Salzgitter AG : First Quarter of 2013 - Low-key start to the financial year – focus on realizing potential within the Group

First Quarter of 2013 - Low-key start to the financial year - focus on realizing potential within the Group

15.05.2013

In the first three months of 2013, the performance of the Salzgitter Group was overshadowed by persistently unfavorable general economic conditions in Europe. The recovery in the demand for steel at the beginning of the year proved to be short lived; a renewed weakening of selling prices was not compensated by the more hesitant reduction in the cost of raw materials. Capacity utilization in the flat steel and plate businesses, as well as the tubes companies in part was however comparatively satisfactory. The Trading Division benefited from the positive position of its international trading, while the Technology Division continued to successfully implement its restructuring measures. Overall, the Group closed the first quarter of 2013 with a pre-tax loss that underscores the significance of the "Salzgitter AG 2015" reorganization program initiated the year before. An equity ratio of 40.4 % and a net financial position of more than € 400 million continue to form a sound financial basis for mastering the current challenges.

Consolidated external sales declined to € 2,446.8 million, down € 168 million, mainly due to selling prices (first quarter of 2012: € 2,614.6 million). Earnings before interest, tax, depreciation and amortization (EBITDA) stood at € 98.7 million (first quarter of 2012: € 88.9 million), and the pre-tax result came in at € -15.8 million (first quarter of 2012: € -19.6 million). This figure includes an amount of € 5.8 million in after-tax profit from Aurubis AG (first quarter of 2012: € 28.0 million), a participation included at equity. The result after tax posted € -16.6 million (first quarter of 2012: € -15.5 million), the equivalent of € -0.32 per share (basic, first quarter of 2012: € -0.31). Return on capital employed (ROCE) stood at 0.4 % (first quarter 2012: -0.5 %).

While the protracted winter weather hampered construction activities in many regions, thereby placing an additional burden on the beams segment's performance that was already weak owing to economic conditions, the Steel Division's flat products reported generally robust demand. Shipment tonnage increased by 4 %; the Steel Division's external sales fell short of the figure posted in the first three months of 2012 (€ 670.5 million; first quarter of 2012: € 724.8 million). Lower raw materials costs in comparison with the unfavorable situation of the year before contributed to lifting the pre-tax result that nonetheless remained clearly negative at € -33.7 million (first quarter of 2012: € -51.6 million). This is first and foremost attributable to the unsatisfactory performance of Peiner Träger GmbH.

Thanks to the very healthy shipment volumes of international trading, the Trading Division's shipments remained at the level of the year-earlier quarter. Owing to the lower price level, external sales fell short in a year-on-year comparison (€ 993.7 million, first-quarter of 2012: € 1,103.9 million). With a pre-tax profit of € 10.2 million, the segment generated a presentable result that compares with the previous year's period (first quarter of 2012: € 11.5 million).

The Tubes Division's shipments matched the level of the first three months of 2012. The lower shipments of HFI-welded and precision tubes were compensated by large-diameter pipes, the volume of which was still unsatisfactory, though higher than a year ago. External sales of € 400.8 million also held the year-earlier level (first quarter of 2012: € 389.0 million). Against the backdrop of an unsatisfactory order book and capacity utilization, particularly in the precision tubes segment, compounded by pressure partly exerted on selling prices, the division delivered a pre-tax loss of € -12.5 million (first quarter of 2012: € -9.6 million).

The Services Division that generated external sales of € 101.4 million fell marginally short of the year-earlier figure (first quarter of 2012: € 108.4 million). The decline in earnings before tax (€ 1.7 million; first quarter of 2012: € 6.2 million) resulted primarily from the lower profit contribution of DEUMU Deutsche Erz- und Metall-Union GmbH owing to lower shipment volumes and concurrently weaker margins.

The external sales of the Technology Division remained around the level of the previous year (€ 270.8 million; first quarter of 2012: € 280.1 million). The division achieved a gratifying pre-tax profit of € 3.6 million (first quarter of 2012: € 2.5 million). At the KHS Group, this result also reflects the ongoing success of the "Fit4Future" program, alongside high capacity utilization and stable sales margins in the project business.

The external sales of Other/Consolidation, generated primarily through business in semi-finished products with external parties, advanced to € 9.5 million in the first quarter of 2013 (first quarter of 2012: € 8.6 million). Earnings before tax amounted to € 14.8 million (first quarter of 2012: € 21.4 million). This figure includes an after-tax contribution of € 5.8 million from Aurubis AG (first quarter of 2012: € 28.0 million).

Salzgitter intra-group sales grew to € 807.2 million in the reporting period (first quarter of 2012: € 705.1 million).

A major economic recovery in the eurozone has still failed to materialize. Consequently, no significant improvement in the general conditions for the Salzgitter Group's business activities can be anticipated in the coming months either. For this reason, we are focusing on implementing the internal measures announced that are geared to safeguarding the medium- to long-term competitiveness of the Group. We will be reporting on the results and impact of the "Salzgitter AG 2015" organization project at mid-year.

With German demand for steel at a more modest level, the European steel market is undergoing a severe structural crisis. There is a strong imbalance between excess supply and demand for several product groups in Europe, particularly in the case of southern European producers, which is exerting sustained pressure on margins across almost all steel products. This situation is exacerbated by the persistently high level of raw materials and energy costs as well, with no substantial easing anticipated in the foreseeable future. Rolled steel products for the construction industry, such as beams, are the hardest hit. With a delay in the customary seasonal recovery, there are no signs of fundamental improvement in the second half of the year. Against this background, the Steel Division anticipates stable sales at best and a negative pre-tax result around the level of the previous year.

The Trading Division expects the recently very dynamic project business in international trading to return to normal levels as opposed to profit opportunities in the stockholding steel trade that may arise from accelerating demand. With a moderate decrease in sales, a profit in the mid-double-digit million range still appears achievable.

The Tubes Division's large-diameter pipe business in Europe has come under considerable pressure from the shortfall in capacity utilization since the start of the second quarter, which is likely to persist a good way through the fourth quarter. No significant recovery in demand is anticipated in the precision tubes segment either. With the delivery of larger project volumes that have already been produced from the second quarter onward, the result of medium-diameter line pipes is set to improve, while the seamless stainless steel tubes segment is likely to continue to perform well. All in all, sales are expected to remain stable and profit contribution is likely to be lower compared with the year-earlier level. A pre-tax loss cannot be ruled out.

The Services Division predicts sales and a pre-tax result virtually on par with the year-earlier level.

Flanking the positive trend in new orders, the Technology Division is expected to see a continuation of its sales and profit momentum, with support anticipated from the KHS Group's "Fit4Future" program initiated back in 2011 and rigorously implemented.

The limited reliability of economic forecasts for Germany and for Europe above all continues to hamper the provision of valid and detailed guidance for the results of the Salzgitter Group. Fundamentally, we do not expect a significant improvement in the economic environment over the remainder of the year. In view of the deterioration in the prospects of the Steel and Tubes Divisions' business it has therefore become necessary to adjust the guidance for the Salzgitter Group: We now anticipate stable sales and a negative pre-tax result in the mid-double-digit million euro range in the financial year 2013. As already announced, additional special effects may still arise as a consequence of implementing the "Salzgitter AG 2015" Group project.

We make reference to the fact that opportunities and risks from currently unforeseeable trends in selling prices, input material prices and capacity level developments, as well as changes in the currency parity, may considerably affect performance in the course of the financial year 2013. 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 9 million tons of steel products sold by the Steel, Trading and Tubes divisions over the remainder of the financial year, an average € 20 contraction in the margin per ton is sufficient to cause a variation in the annual result of more than € 180 million. Moreover, the accuracy of the company's planning is restricted by the volatilities and shorter contractual durations, both on the procurement and on the sales side.

Disclaimer: Some of the statements made in this report 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. Notwithstanding prevailing statutory provisions and capital market law in particular, the company undertakes no obligation to continuously update any forward-looking statements that are made solely in connection with circumstances prevailing on the day of their publication.