzgitter Group on satisfactory level in the first half year of 2004

12.08.2004 | Salzgitter AG


Yield at Salzgitter Group on satisfactory level in the first half year of 2004

Driven by buoyant worldwide demand for rolled steel products and tubes the Salzgitter Group has achieved a considerable expansion of business activities in the first half of 2004.

At EUR 2.77 billion, consolidated external sales in the first half of 2004 were up by 10% over the first six months of 2003 (EUR 2.51 billion). Benefiting especially by the booming international steel markets, the Trading Division made an exceptional contribution to these results. Consolidated pre-tax earnings moved up to EUR 81.7 million over the comparatively poor first half of 2003 (first half of 2003: EUR 16.6 million). In addition to the Trading Division, the Tubes and Steel Divisions also made major contributions to these developments. Apart from the mostly favorable market conditions, the positive earnings trend is also attributable to the realization of the Group wide profit improvement program that has been proceeding according to schedule.

Consolidated after-tax earnings rose strongly to EUR 57.7 million (first half of 2003: EUR 9.2 million). The interest earned on capital employed (ROCE) returned to a satisfactory annualized level of 13.2% (first half of 2003: 4.2%). After two difficult years, the Salzgitter Group has returned to a level of profitability that satisfies the demands of the capital market.

External sales at the Steel Division were up by 7% over the previous year (EUR 764 million) to EUR 820 million. Thanks to the increased utilization of the Group's own distribution channels total sales expanded to EUR 1.18 billion, representing a 13% gain (first half of 2003: EUR 1.04 billion). By comparison with activities in the first half of 2003 that tended to be on a lower level, shipments and sales figures of flat steel and beams showed a particularly marked increase. The partially dramatic hikes in energy sources and raw materials (iron ore, coking coal, coke, scrap and alloying additions) necessitated increases in steel sales prices that were incrementally asserted on the market. Thanks to the satisfactory results achieved in flat steel and heavy plate products, as well as a gradually more favorable course of business in the beams area, the Steel Division concluded the first six months of the 2004 business year posting pre-tax profits of EUR 29.5 million (first half of 2003: EUR 7.4 million). The half-year result of the Steel Division includes EUR 5.8 million profit from the sale of shares of the US company Steel Dynamics Inc.

In connection with the recovery of the tubes markets, the positive developments at the Tubes Division continued also throughout the second quarter of 2004. Overall shipments improved, while external sales of EUR 458 million remained below the figure posted in the first half of 2003 (EUR 474 million) mainly due to changes in the product mix and as well as negative currency effects. By contrast, sales of the seamless tubes producers integrated on an at-equity basis increased due to the higher volumes achieved. Pre-tax profit returned to normal over the previous year's period that had been impacted by crisis and came in at EUR 25.7 million (first half of 2003: EUR 1.6 million).

Thanks to firm demand, the Trading Division was able to pass the steel producers price increases on to the markets without any major time lags and also profited from inventory procured at favorable purchasing prices, the sale of which sparked a leap in results. External sales showed strong growth of 21% to EUR 1.23 billion (first half of 2003: EUR 1.02 billion). Pre-tax profits jumped to EUR 43.0 million over EUR 5.6 million in the first six months of 2003.

The external sales of EUR 152 million posted by the Services Division exceeded the previous year's figure of EUR 119 million by 18%. This is mainly attributable to the expanded sales activities buoyed by the high scrap and alloy additions prices that the DEUMU sales company has achieved with customers outside the Group. The pre-tax results came in at EUR 9.8 million (first half of 2003: EUR 6.7 million).

In the period under review the Processing Division generated external sales of EUR 104 million (first half of 2003: EUR 129 million) and recorded pre-tax losses of EUR -18.8 million (first half of 2003: EUR -7.4 million). In view of failure of the construction industry to stage a recovery and the persisting competitive pressure it was only possible to pass on the strong rises in input stock costs to a limited extent and with a respective time lag. Cost cutting measures by the automobile manufacturers proved an additional burden on business. The Processing Division also conducted write-downs of EUR 15 million, which have been offset by the Holding through waiving claims of the same amount. Due to this special effect the result from consolidation and other measures was negative (first half of 2004: EUR -7.5 million; first half of 2003: EUR 2.7 million).

The prospects of the world economy remaining its expansive course are becoming more likely. Towards the end of the year increasingly restrictive monetary policies in western nations and in China may put a slight damper on the pace of growth. The extreme hikes in raw materials and energy prices, as well as the persisting crisis in the Near and Middle East remain latent risk factors. An upturn in domestic demand in connection with a possible light decline in export activities at the end of the year are forecast for the Euro zone. In Germany, the business cycle in the second half of the year is likely to be mainly driven by solid export demand and industrial production output, while the domestic markets are not expected to be generating any notable impulses in the near future. All in all, the environment for the business activities of the Salzgitter Group is likely to develop favorably.

Since the beginning of the ongoing quarter the rolled steel market is characterized by the upturn in demand emanating from China that has already fueled the respective price increases in scrap, other raw materials and sea freight rates. These renewed price rises in connection with the seasonal decline in steel consumption due to the holiday shutdown at major steel producers may burden the result of the Steel Division in the third quarter of 2004. Consequently, the further development of the Steel Division will also hinge on the price rises announced for the fourth quarter.

In the tubes sector the satisfactory demand, especially from the energy branch is likely to benefit the manufacturers of seamless and line tubes in particular. In this respect, the strained situation on the energy markets also entails positive business aspects apart from the general risks. In the second half of 2004, the key criterion for the performance of the Tubes Division – similar to the steel activities – will be the successful assertion of price rises in all product areas in order to compensate for the negative influence of rising input stock prices and the persistent weakness of the US dollar.

At the Trading Division the additive effect ensuing from the sales of stock purchased at favorable prices will diminish due to renewed procurement at current market prices over the next months. Given the overall satisfactory demand, pre-tax profit should stabilize at a satisfying level.

The current figures would suggest that the Services Division will be posting a solid result on par with the good performance achieved in the first half of the year. As the somewhat difficult situation in the construction industry and the automobile industry is likely to remain unchanged – at least over the short term – the unsatisfactory situation the Processing Division is undergoing will only improve gradually over time.

The profit improvement program that currently comprises 272 individual measures will be consistently implemented in an ongoing process. The effects will stabilize the earnings developments in all Group areas and divisions in a sustained manner.

Based on current information and expectations concerning the development of the procurement and sales markets, as well as the general conditions and with consideration given to the effects generated by the profit improvement program, the Salzgitter Group expects to achieve a pre-tax profit for the financial year 2004, excluding special effects, that will be close to the good performance of the year 2001. In view of the exceptional situation of the procurement and sales markets, the bandwidth of opportunities and risks impacting the Group's performance is considerably wider than in previous years.

Key Data of the Salzgitter Group

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.