Key data - Economic environment in the euro area determines the financial year 2012

27.02.2013

  • External sales up by more than € 500 million
  • Pre-tax result burdened by an extremely challenging steel market
  • Equity ratio higher than 40 %; net financial position of half a billion euros
  • Guidance for the financial year 2013: stable sales and earnings before tax in the lower double-digit million euro range
In 2012, the Salzgitter Group was exposed to an extremely challenging economic environment. Declining selling prices in the European steel market, compounded by high input materials and energy costs and temporary capacity underutilization in the Tubes Division, could not be compensated by the positive development of the Trading and Technology divisions and a gratifying profit contribution by the 25 % holding in Aurubis AG. With an equity ratio of 41 % and a net financial position of €497 million, the company has a sound balance sheet and a solid financial footing, as before.

Boosted first and foremost by the considerable growth in international steel trading, the Group's external sales rose by 6 % to € 10,397.2 million (2011: € 9,839.5 million). Earnings before tax stood at € -29.4 million (2011: € 201.6 million). This figure comprises risk provisions, impairment and negative effects from reporting-date related market valuations, which were offset on balance by the release of inventory risk provisions. The result after tax of € -99.8 million (2011: € 236.0 million) includes non-cash deferred income tax expenses of € 62.3 million that became necessary under the International Financial Reporting Standards (IFRS) owing to a revaluation of tax loss carryforwards capitalized to date. The Group's loss carryforwards remain available in their actual amount and can be used in subsequent periods. The return on capital employed (ROCE) stood at 1.3 % (2011: 5.6 %).

The individual divisions developed as follows:

Despite a market environment characterized by production capacity underutilization in Europe and fierce competition, the Steel Division secured generally satisfactory capacity utilization by stepping up deliveries to Group companies of the Tubes Division and exploiting export opportunities in countries outside the EU. Since, however, the higher shipment volume was unable to fully offset the impact of lower average selling prices, external sales (€ 2,654.7 million) declined slightly compared with the year-earlier period (2011: € 2,739.7 million). Unsatisfactory selling prices and, at the same time, the persistently high costs of input materials and energy resulted in the Steel Division reporting a pre-tax loss of € -176.3 million (2011: € 25.7 million).

In contrast, the Trading Division's business developed very well for the most part. International trading staged a strong recovery and the activities of the stockholding steel trade remained sta-ble. At € 4,646.8 million, external sales were substantially higher than the year before (2011: € 3,903.9 million). The division generated pre-tax profit of € 77.1 million, thereby significantly out-performing the previous year's result (2011: € 60.6 million).

A temporary gap in capacity utilization in the large-diameter pipes business and the desolate market environment of the French precision tubes company hampered the performance of the Tubes Division. At the same time, however, the division benefited from positive performance of the HFI-welded pipes and stainless steel tubes segments in the reporting period. Against this backdrop, external sales (€ 1,559.5 million) did not quite match the year-earlier figure (2011: € 1,686.8 million); earnings before tax of € 7.8 million were also noticeably lower year on year (2011: € 67.3 million).

The Services Division's external sales declined (€ 412.4 million; 2011: € 457.3 million) and the pre-tax result fell marginally (€ 15.9 million; 2011: € 19.6 million).

The Technology Division focused its endeavors on raising machinery and plants sales and especially on widening margins. External sales (€ 1,093.6 million; 2011: € 966.6 million) exceeded the €1 billion mark for the first time again since 2008, with the KHS Group reporting the strongest growth. The division delivered € 9.5 million in pre-tax profit (2011: € 79.1 million), thereby achieving an impressive turnaround.

External sales generated in the Other/Consolidation segment through business in semi-finished products with external parties dropped to € 30.2 million (2011: € 85.3 million) due to the economic environment. Earnings before tax stood at € 36.7 million, thereby falling notably below the previous year (2011: € 107.4 million). The result includes € 55.5 million in after-tax profit from Aurubis AG, an investment included at equity (2011: € 74.2 million). The result was burdened first and foremost by the reporting-date related valuation effects of currency and derivatives items.

The annual financial statements for the financial year 2012 will be submitted to the Supervisory Board for ratification at its next meeting and a full version published on March 22, 2013.

The following summarizing description of our expectations for the development of the Group and its divisions in 2013 is based on the planning concluded at the end of 2012 and takes account of information currently available:

The Steel Division assumes an increase in sales compared with 2012, along with a clear improvement in its pre-tax result that will nonetheless remain negative. This forecast presupposes a relief anticipated with regard to raw materials and input materials purchasing, stable shipments, and the positive effects of the streamlining program that is underway.

The Trading Division expects the recently very dynamic project business in international trading to return to normal levels, while also perceiving additional shipment potential in America. Based on this premise, complemented by satisfactory margins in stockholding trading, sales growth with limited upside potential and a profit in the mid-double-digit million range appear achievable.

The Tubes Division anticipates the possibility of a temporary phase of capacity underutilization over the course of 2013 due to the economic environment and late cyclical nature of the tubes business. This will foreseeably affect the large-diameter pipes segment in particular. All in all, a marginal decline is expected in sales and a profit contribution comparable with the year-earlier level.

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

Based on the order intake trend, a continuation of the sales and profit momentum has been planned for the Technology Division. Supported by the "Fit4Future" program, initiated back in 2011 and systematically implemented, the KHS Group is likely to raise sales, improve price quality, and achieve additional cost reductions. Expectations for the companies of the KDE Group and KDS operating in special machine construction are similarly positive.

The weak - and hardly reliable - economic forecasts for Germany and above all for Europe naturally hamper providing valid and detailed guidance for the results of the Salzgitter Group. The assumption being that general conditions do not deteriorate further over the period covered by guidance, we anticipate stable sales in 2013 and earnings before tax in the lower doubledigit million euro range. Furthermore, there may be additional effects from the implementation of the "Salzgitter AG 2015" Group project.

As in recent years, 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, as current events show, 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 Steel, Trading and Tubes divisions, an average € 25 contraction 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, 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.

 Salzgitter Group in Figures (pdf)
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