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Salzgitter Group announces 9M 2012 results

Following a promising start to the year, the Salzgitter Group was exposed to an increasingly difficult environment in the first nine months of the financial year 2012. Along with the European steel market already ailing in a number of regions, the business activities of German steel processors and traders have also recently lost discernible momentum. Against this background, the Salzgitter Group reported a notable decline in its pre tax result as against the previous year, first and foremost due to the unsatisfactory development in the results of the Steel Division. With an equity ratio unchanged at 43% and a net financial position of EUR 573 million, the financial situation of our company remains sound; Salzgitter AG is therefore well equipped to meet the current challenges.

Consolidated external sales climbed by 9 % to EUR 8,015.1 million (9 months 2011: EUR 7,331.4 million). The greatest contribution was made by the significant increase in the business volume of the Trading Division. The pre tax result stood at EUR 42.6 million at the end of the first nine months of 2012 (9 months 2011: EUR 169.1 million). This figure comprises a total of EUR 44.6 million in after tax contribution by Aurubis AG, a participation included at equity (9 months 2011: EUR 52.9 million). The consolidated result after tax amounted to EUR 48.2 million (9 months 2011: EUR 114.7 million).

The Steel Division reported generally sound capacity utilization throughout the reporting period. This is attributable, on the one hand, to the relatively high level of steel consumption by German industry and, on the other, to support from the distribution sector replenishing stocks in the first quarter. Moreover, a weaker euro permitted rolled steel exports to countries outside the EU on occasion. Consequently, there was a slight increase in shipments. In conjunction with selling prices that weakened as the year progressed, external sales almost reached the year earlier level (EUR 2,037.6 million; 9 months 2011: EUR 2,071.4 million). In this environment, the prevailing fierce competition, in conjunction with the persistently high cost of raw materials and energy, contributed to a clearly negative pre tax result of EUR 149.8 million (9 months 2011: EUR 35.9 million).

The shipment volumes of the Trading Division grew by more than a third, boosted above all by the gratifying acceleration in its international trading business. As a result, the division's external sales climbed to EUR 3,659.0 million (9 months 2011: EUR 2,810.6 million). As opposed to the previous year's period, the presentable pre-tax profit of EUR 42.0 million does not include any windfall profits (9 months 2011: EUR 53.3 million).

In the Tubes Division, greater shipments of medium diameter line pipes were able to compensate for the lower volume of large diameter pipes. All in all, tubes shipments therefore settled at the year earlier level; external sales fell to EUR 1,164.7 million (9 months 2011: EUR 1,299.6 million). The pre tax result that amounted to EUR 17.2 million was positive but nonetheless lower than the previous year's figure (9 months 2011: EUR 59.3 million).

The Services Division reported a downturn in external sales to EUR 313.3 million (9 months 2011: EUR 355.7 million). Pre-tax profit posted EUR 12.5 million (9 months 2011: EUR 14.6 million).

Driven by the revival in the business of the KHS Group, the Technology Division's order intake rose by one fifth in the first three quarters of 2012. External sales also climbed on the back of a healthy order book to EUR 813.0 million (9 months 2011: EUR 728.4 million). Pre tax profit came in at EUR 0.8 million, thereby substantially exceeding the year earlier figure (9 months 2011: EUR 36.5 million). For the KHS Group this turnaround also reflects the first tangible signs of success from the Fit4Future program launched in 2011. The other companies operating in the special machinery business also made pleasing contributions to the result.

External sales of the Other Consolidation segment, mainly generated by business in semi finished products with subsidiaries and external parties, fell by around 50 % due to the economic environment (EUR 27.5 million; 9 months 2011: EUR 65.6 million). The segment reported a pre-tax profit of EUR 34.8 million (9 months 2011: EUR 42.5 million). This figure includes the after-tax profit of EUR 44.6 million (9 months 2011: EUR 52.9 million) contributed by Aurubis AG, a participation included at equity.

Salzgitter intra group sales advanced to EUR 2,205.4 million in the reporting period (9 months 2011: EUR 1,973.6 million).

Over the course of the year to date, European steel activities were impacted by the tense economic situation in the countries of southern Europe that have been particularly hard hit by sovereign debt and structural problems. The activities of German steel processors and traders have also recently been increasingly affected by the more pessimistic business outlook. It is therefore quite unlikely that the steel market will have staged a major recovery by the end of the year, although imports into Europe and traders' inventories remain at a moderate level. Accordingly, the Steel Division is likely to be unable to improve on the results so far reported in the final quarter 2012 and to close the financial year with a high pre tax loss.

The Trading Division anticipates stable results in the fourth quarter of 2012. International trading above all expects business to remain satisfactory, which should compensate the current pressure on margins in the stockholding steel trade. As before, we forecast a profit for the division in the double digit million range.

In the Tubes Division, the most recent forecast for shipments, particularly in the precision tubes business serving the automotive industry, has deteriorated significantly as opposed to the other product segments where capacity is largely booked through to the end of the year. All in all, the forecast for a positive pre tax annual result should be achievable in the Tubes Division.

The sales and pre tax profit of the Services Division are expected to attain the year earlier level.

The companies of the Technology Division continue to benefit from good capacity utilization. The current deterioration in economic conditions is, however, beginning to affect the booking patterns of customers in the mechanical engineering sector. In comparison with the previous year period, the division is nonetheless expected to disclose a drastic improvement in the pre tax result to around breakeven in the financial year 2012.

With regard to the Salzgitter Group, we affirm our forecast for stable sales at minimum and now anticipate a pre tax result around breakeven.

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 2012. Additional positive or negative effects may arise from structural or methodological changes. This includes in particular measurement pursuant to IFRS standards and their application. The resulting fluctuation in the consolidated pre-tax result may be within a considerable range, either to the positive or to the negative.

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 unforeseen 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. The company undertakes no obligation to update any forward looking statements.

Source - Salzgitter Group

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