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Key data for the financial year 2017

28.02.18 | Press release of Salzgitter AG

Salzgitter Group closes the financial year 2017 with the highest pre-tax profit since the financial market crisis; outlook for 2018 similarly promising

  • Fourth earnings increase in a row
     
  • A good € 70 million in profit improvement potential realized in the financial year 2017
     
  • Core components of the “Salzgitter AG 2021” growth strategy under way
     
  • Guidance for the financial year 2018: pre-tax profit of between € 200 million and € 250 million

Against the backdrop of a significant improvement in the strip steel business, but a nevertheless challenging market environment, the Salzgitter Group closed the financial year 2017 with the highest pre-tax profit since the financial market crisis. This development was driven mainly by the outstanding results of the Strip Steel and Trading business units, along with notable effects from the rigorously implemented internal programs of measures. With an equity ratio of 35.9 % and a net financial position that has increased to € 380.5 million, our company continues to enjoy an extremely sound balance sheet and a strong financial position.
 
The Group’s external sales rose in the financial year 2017 mainly on the back of selling prices to € 8,990.2 million (2016: € 7,905.7 million). Earnings before taxes of € 238.0 million have more than quadrupled (2016: € 53.2 million). This amount includes a contribution of € 79.3 million from the Aurubis investment (2016: € 19.1 million) as well as a total of €–82.9 in expenses for measures aimed at improving structures under the groupwide “FitStructure SZAG” optimization program, along with impairment of the assets of Salzgitter Mannesmann Grobblech GmbH (special items 2016: €–2.3 million). An after-tax result that stood at € 193.6 million (2016: € 56.8 million) brings earnings per share to € 3.52 (2016: € 1.00) and return on capital employed to 8.6 % (ROCE 2016: 2.7 %).
 
Chief Executive Officer Prof. Dr.-Ing. Heinz Jörg Fuhrmann commented as follows: “With the fourth increase in the results in a row, we reported the highest pre-tax profit since the onset of the financial market crisis. One of the main drivers of this development was the improved situation of the steel market, above all of the strip steel segment. The 2017 result also clearly evidences the effectiveness of the structural changes being implemented since 2012, as well as a well-deserved reward for all the hard work. Taking pleasure in what has been achieved is entirely fitting, but sitting back contentedly is meanwhile not an option as the environment is and remains challenging for large parts of our Group. We need to, want to and will therefore remain ‘on-the-job’! Running parallel with the measures aimed at internal optimization, we initiated groundbreaking investment projects in 2017 in line with our “Salzgitter AG 2021” strategy, with a third hot-dip galvanizing line in Salzgitter, the new heat treatment line in Ilsenburg, and the extension of the precision tubes mill in Mexico.”
 

Development of the business Units

With shipments remaining virtually stable, the external sales of the Strip Steel Business Unit rose by almost one fifth to € 2,159.8 million (2016: € 1,814.6 million) largely on the back of the higher average selling prices of strip steel products. With earnings before tax that came in at € 182.0 million, the segment raised its result considerably, due above all to improved selling prices (2016: €–2.3 million). In addition, the performance reflects the positive effects of the programs of measures introduced. A counter trend emanated from higher raw materials prices, especially for coking coal.
 
In a market environment characterized by an ongoing high level of heavy plate imports as well as volatile raw material and energy prices on the upside, the Plate / Section Steel Business Unit’s external sales notably exceeded the year-earlier figure on the back of higher prices and volumes (€ 1,024.3 million; 2016 € 741.8 million). Along with the release of order-specific provisions, the business unit’s pre-tax result of €–57.7 million comprises impairment at Salzgitter Mannesmann Grobblech GmbH amounting to €–48.8 million, which represents a year-on-year decline (2016: €–32.1 million). The heavy plate companies succeeded in reducing their operating losses. Peiner Träger GmbH was unable to repeat the success of recent years due to market conditions. The company delivered a result virtually at breakeven on the back of a positive earnings trend in the fourth quarter.
 
The Mannesmann Business Unit reported a marked increase in shipment volumes, boosted primarily by the higher delivery volumes of Mannesmann Line Pipe GmbH (MLP). External sales surpassed the € 1 billion threshold (€ 1,093.5 million; 2016: € 999.4 million). The business unit lifted its pre-tax result significantly to € –5.6 million (2016: €–22.4 million) due to MLP’s improved earnings performance. This figure includes €–21.0 million in expenses for measures aimed at structural improvements at the precision tubes group in Europe.
 
The shipments of the Trading Business Unit remained below the year-earlier level mainly due to the only partly satisfactory international project business. The price increases in all areas nevertheless resulted in significantly higher external sales (€ 3,229.9 million; 2016: € 2,855.0 million). The customer base in the area of digital trading activities expanded steadily in during the reporting period. Almost 10 % of the sales of the German stockholding steel trade were realized through digital interfaces in 2017. The Trading Business Unit generated a pre-tax profit of € 70.5 million, thereby substantially outperforming the already very presentable result of the previous year’s period (2016: € 45.2 million).
 
The Technology Business Unit’s external sales that came in at € 1,284.7 million settled around the level of the previous year’s period (2016: € 1,300.3 million), underpinned by the growth of the DESMA Elastomer Group (KDE) and DESMA Schuhmaschinen GmbH (KDS). The Technology division delivered earnings before taxes of € 6.6 million, which did not match the year earlier figure (2016: € 28.4 million). This includes € –13.1 in expenses for measures aimed at structural improvements at the KHS Group that reported a notable downturn in the result compared with the previous year due to competitive price pressure. By contrast, both KDS and the KDE Group increased their pre-tax profit considerably.
 
Industrial Participations / Consolidation reported stable external sales in comparison with the previous year (€ 198.0 million; 2016: € 194.6 million). Earnings before taxes climbed to € 42.2 million (2016: € 36.3 million). This figure includes the contribution of the Aurubis investment amounting to € 79.3 million (2016: € 19.1 million), as well as the pre-tax result of the Group companies not directly allocated to a business unit. A counter effect emanated, however, from the reporting-date related valuation effects of foreign exchange and derivative positions.
 
The annual financial statements for the financial year 2017 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on March 16, 2018.
 

Outlook

Compared with the previous year, the business units anticipate that business in the financial year 2018 will develop as follows:
 
The Strip Steel Business Unit is expecting another gratifying performance based on the assumption of the raw material prices for iron ore and coking coal remaining at the level of year-end 2017 and of mostly stable selling prices in the EU steel market. Although Europe’s anti-dumping measures have induced a marked decline in the flood of cheap imports from China, significant imports from other countries such as Turkey or India nevertheless continue to be registered. Thanks to the higher shipment volume, we anticipate a moderate increase in sales assuming demand remains robust and another pre-tax profit above € 100 million. Due mainly to the valuation mechanism of manufacturing costs under IFRS, this figure is likely to be notably lower than in the previous year’s figure.
 
The Plate / Section Steel Business Unit will remain exposed to a difficult market environment. While the heavy plate market continues to be characterized by high import volumes from non-EU countries into the EU and by above-average stocks and coverage, the increase in the cost of graphite electrodes has a burdening effect on the section steel segment. Moreover, the volatile scrap price is likely to prompt speculative buying patterns on the part of customers, as before. All three plants nevertheless predict that capacity utilization will remain largely sound. The heavy plate companies continue to benefit from the extensive measures to reduce costs and enhance efficiency. In addition, the expansion of business at the Ilsenburg plant to include higher-end grades – facilitated by the more intensive use of vacuum treated input material following the commissioning of Salzgitter Flachstahl GmbH’s new RH plant – should show the first positive effects. All in all, the business unit anticipates stable sales and a significant reduction in its pre-tax loss.
 
We anticipate that the business of the Mannesmann Business Unit will develop unevenly in 2018 as well: As opposed to the American companies, capacities of the German large-diameter pipe companies of the EUROPIPE Group remain very well booked due to the Nord Stream 2 and EUGAL projects. In the medium-diameter line pipe segment the exceptionally high demand from North America is likely to normalize, while Mannesmann Grossrohr GmbH continues to be confronted by the hesitant awarding of projects. The precision and stainless steel tubes segments expect business to develop well. Seen overall, we anticipate a moderate decline in sales and a significant improvement in the business unit’s again positive pre-tax result. The success of the profit enhancing programs initiated should make a contribution in this context.
 
The Trading Business Unit expects moderate sales growth in 2018, resulting from a notable increase in shipments, accompanied by marginally lower prices induced by the product mix in international trading, along with stable shipment volumes and changes to the portfolio with positive effects in the stockholding steel trade. Compared with the exceptionally successful previous year that was impacted by temporarily widening margins, the earnings level is expected to return to normal levels. The Trading Business Unit predicts a gratifying pre-tax profit that will nevertheless fall considerably short of the previous year’s outstanding figure.
 
Based on the high level of orders on hand and good order intake, the Technology Business Unit predicts a moderate increase in sales. In view of the fierce price-led competition for the project business, the KHS Group will rely on growth in the profitable product segments as well as on expanding its service business. In addition, the measures implemented to raise efficiency should have a positive impact. In conjunction with the promising outlook for the two specialist mechanical engineering companies of the DESMA Group, a tangible increase in pre-tax profit is expected.
 
Given the good start to the new financial year, with brighter prospects in a number of business lines, the generally still challenging market conditions and ongoing positive effects from the programs of measures and to promote growth, we anticipate the following for the Salzgitter Group in 2018:

  • a slight increase in sales to above the € 9 billion mark,
     
  • a pre-tax profit of between € 200 million and € 250 million, as well as
     
  • a return on capital employed that is stable compared the previous year's figure.

The forward-looking statements assume the absence of renewed recessionary development in Europe. Instead, we anticipate an at minimum stable development in our fiercely contested main markets during the current financial year. As in recent years, please note that opportunities and risks from currently unforeseeable trends in selling prices, input material prices and capacity level developments, as well as exchange rate fluctuations, may considerably affect performance in the course of the financial year 2018. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative. The dimensions of this range become clear if one considers that, with around 12 million tons of steel products sold by the Strip Steel, Plate / Section Steel, Mannesmann and Trading business units, an average € 25 change in the margin per ton is sufficient to cause a variation in the annual result of more than € 300 million. Moreover, the accuracy of the company's planning is restricted by the volatile cost of raw materials and shorter contractual durations, on the procurement as well as on the sales side.
 
Disclaimer: Some of the statements made in this report possess the character of forecasts or may be interpreted as such. These are made to the best of the Company’s knowledge and judgment, 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 with regards to their scope and timing. Notwithstanding prevailing statutory provisions and capital market law in particular, the Company accepts no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.

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