The Salzgitter Group confirms turnaround in the first half of 2015

  • Earnings before taxes significantly up on previous year
  • "Salzgitter AG 2015" restructuring program is driving force behind the improved earnings
  • Forecast for the financial year 2015 confirmed

The Salzgitter Group closed the first half of 2015 with its first positive half-year earnings before taxes since 2011, substantially up on the result from the previous year. All business units contributed to this pleasing development with improved results compared to the previous year. In total, € 33.1 million in expenses for structure-enhancing measures was incurred. The financial basis remains very solid with a 35% equity ratio, as well as a net credit balance of € 178 million.

CEO Prof. Dr.-Ing. Heinz Jörg Fuhrmann commented on the results: "This development proves the far reaching effects of the groupwide restructuring program 'Salzgitter AG 2015', regardless of the still challenging economic environment in Europe. This is the result of our own efforts. Nevertheless, we still have a long way to go and a wide range of tasks to complete. Our aim is to consistently continue along this successful path."

At € 4,529.6 million, the external sales of the Salzgitter Group in the first half of 2015 were roughly on a par with the previous year level (first half of 2014: € 4,549.3 million). The company generated a gratifying pre-tax profit of € 80.2 million (first half of 2014: € -4.2 million). This profit contains a € 16.4 million positive contribution from the Aurubis investment (first half of 2014: € 39.2 million), as well as a total of € 33.1 million in expenses for streamlining measures. The after-tax result stood at € 41.3 million (first half of 2014: € -15.9 million), resulting in earnings per share of € 0.72 (first half of 2014: € -0.33). The return on capital employed (ROCE) was recorded at 5.4 % (first half of 2014: 1.1%).

Development of the business units
The Strip Steel Business Unit posted shipments on a par with the previous year during the first six months of the financial year 2015. Due to the highly intense competition in the European steel market, selling prices for most products have weakened over the course of the year, resulting in external sales falling just short of the previous year's figure (€ 1,030.1 million; first half of 2014: € 1,095.6 million). The business unit generated a pre-tax profit of € 20.7 million based on the gratifying rise in contribution from Salzgitter Flachstahl GmbH and therefore significantly exceeded the first half of 2014 (€ -6.9 million). In addition to a decline in raw materials costs, this development was also driven by the first cost reduction effects of the pulverized coal injection plant at the blast furnaces in Salzgitter launched in April.

Europe's heavy section and plate markets presented a disparate picture during the period under review. While the section business proved comparably stable, the heavy plate business was impacted by modest demand and increasing import volumes. However, the shipments of the Plate / Section Steel Business Unit still exceed the previous year figure. As a result of selling price developments, external sales of € 500.2 million remained tangibly below the figure recorded in the first half of 2014 (€ 556.5 million). Thanks to the sustained success of the rapidly implemented restructuring and operating optimization measures, Peiner Träger GmbH achieved a pleasing pre-tax profit. The plate producers also significantly improved their result compared to the previous year. However, a negative pre-tax result was posted (€ -19.5 million; first half of 2014: € -42.6 million) due to the clear loss recorded at HSP Hoesch Spundwand und Profil GmbH, which contained a € 23.1 million precautionary measure in connection with the decision to shut down the sheet piling product segment.

In the Energy Business Unit, production for the pipeline project in the Black Sea (former South Stream), which recommenced in June, as well as the high capacity utilization of the North American sites were only able to partially offset the still challenging market situation in the European pipe market. As a result, shipments declined slightly and external sales fell short of the comparable figure (€ 574.9 million; first half of 2014: € 651.0 million). However, the business unit was still able to return to the black with a profit of € 3.3 million (first half of 2014: € -19.8 million). In this context, the EUROPIPE Group substantially reduced its pre-tax loss thanks to the upbeat business of the US companies and despite the formation of € 10.0 million provisions for restructuring measures at EUROPIPE France S.A. The line pipe companies almost halved the negative result recorded in the comparable period of the previous year.

Demand on the international steel trading markets remained restrained in the first half of 2015 in almost all regions and product segments. Nevertheless, shipments at the Trading Business Unit increased sharply in the first six months of 2015 compared to the previous year's period. External sales rose to € 1,690.3 million accordingly (first half of 2014: € 1,560.0 million). Owing largely to the gratifying pre-tax result from international trading, the business unit more than doubled pre-tax profit to € 17.3 million (first half of 2014: € 7.0 million).

In the first six months of 2015, the Technology Business Unit matched the good level of order intake from the previous year. External sales improved to € 636.3 million (first half of 2014: € 592.8 million). At € 14.6 million, a presentable pre-tax profit was generated, which rose compared to the previous year period (first half of 2014: € 11.5 million), with the KDE Group contributing to this development along with the KHS Group with its increased service business and aperiodic dividend income.

The external sales of Industrial Participations / Consolidation grew (€ 97.7 million) compared to the previous year's figure (first half of 2014: € 93.2 million). However, the pre-tax profit of €43.7million was slightly lower than the previous year's figure (first half of 2014: € 46.6 million). This figure includes income of € 16.4 million from the Aurubis investment (first half of 2014: € 39.2 million). In addition, Group companies not directly allocated to a business unit made an overall positive contribution to profit that clearly exceeded the previous year's figure. Positive valuation effects from foreign exchange transactions further bolstered the result.

Outlook
Guidance on the development of the macroeconomic situation is already fundamentally subject to a great deal of uncertainty, particularly in the current political and financial environment. The forward-looking statements below on the individual business units assume the absence of renewed recessionary developments in Europe. Instead, we anticipate a relatively moderate economic recovery in our main markets during the current financial year, with these markets remaining fiercely contested.

The Strip Steel Business Unit expects a clearly negative result for the third quarter. The reason for this is the blast furnace relining commencing in August at Salzgitter Flachstahl GmbH, which will lead to roughly € 80 million in one-off burdens in the second half of the year. Savings on the cost front, thanks to the commencement of regular operations at the new pulverized coal injection plant among other things, will naturally be unable to offset this completely. Overall, it is assumed that sales will be lower than in the financial year 2014. Without these negative effects, a return to the profit zone could have been expected. Including the direct and indirect impacts of relining the blast furnace, the business unit's pre-tax result will, however, fall notably short of the figure reported in 2014.

The Plate / Section Steel Business Unit will continue to operate in a difficult market environment in the current financial year. The heavy plate mills anticipate a tangible improvement in earnings, despite the tough price competition, due to the recommencement of the pipeline project in the Black Sea (former South Stream), among other factors. Following the turnaround, the primary aim of Peiner Träger GmbH will be to continue to further stabilize its business, also under difficult market conditions. Taking account of the general market environment and in conjunction with the special situation at HSP Hoesch Spundwand GmbH (HSP), the development of the business unit's sales and earnings are subject to considerable imponderables. The business unit will nonetheless be aiming at substantially improving the pre-tax result, which will include the one-off expenses for HSP. Sales, however, are likely to decline slightly.

The Energy Business Unit is suffering from the weak European market for large-diameter pipes in 2015, despite the lifting of the suspension of the South Steam project. In contrast, the situation in North America presents a positive picture, as the order backlog here has secured capacity utilization far into the year 2016. The precision tubes companies expect stable demand from automotive manufacturers, while orders from the energy and industry product segments will remain fiercely contested. Due to the low oil price, the seamless stainless steel tubes business anticipates a weaker order level after a highly successful 2014. The Energy Business Unit is expecting sales to fall short of the previous year's level in 2015. Irrespective of the shortfall in the capacity utilization of European large-diameter pipe production sites, the pre-tax result is expected to improve due to the rigorous implementation of the measures under the "Salzgitter AG 2015" program and the non-recurrence of one-off charges.

The Trading Business Unit's stockholding steel trade anticipates rising earnings based on the expected stabilization of prices and demand conditions in Europe. In view of the profitable business to date, international trading is expecting a satisfactory result. All in all, we anticipate a lower level of sales for the Trading Business Unit, as well as a satisfactory, although notably lower year-on-year pre-tax profit due to positive one-off effects in 2014 that were not repeated this year.

In the Technology Business Unit, KHS anticipates the continuation of the pleasing development of its service business. The outlook for the KDS and the KDE Group is also very promising. However, KDS will be unable to sustain the record levels of the previous year. In combination with slowed momentum in project business at KHS, the Technology Business Unit will find it challenging to maintain the sales and earnings level of the previous year.

Based on planning by the individual business units, and taking account of further positive effects from the "Salzgitter AG 2015" program, we continue to assume the following for the Salzgitter Group in 2015:

  • stable sales,
  • a pre-tax profit in the lower to mid-double-digit million euro range and
  • a return on capital employed (ROCE) that is higher than the previous year's figure.

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 changes in the currency parity, may considerably affect performance in the course of the financial year 2015. 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 scale of this range becomes clear if one considers that, with around 12 million tons p.a. of steel products sold by the Strip Steel, Plate / Section Steel, Energy 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 side, as well as on the shipments side.

Disclaimer: Some of the statements made in this report have the character of forecasts or may be interpreted as such. These are made to the best of the Company's knowledge and judgement, 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.

More information:

Keydata 1st Half 2015

Interim Report 1st Half 2015

Presentation Analyst Conference 1st Half 2015 (available at 12:30 pm)

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